EXHIBIT 3.1
ARTICLES OF CORRECTION
FOR
RESTATED ARTICLES OF INCORPORATION
OF
EGGHEAD, INC.
The Restated Articles of Incorporation for Egghead, Inc. filed on April
21, 1988 are to be corrected as follows:
Two typographical errors appearing on page 4 are to be corrected as
follows: (i) the number "66-2/3" appearing on the second line of
paragraph (b) is hereby corrected to read "55" and (ii) in subsentence
(B) of paragraph (b) the phrase "create or increase" is hereby
corrected to read "create, designate or increase."
These corrections will not amend or change the original statements made
except to correct typographical errors appearing on page 4.
DATED: April 22, 1988.
/s/ Stephen J. Schweickert
--------------------------
Stephen J. Schweickert
RESTATED ARTICLES OF INCORPORATION
OF
EGGHEAD, INC.
These Restated Articles of Incorporation of Egghead, Inc. correctly set
forth without change the corresponding provisions of the Articles of
Incorporation, as amended, and these Restated Articles of Incorporation
supersede the original Articles of Incorporation and all amendments thereto.
ARTICLE I - NAME
The name of this corporation is EGGHEAD, INC.
ARTICLE II - DURATION
This corporation has perpetual existence.
ARTICLE III - PURPOSE
This corporation is organized for the purposes of transacting any and all
lawful business for which corporations may be incorporated under Title 23A of
the Revised Code of Washington, as amended.
ARTICLE IV - REGISTERED OFFICE
The address of the registered office of the corporation is 1900 Bank of
California Center, Seattle, Washington 98164 and the name of the registered
agent at such address is Bogle & Co.
ARTICLE V - AUTHORIZED SHARES
The corporation shall be authorized to issue Fifty Million (50,000,000)
shares of common stock, par value $0.01 per share.
The corporation shall be authorized to issue Sixteen Million Five Hundred
Sixty-Nine Thousand Eight Hundred Forty-Eight (16,569,848) shares of preferred
stock, par value $0.01. Three Million Four Hundred Thirteen Thousand Four
Hundred Sixty (3,413,460) shares of preferred stock shall be designated Series A
Preferred Stock; One Million Six Hundred Fifty-Six Thousand Three Hundred
Eighty-Eight (1,656,388) shares of preferred stock shall be designated Series B
Preferred Stock; and One Million Five Hundred Thousand (1,500,000) shares of
preferred stock shall be designated as Series C Preferred Stock. Holders of
Series A Preferred Stock, Series B Preferred Stock and Series C Stock shall have
the rights and preferences as follows:
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TERMS AND PROVISIONS
OF
SERIES A PREFERRED STOCK
Series A Preferred Stock, $.01 par value
1. DIVIDENDS
The holders of shares of Series A Preferred Stock shall be entitled to
receive regular cash dividends, if, when and as declared by the Board of
Directors, at the annual rate per share of 8% of the initial Series A Conversion
Price as set forth in subparagraph 4(c) hereof, exclusive of any adjustment
pursuant to subparagraph 4(f). Dividends shall be non-cumulative. The holders
of shares of Series A Preferred Stock shall be entitled to no dividends with
respect to such Series A Preferred Stock other than as aforesaid. Declared but
unpaid dividends shall be accrued but shall not bear interest. No dividend or
distribution in cash or other property (other than a stock dividend payable
solely in shares of Common Stock) on any class of Common Stock of the Company
shall be declared or paid or set apart for payment in any fiscal year unless a
dividend in the amount set forth above per share on the Series A Preferred Stock
shall have been paid in full in such fiscal year.
2. PREFERENCE ON LIQUIDATION, ETC.
In the event of any voluntary or involuntary liquidation, distribution of
assets (other than the payment of dividends), dissolution or winding-up of the
Company, before any payment or distribution of the assets of the Company
(whether capital or surplus) shall be made to or set apart for the holders of
shares of Common Stock, the holders of shares of Series A Preferred Stock shall
be entitled to receive payment of $4.16 per share held by them plus an amount
equal to any declared but unpaid dividends thereon to the date of final
distribution to such holders.
If, upon any liquidation, distribution of assets, dissolution or winding-up
of the Company, the assets of the Company, or proceeds thereof, distributable
among the holders of shares of Series A Preferred Stock shall be insufficient to
pay in full the respective preferential amounts on the shares of Series A
Preferred Stock, then such assets, or the proceeds thereof, shall be distributed
among such holders ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were paid in full. For
the purposes of this paragraph 2, the voluntary sale, lease or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the assets of the Company to, or a consolidation or merger
of the Company with, one or more Persons shall not be deemed to be a
liquidation, distribution of assets, dissolution or winding-up, voluntary or
involuntary; provided that any holder of shares of Series A Preferred Stock
shall have the
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right to treat any sale, lease or transfer of 50% or more of the assets of the
Company or any consolidation or merger as a liquidation under this paragraph 2
and be entitled to a preference to the extent set forth herein with respect to
the shares of Series A Preferred Stock held by such holder.
After the payment or setting apart of payment to the holders of the Series
A Preferred Stock of the preferential amounts so payable to them, the holders of
Common Stock as of October 9, 1985 shall be entitled to receive an aggregate
amount equal to $1,300,000 (to be distributed as such holders of Common Stock
may agree) plus any declared but unpaid dividends thereon to the date of final
distribution to such holders.
After the payment or setting apart of payment to holders of Series A
Preferred Stock and holders of Common Stock as of October 9, 1985 of the
preferential amounts so payable to them, the Series A Preferred Stock shall be
deemed to have been converted into Common Stock and the holders of each share of
Common Stock shall receive pro rata the remaining assets of the Company.
3. VOTING
A. GENERAL
In addition to the special voting rights provided below and by
applicable law, the holders of shares of Series A Preferred Stock shall be
entitled to vote upon all matters upon which holders of the Common Stock have
the right to vote, and each share of Series A Preferred Stock shall be entitled
to the number of votes equal to the largest number of full shares of Common
Stock into which such shares of Series A Preferred Stock could be converted
pursuant to the applicable provisions of paragraph 4 hereof, at the record date
for the determination of the stockholders entitled to vote on such matters, or,
if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of capital stock having general voting powers and not
separately as a class. In all cases where the holders of shares of Series A
Preferred Stock have the right to vote separately as a class, such holders shall
be entitled to one vote for each such share held by them respectively.
B. SPECIAL CLASS VOTE
Without the consent of the holders of at least 66 2/3% of the
aggregate number of shares of Series A Preferred Stock then outstanding, given
in writing or by vote at a meeting of stockholders called for such purpose, the
Company will not (A) increase the authorized amount of Series A Preferred Stock;
(B) create or increase the authorized amount of any other class of stock nor
reclassify the rights of any class of capital stock or issue any debt
convertible into any class of stock; (C) amend, alter or repeal the Certificate
of Incorporation or by-laws of the Company so as to adversely
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affect, either directly or indirectly, the preferences, rights or powers of the
Series A Preferred Stock; (D) merge or consolidate with or into any other
Person, or sell, lease or transfer 50% or more of its assets or business to
another Person; (E) purchase, lease or otherwise acquire all or substantially
all of the assets of any other Person in any transaction in which the fair
market value of such assets exceeds an amount equal to 10 percent of the
Company's total assets; (F) voluntarily dissolve, liquidate or wind up the
affairs of the Company or any Subsidiary or carry out any partial liquidation or
distribution of the assets of the Company or any such Subsidiary or any
transaction in the nature of a partial liquidation or distribution; (G)
authorize or adopt any stock option plan for the Company's directors or
employees other than the incentive Stock Option Plan in effect on October 9,
l985 (the "ISO Plan") or amend the ISO Plan; or (H) grant any additional
registration rights with respect to its capital stock.
4. CONVERSION RIGHTS
The Series A Preferred Stock shall be convertible into Common Stock as
follows:
a. OPTIONAL CONVERSION
Subject to and upon compliance with the provisions of this paragraph
4, the holder of any shares of Series A Preferred Stock shall have the right at
such holder's option, at any time or from time to time, to convert any of such
shares of Series A Preferred Stock into fully paid and nonassessable shares of
Common Stock at the Series A Conversion Price (as hereinafter defined) in effect
on the Series A Conversion Date (as hereinafter defined) upon the terms
hereinafter set forth.
b. AUTOMATIC CONVERSION
Each outstanding share of Series A Preferred Stock shall automatically
be converted, without any further act of the Company or its stockholders, into
fully paid and nonassessable shares of Common Stock pursuant to the formula as
set forth in subparagraph 4(c) upon the closing of an underwritten public
offering underwritten by an investment banking firm of nationally recognized
standing pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offering and sale of the Company's Common
Stock in which the aggregate gross offering proceeds equal or exceed $7,500,000,
the price per share of which equals or exceeds $7.50 (as appropriately adjusted
for any stock dividend, stock split, recapitalization or combination of shares)
and there are at least 350 record or beneficial holders of Common Stock of the
Company immediately subsequent to the closing of the sale of such shares.
c. SERIES A CONVERSION PRICE
Each share of Series A Preferred Stock shall be converted into the
number of shares of Common Stock as is determined by dividing (x) $4.16 by (y)
the Series A
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Conversion Price in effect on the Series A Conversion Date. The Series A
Conversion Price at which shares of Common Stock shall initially be issuable
upon conversion of the shares of Series A Preferred Stock shall be $4.16. The
Series A Conversion Price shall be subject to adjustment as set forth in
subparagraph 4(f). No payment or adjustment shall be made for any dividends on
the Common Stock issuable upon such conversion.
d. MECHANICS OF CONVERSION
Upon the occurrence of the events specified in subparagraph 4(b), the
outstanding shares of Series A Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided that the Company shall not be obligated to issue to any
such holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing the shares of Series A Preferred
Stock are delivered to the Company or any transfer agent of the Company. The
holder of any shares of Series A Preferred Stock may exercise the conversion
right specified in subparagraph 4(a) as to any part thereof by surrendering to
the Company or any transfer agent of the Company the certificate or certificates
for the shares to be converted, accompanied by written notice stating that the
holder elects to convert all or a specified portion of the shares represented
thereby. Conversion of the Series A Preferred Stock shall be deemed to have
been affected on the date on which the event specified with respect to such
Series A Preferred Stock in subparagraph 4(b) shall have occurred or on the date
when delivery of notice of an election to convert and certificates for shares is
made, as the case may be, and such date is referred to herein with respect to
the Series A Preferred Stock as the "Series A Conversion Date." Subject to the
provisions of subparagraph 4(f)(vii), as promptly as practicable thereafter (and
after surrender of the certificate or certificates representing shares of Series
A Preferred Stock to the Company or any transfer agent of the Company in the
case of conversions pursuant to subparagraph 4(b)) the Company shall issue and
deliver to such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash with
respect to any fractional interest in a share of Common Stock as provided in
subparagraph 4(e) and any dividends on the Series A Preferred Stock which such
holder is entitled to receive, but has not yet received. Subject to the
provisions of subparagraph 4(f)(vii), the Person in whose name the certificate
or certificates for Common Stock are to be issued shall be deemed to have become
a holder of record of such Common Stock on the applicable Series A Conversion
Date. Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Series A Preferred Stock surrendered for
conversion (in the case of conversion pursuant to subparagraph 4(a)), the
Company shall issue and deliver to the holder of the certificate so surrendered
for conversion, at the expense of the Company, a new certificate covering the
number of shares of Series A Preferred Stock representing the unconverted
portion of the certificate so surrendered.
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e. FRACTIONAL SHARES
No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series A Preferred Stock. If more than one share of
Series A Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series A Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series A Preferred Stock, the Company shall pay a cash adjustment in
respect of such fractional interest in an amount equal to that fractional
interest of the then Current Market Price.
f. CONVERSION PRICE ADJUSTMENTS FOR THE SERIES A PREFERRED STOCK
The Conversion Price for the Series A Preferred Stock shall be subject
to adjustment from time to time as follows:
(i) (A) Common Stock Issued at a Price Less than the Series A
Conversion Price and Equal to or Greater than 84% of the Series A Conversion
Price. If the Company shall issue Common Stock other than Excluded Stock for a
consideration per share less than the initial Series A Conversion Price as set
forth in subparagraph 4(c) above (as adjusted pursuant to subparagraphs
4(f)(iii) through 4(f)(v)) (for example, $4.16 on October 9, 1985) and equal to
or greater than 84% of the initial Series A Conversion Price as set forth in
subparagraph 4(c) above (as adjusted pursuant to subparagraphs 4(f)(iii) through
4(f)(v) (for example, $3.50 on October 9, 1985), the Series A Conversion Price
in effect immediately prior to each such issuance shall immediately (except as
provided below) be reduced to the price determined by dividing (1) an amount
equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
then issuable upon conversion of shares of Series A Preferred Stock, multiplied
by the Series A Conversion Price in effect immediately prior to such issuance
and (B) the consideration, if any, received by the Company upon such issuance,
by (2) the total number of shares of Common Stock outstanding immediately after
such issuance plus the number of shares of Common Stock then issuable upon
conversion of shares of Series A Preferred Stock.
(B) Common Stock Issued at a Price Less than 84% of the Series A
Conversion Price. If the Company shall issue any Common Stock other than
Excluded Stock without consideration or for a consideration less than 84% of the
initial Series A Conversion Price as set forth in subparagraph 4(c) above (as
adjusted pursuant to subparagraphs 4(f)(iii) through 4(f)(v)) (for example,
$3.50 on October 9, 1985), then the Series A Conversion Price in effect
immediately prior to such issuance shall be
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immediately reduced to a price per share equal to the consideration per share
received by the Company.
For the purposes of any adjustment of the Series A Conversion Price
pursuant to clause (i) the following provisions shall be applicable:
(A) Cash. In the case of the issuance of Common Stock for cash,
the amount of the consideration received by the Company shall be deemed to be
the amount of the cash proceeds received by the Company for such Common Stock
before deducting therefrom any reasonable discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) Consideration Other Than Cash. In the case of the issuance
of Common Stock (otherwise than upon the conversion of shares of capital stock
or other securities of the Company) for a consideration in whole or in part
other than cash, including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as determined by the Board of
Directors; irrespective of any accounting treatment; provided that such fair
value as determined by the Board of Directors shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued as of the date
the Board of Directors authorizes the issuance of such shares.
(C) Options and Convertible Securities. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire Common
Stock (whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exercisable) or (iii) options, warrants or rights to purchase
such convertible or exchangeable securities (whether or not at the time
exercisable) (other than the Series A Preferred Stock):
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights to purchase
or acquire Common Stock shall be deemed to have been issued at the time such
options, warrants or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subclauses (A) and (B)
above), if any, received by the Company upon the issuance of such options,
warrants or rights plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options, warrants or other
rights to purchase or acquire such convertible or exchangeable securities and
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the subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the consideration, if any,
received by the Company for any such securities and related options, warrants or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities and the exercise
of any related options, warrants or rights (the consideration in each case to be
determined in the manner provided in subclauses (A) and (B) above);
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights or conversion
of or exchange for such convertible or exchangeable securities or any change in
the consideration to be received by the Company upon such exercise, conversion
or exchange, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Series A Conversion Price as then in effect
shall forthwith be readjusted to such Series A Conversion Price as would have
been obtained had an adjustment been made upon the issuance of such options,
warrants or rights not exercised prior to such change, or securities not
converted or exchanged prior to such change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or exchange such
convertible or exchangeable securities, if the Series A Conversion Price shall
have been adjusted upon the issuance thereof, such Series A Conversion Price
shall forthwith be readjusted to such Series A Conversion Price as would have
been obtained had an adjustment been made upon the issuance of such options,
warrants, rights or securities on the basis of the issuance of only the number
of shares of Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such securities; and
(5) if the Series A Conversion Price shall have been
adjusted upon the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the Series A Conversion
Price shall be made for the actual issuance of Common Stock upon the exercise
thereof;
provided, however, that no increase in the Series A Conversion Price shall be
made pursuant to subclauses (1), (2) or (3) of this subclause (C).
(ii) Excluded Stock. "Excluded Stock" shall mean shares of Common
Stock issued or reserved for issuance by the Company (A) as a stock dividend
payable in shares of Common Stock, (B) upon any subdivision or split-up of the
outstanding shares of Common Stock, (C) upon conversion of shares of Series A
Preferred Stock or
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(D) pursuant to sales of Common Stock or stock options permitted under the
Company's Incentive Stock Option Plan.
(iii) Stock Dividends. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series A Preferred
Stock is increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend or the effective date of such subdivision or split-
up, as the case may be, the Series A Conversion Price shall be appropriately
reduced so that the holder of any shares of Series A Preferred Stock thereafter
converted shall be entitled to receive the number of shares of Common Stock of
the Company which he would have owned immediately following such action had such
shares of Series A Preferred Stock been converted immediately prior thereto.
(iv) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series A Preferred
Stock is decreased by a combination of the outstanding shares of Common Stock,
then, immediately after the effective date of such combination, the Series A
Conversion Price shall be appropriately increased so that the holder of any
shares of Series A Preferred Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock of the Company which he would have
owned immediately following such action had such shares of Series A Preferred
Stock been converted immediately prior thereto.
(v) Reorganizations, etc. In case of any capital reorganization of
the Company, or of any reclassification of the Common Stock, or in case of the
consolidation of the Company with or the merger of the Company with or into any
other Person or of the sale, lease or other transfer of all or substantially all
of the assets of the Company to any other Person, each share of Series A
Preferred Stock shall after such capital reorganization, reclassification,
consolidation, merger, sale, lease or other transfer be convertible into the
number of shares of stock or other securities or property to which the Common
Stock issuable (at the time of such capital reorganization, reclassification,
consolidation, merger, sale, lease or other transfer) upon conversion of such
share of Series A Preferred Stock would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or other
transfer; and in any such case, if necessary, the provisions set forth herein
with respect to the rights and interests thereafter of the holders of the shares
of Series A Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or property thereafter deliverable on the conversion of the shares of
Series A Preferred Stock. The subdivision or combination of shares of Common
Stock issuable upon conversion of shares of Series A Preferred Stock at any time
outstanding into a greater or lesser number of shares of Common Stock (whether
with or without par value) shall not be deemed to be a reclassification of the
Common Stock of the Company for the purposes of this clause (v).
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(vi) Rounding of Calculations; Minimum Adjustment. All calculations
under this subparagraph (f) shall be made to the nearest cent or to the nearest
one hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in the Series A
Conversion Price shall be made if the amount of such adjustment would be less
than 1% of the Series A Conversion Price then in effect, but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
1% or more of the Series A Conversion Price then in effect.
(vii) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this subparagraph (f) shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event (A)
issuing to the holder of any share of Series A Preferred Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of a fractional share of Common Stock pursuant
to subparagraph (e) of this paragraph 4; provided that the Company upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and such cash,
upon the occurrence of the event requiring such adjustment.
g. CURRENT MARKET PRICE
The Current Market Price at any date shall mean the price per share of
Common Stock on such date determined by the Board of Directors as provided
below. The Current Market Price shall be the average of the daily closing
prices per share of Common Stock for 30 consecutive business days ending no more
than 15 business days before the day in question (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such 30
business day period). The closing price for each day shall be the last reported
sales price regular way or, in case no such reported sales take place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the average of the highest bid and the
lowest asked prices quoted on the National Association of Securities Dealers
Automated Quotation System; provided that if the Common Stock is not traded in
such manner that the quotations referred to above are available for the period
required hereunder, Current Market Price per share of Common Stock shall be
deemed to be the higher of (i) book value or (ii) fair value as determined by an
investment banking firm of nationally recognized standing selected by the
unanimous vote of the Board of Directors, irrespective of any accounting
treatment.
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h. STATEMENT REGARDING ADJUSTMENTS
Whenever the Series A Conversion Price shall be adjusted as provided
in subparagraph 4(f), the Company shall forthwith file, at the office of any
transfer agent for the Series A Preferred Stock and at the principal office of
the Company, a statement showing in detail the facts requiring such adjustment
and the Series A Conversion Price that shall be in effect after such adjustment,
and the Company shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each holder of shares of Series A Preferred
Stock at its address appearing on the Company's records. Each such statement
shall be signed by the Company's independent public accountants. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of subparagraph 4(i).
i. NOTICE TO HOLDERS
In the event the Company shall propose to take any action of the type
described in clause (i) (but only if the action of the type described in clause
(i) would result in an adjustment in the Series A Conversion Price), (iii), (iv)
or (v) of subparagraph 4(f), the Company shall give notice to each holder of
shares of Series A Preferred Stock in the manner set forth in subparagraph 4(h),
which notice shall specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Series A Conversion Price
and the number, kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series A Preferred Stock. In the case
of any action which would require the fixing of a record date, such notice shall
be given at least 15 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 20 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action, or the rights of holders of
Series A Preferred Stock with respect to such action.
j. TREASURY STOCK
For the purposes of this paragraph 4, the sale or other disposition of
any Common Stock of the Company theretofore held in its treasury shall be deemed
to be an issuance thereof.
k. COSTS
The Company shall pay all documentary, stamp, transfer or other
transactional taxes attributable to the issuance or delivery of shares of Common
Stock of the Company upon conversion of any shares of Series A Preferred Stock
provided that the
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Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
shares in a name other than that of the holder of the share of Series A
Preferred Stock in respect of which such shares are being issued.
l. RESERVATION OF SHARES
The Company shall reserve at all times so long as any shares of Series
A Preferred Stock remain outstanding, free from preemptive rights, out of its
treasury stock or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of Series A
Preferred Stock, sufficient shares of Common Stock to provide for the conversion
of all outstanding shares of Series A Preferred Stock.
m. APPROVALS
If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series A Preferred Stock require registration with or
approval of any governmental authority under any Federal or state law before
such shares may be validly issued or delivered upon conversion, then the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If, and so long as, any Common
Stock into which the shares of Series A Preferred Stock are then convertible is
listed on any national securities exchange, the Company will, if permitted by
the rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such Common Stock issuable upon conversion.
n. VALID ISSUANCE
All shares of Common Stock which may be issued upon conversion of the
shares of Series A Preferred Stock will upon issuance by the Company be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof and the Company shall take no
action which will cause a contrary result (including without limitation, any
action which would cause the Series A Conversion Price to be less than the par
value, if any, of the Common Stock).
o. CERTAIN DIVIDENDS AND DISTRIBUTIONS
In the event the Company shall declare a cash dividend or other
distribution upon its Common Stock payable otherwise than out of retained
earnings or net profits or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other Persons, evidences of indebtedness issued by the Company or others,
other assets (other than cash) or any options, warrants or other rights to
purchase any of the foregoing, then each holder of the Series A
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Preferred Stock then outstanding shall, upon the exercise of his right to
convert after the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such dividend or distribution
(or if none is fixed, after the date such dividend or distribution is made),
receive (in addition to the shares of Common Stock deliverable upon such
conversion), the dividend or distribution (or, at the option of the Company,
cash in an amount equal to the fair value thereof at the time of such dividend
or distribution as determined by the Board of Directors) which would have been
paid or distributed to such holder if he had converted immediately prior to such
record date (or if none, the date of such dividend or distribution).
5. REDEMPTION
Except as the holders of Series A Preferred Stock are entitled to have
their shares redeemed pursuant to Paragraph 2 hereof, the Company shall not
redeem the Series A Preferred Stock, in whole or in part.
6. RETIREMENT OF SHARES
Shares of Series A Preferred Stock which have been issued and have been
redeemed, repurchased or reacquired in any manner by the Company shall be
retired and shall not be reissued.
7. GENERAL PROVISIONS
(a) The term "Person" as used herein means any corporation, partnership,
trust, organization, association, other entity or individual.
(b) The term "outstanding," when used with reference to shares of stock,
shall mean issued shares, excluding shares held by the Company or a subsidiary.
(c) All accounting terms used herein and not expressly defined herein shall
have the meanings given to them in accordance with generally accepted accounting
principles.
(d) The headings of the paragraphs, subparagraphs, clauses and subclauses
of this Article are for convenience of reference only and shall not define,
limit or affect any of the provisions hereof.
-14-
TERMS AND PROVISIONS
OF
SERIES B PREFERRED STOCK
SERIES B PREFERRED STOCK, $.01 PAR VALUE
1. DIVIDENDS
The holders of shares of Series B Preferred Stock shall be entitled to
receive regular cash dividends, if, when and as declared by the Board of
Directors, at the annual rate of $.3328 per share exclusive of any adjustment
pursuant to subparagraph 4(f). Dividends shall be non-cumulative. The holders
of shares of Series B Preferred Stock shall be entitled to no dividends with
respect to such Series B Preferred Stock other than as aforesaid. Declared but
unpaid dividends shall be accrued but shall not bear interest. No dividend or
distribution in cash or other property (other than a stock dividend payable
solely in shares of Common Stock) on any class of Common Stock of the Company
shall be declared or paid or set apart for payment in any fiscal year unless a
dividend in the amount set forth above per share on the Series B Preferred Stock
shall have been paid in full in such fiscal year.
2. PREFERENCE ON LIQUIDATION, ETC.
In the event of any voluntary involuntary liquidation, distribution of
assets (other than the payment of dividends), dissolution or winding-up of the
Company, before any payment or distribution of the assets of the Company
(whether capital or surplus) shall be made to or set apart for the holders of
shares of Common Stock or the holders of shares of Series A Preferred Stock, the
holders of shares of Series B Preferred Stock shall be entitled to receive
payment of $12.50 per share held by them plus an amount equal to any declared
but unpaid dividends thereon to the date of final distribution to such holders.
If, upon any liquidation, distribution of assets, dissolution or winding-up
of the Company, the assets of the Company, or proceeds thereof, distributable
among the holders of shares of Series B Preferred Stock shall be insufficient to
pay in full the respective preferential amounts on the shares of Series B
Preferred Stock, then such assets, or the proceeds thereof, shall be distributed
among such holders ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were paid in full. For
the purposes of this paragraph 2, the voluntary sale, lease or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the assets of the Company to, or a consolidation or merger
of the Company with, one or more Persons shall not be deemed to be a
liquidation, distribution of assets, dissolution or winding-up, voluntary or
involuntary; provided that any holder of shares of Series B Preferred Stock
shall have the
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right to treat any sale, lease or transfer of 50% or more of the assets of the
Company or any consolidation or merger as a liquidation under this paragraph 2
and be entitled to a preference to the extent set forth herein with respect to
the shares of Series B Preferred Stock held by such holder.
After the payment or setting apart of payment to holders of Series B
Preferred Stock, holders of Series A Preferred Stock and holders of Common Stock
as of October 9, 1985 of the respective preferential amounts so payable to them,
the Series B Preferred Stock and the Series A Preferred Stock shall be deemed to
have been converted into Common Stock and the holders of each share of Common
Stock shall receive pro rata the remaining assets of the Company.
3. VOTING
a. GENERAL
In addition to the special voting rights provided below and by
applicable law, the holders of shares of Series B Preferred Stock shall be
entitled to vote upon all matters upon which holders of the Common Stock have
the right to vote, and each share of Series B Preferred Stock shall be entitled
to the number of votes equal to the largest number of full shares of Common
Stock into which such shares of Series B Preferred Stock could be converted
pursuant to the applicable provisions of paragraph 4 hereof, at the record date
for the determination of the stockholders entitled to vote on such matters, or,
if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of capital stock having general voting powers and not
separately as a class. In all cases where the holders of shares of Series B
Preferred Stock have the right to vote separately as a class, such holders shall
be entitled to one vote for each such share held by them respectively.
b. SPECIAL CLASS VOTE
Without the consent of the holders of at least 55% of the aggregate
number of shares of Series B Preferred Stock then outstanding, given in writing
or by vote at a meeting of stockholders called for such purpose, the Company
will not (A) increase the authorized amount of Series B Preferred Stock; (B)
create, designate or increase the authorized amount of any other class of stock
nor reclassify the rights of any class of capital stock or issue any debt
convertible into any class of stock; (C) amend, alter or repeal the Certificate
of Incorporation or by-laws of the Company so as to adversely affect, either
directly or indirectly, the preferences, rights or powers of the Series B
Preferred Stock; (D) merge or consolidate with or into any other Person, or
sell, lease or transfer 50% or more of its assets or business to another Person;
(E) purchase, lease or otherwise acquire all or substantially all of the assets
of any other Person in any transaction in which the fair market value of such
assets exceeds an amount equal to
-16-
10 percent of the Company's total assets; (F) voluntarily dissolve, liquidate or
wind up the affairs of the Company or any Subsidiary or carry out any partial
liquidation or distribution of the assets of the Company or any such Subsidiary
or any transaction in the nature of a partial liquidation or distribution; (G)
authorize or adopt any stock option plan for the Company's directors or
employees other than the 1986 Combined Incentive and Non-Qualified Stock Option
Plan in effect on February 26, 1987, including its predecessor plan (the "ISO
Plan") or amend the ISO Plan; or (H) grant any additional registration rights
with respect to its capital stock.
4. CONVERSION RIGHTS
The Series B Preferred Stock shall be convertible into Common Stock as
follows:
a. OPTIONAL CONVERSION
Subject to and upon compliance with the provisions of this paragraph
4, the holder of any shares of Series B Preferred Stock shall have the right at
such holder's option, at any time or from time to time, to convert any of such
shares of Series B Preferred Stock into fully paid and nonassessable shares of
Common Stock at the Series B Conversion Price (as hereinafter defined) in effect
on the Series B Conversion Date (as hereinafter defined) upon the terms
hereinafter set forth.
b. AUTOMATIC CONVERSION
Each outstanding share of Series B Preferred Stock shall automatically
be converted, without any further act of the Company or its stockholders, into
fully paid and nonassessable shares of Common Stock pursuant to the formula as
set forth in subparagraph 4(c) upon the closing of an underwritten public
offering underwritten by an investment banking firm of nationally recognized
standing pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offering and sale of the Company's Common
Stock in which the aggregate gross offering proceeds equal or exceed
$10,000,000, the price per share of which equals or exceeds $14.00 (as
appropriately adjusted for any stock dividend, stock split, recapitalization or
combination of shares) and there are at least 350 record or beneficial holders
of Common Stock of the Company immediately subsequent to the closing of the sale
of such shares.
c. SERIES B CONVERSION PRICE
Each share of Series B Preferred Stock shall be converted into the
number of shares of Common Stock as is determined by dividing (x) $12.50 by (y)
the Series B Conversion Price in effect on the Series B Conversion Date. The
Series B Conversion Price at which shares of Common Stock shall initially be
issuable upon conversion of the shares of Series B Preferred Stock shall be
$12.50. The Series B Conversion Price shall
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be subject to adjustment as set forth in subparagraph 4(f). No payment or
adjustment shall be made for any dividends on the Common Stock issuable upon
such conversion.
d. MECHANICS OF CONVERSION
Upon the occurrence of the events specified in subparagraph 4(b), the
outstanding shares of Series B Preferred Stock shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Company or its
transfer agent; provided that the Company shall not be obligated to issue to any
such holder certificates evidencing the shares of Common Stock issuable upon
such conversion unless certificates evidencing the shares of Series B Preferred
Stock are delivered to the Company or any transfer agent of the Company. The
holder of any shares of Series B Preferred Stock may exercise the conversion
right specified in subparagraph 4(a) as to any part thereof by surrendering to
the Company or any transfer agent of the Company the certificate or certificates
for the shares to be converted, accompanied by written notice stating that the
holder elects to convert all or a specified portion of the shares represented
thereby. Conversion of the Series B Preferred Stock shall be deemed to have
been effected on the date on which the event specified with respect to such
Series B Preferred Stock in subparagraph 4(b) shall have occurred or on the date
when delivery of notice of an election to convert and certificates for shares is
made, as the case may be, and such date is referred to herein with respect to
the Series B Preferred Stock as the "Series B Conversion Date." Subject to the
provisions of subparagraph 4(f)(vii), as promptly as practicable thereafter (and
after surrender of the certificate or certificates representing shares of Series
B Preferred Stock to the Company or any transfer agent of the Company in the
case of conversions pursuant to subparagraph 4(b)) the Company shall issue and
deliver to such holder a certificate or certificates for the number of full
shares of Common Stock to which such holder is entitled and a check or cash with
respect to any fractional interest in a share of Common Stock as provided in
subparagraph 4(e) and any dividends on the Series B Preferred Stock which such
holder is entitled to receive, but has not yet received. Subject to the
provisions of subparagraph 4(f)(vii), the Person in whose name the certificate
or certificates for Common Stock are to be issued shall be deemed to have become
a holder of record of such Common Stock on the applicable Series B Conversion
Date. Upon conversion of only a portion of the number of shares covered by a
certificate representing shares of Series B Preferred Stock surrendered for
conversion (in the case of conversion pursuant to subparagraph 4(a)), the
Company shall issue and deliver to the holder of the certificate so surrendered
for conversion, at the expense of the Company, a new certificate covering the
number of shares of Series B Preferred Stock representing the unconverted
portion of the certificate so surrendered.
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e. FRACTIONAL SHARES.
No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series B Preferred Stock. If more than one share of
Series B Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series B Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series B Preferred Stock, the Company shall pay a cash adjustment in
respect of such fractional interest in an amount equal to that fractional
interest of the then Current Market Price.
f. CONVERSION PRICE ADJUSTMENTS FOR THE SERIES B PREFERRED STOCK.
The Conversion Price for the Series B Preferred Stock shall be subject
to adjustment from time to time as follows:
(i) (A) Common Stock Issued at a Price Less than the Series B
Conversion Price and Equal to or Greater than 84% of the Series B Conversion
Price. If the Company shall issue Common Stock other than Excluded Stock for a
consideration per share less than the initial Series B Conversion Price as set
forth in subparagraph 4(c) above (as adjusted pursuant to subparagraphs
4(f)(iii) through 4(f)(v)) (for example, $12.50 on February 26, 1987) and equal
to or greater than 84% or the initial Series B Conversion Price as set forth in
subparagraph 4(c) above (as adjusted pursuant to subparagraphs 4(f)(iii) through
4(f)(v)) (for example, $10.50 on February 26, 1987), the Series B Conversion
Price in effect immediately prior to each such issuance shall immediately
(except as provided below) be reduced to the price determined by dividing (1) an
amount equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to such issuance plus the number of shares of Common Stock
then issuable upon conversion of shares of Series B Preferred Stock, multiplied
by the Series B Conversion Price in effect immediately prior to such issuance
and (B) the consideration, if any, received by the Company upon such issuance,
by (2) the total number of shares of Common Stock outstanding immediately after
such issuance plus the number of shares of Common Stock then issuable upon
conversion of shares of Series B Preferred Stock.
(B) Common Stock Issued at a Price Less than 84% of the Series B
Conversion Price. If the Company shall issue any Common Stock other than
Excluded Stock without consideration or for a consideration less than 84% of the
initial Series B Conversion Price as set forth in subparagraph 4(c) above (as
adjusted pursuant to subparagraphs 4(f)(iii) through 4(f)(v)) (for example,
$10.50 on February 26, 1987), then the Series B Conversion Price in effect
immediately prior to such issuance shall be
-19-
immediately reduced to a price per share equal to the consideration per share
received by the Company.
For the purposes of any adjustment of the Series B Conversion Price
pursuant to clause (i) the following provisions shall be applicable:
(A) Cash. In the case of the issuance of Common Stock for cash
the amount of the consideration received by the Company shall be deemed to be
the amount of the cash proceeds received by the Company for such Common Stock
before deducting therefrom any reasonable discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) Consideration Other Than Cash. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital stock or
other securities of the Company) for a consideration in whole or in part other
than cash, including securities acquired in exchange therefor (other than
securities by their terms so exchangeable), the consideration other than cash
shall be deemed to be the fair value thereof as determined by the Board of
Directors, irrespective of any accounting treatment; provided that such fair
value as determined by the Board of Directors shall not exceed the aggregate
Current Market Price of the shares of Common Stock being issued as of the date
the Board of Directors authorizes the issuance of such shares.
(C) Options and Convertible Securities. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire Common
Stock (whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exercisable), or (iii) options, warrants or rights to purchase
such convertible or exchangeable securities (whether or not at the time
exercisable) (other than the Series B Preferred Stock):
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights to purchase
or acquire Common Stock shall be deemed to have been issued at the time such
options, warrants or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subclauses (A) and (B)
above) if any, received by the Company upon the issuance of such options,
warrants or rights plus the minimum purchase price provided in such options,
warrants or rights for the common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options, warrants or other
rights to purchase or acquire such convertible or exchangeable securities and
the subsequent
-20-
conversion or exchange thereof, shall be deemed to have been issued at the time
such securities were issued or such options, warrants or rights were issued and
for a consideration equal to the consideration, if any, received by the Company
for any such securities and related options, warrants or rights (excluding any
cash received on account of accrued interest or accrued dividends), plus the
minimum additional consideration, if any, to be received by the Company upon the
conversion or exchange of such securities and the exercise of any related
options warrants or rights (the consideration in each case to be determined in
the manner provided in subclauses (A) and (B) above);
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights or conversion
of or exchange for such convertible or exchangeable securities or any change in
the consideration to be received by the Company upon such exercise, conversion
or exchange, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Series B Conversion Price as then in effect
shall forthwith be readjusted to such Series B Conversion Price as would have
been obtained had an adjustment been made upon the issuance of such options,
warrants or rights not exercised prior to such change, or securities not
converted or exchanged prior to such change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or exchange such
convertible or exchangeable securities, if the Series B Conversion Price shall
have been adjusted upon the issuance thereof, such Series B Conversion Price
shall forthwith be readjusted to such Series B Conversion Price as would have
been obtained had an adjustment been made upon the issuance of such options,
warrants, rights or securities on the basis of the issuance of only the number
of shares of Common Stock actually issued upon the exercise of such options,
warrants or rights, or upon the conversion or exchange of such securities; and
(5) if the Series B Conversion Price shall have been
adjusted upon the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the Series B Conversion
Price shall be made for the actual issuance of Common Stock upon the exercise
thereof; provided, however, that no increase in the Series B Conversion Price
shall be made pursuant to subclauses (1), (2) or (3) of this subclause (C).
(ii) Excluded Stock. "Excluded Stock" shall mean shares of Common
Stock issued or reserved for issuance by the Company (A) as a stock dividend
payable in shares of Common Stock, (B) upon any subdivision or split-up of the
outstanding shares of Common Stock, (C) upon conversion of shares of Series A
Preferred Stock or shares of Series B Preferred Stock, or (D) pursuant to sales
of common stock or stock options permitted under the ISO Plan.
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(iii) Stock Dividends. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series B Preferred
Stock is increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend or the effective date of such subdivision or split-
up, as the case may be, the Series B Conversion Price shall be appropriately
reduced so that the holder of any shares of Series B Preferred Stock thereafter
converted shall be entitled to receive the number of shares of Common Stock of
the Company which he would have owned immediately following such action had such
shares of Series B Preferred Stock been converted immediately prior thereto.
(iv) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series B Preferred
Stock is decreased by a combination of the outstanding shares of Common Stock,
then, immediately after the effective date of such combination, the Series B
Conversion Price shall be appropriately increased so that the holder of any
shares of Series B Preferred Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock of the Company which he would have
owned immediately following such action had such shares of Series B Preferred
Stock been converted immediately prior thereto.
(v) Reorganizations, etc. In case of any capital reorganization of
the Company, or of any reclassification of the Common Stock, or in case of the
consolidation of the Company with or the merger of the Company with or into any
other Person or of the sale, lease or other transfer of all or substantially all
of the assets of the Company to any other Person, each share of Series B
Preferred Stock shall after such capital reorganization, reclassification,
consolidation, merger, sale, lease or other transfer be convertible into the
number of shares of stock or other securities or property to which the Common
Stock issuable (at the time of such capital reorganization, reclassification,
consolidation, merger, sale, lease or other transfer) upon conversion of such
share of Series B Preferred Stock would have been entitled upon such capital
reorganization, reclassification, consolidation, merger, sale, lease or other
transfer; and in any such case, if necessary, the provisions set forth herein
with respect to the rights and interests thereafter of the holders of the shares
of Series B Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or property thereafter deliverable on the conversion of the shares of
Series B Preferred Stock. The subdivision or combination of shares of Common
Stock issuable upon conversion of shares of Series B Preferred Stock at any time
outstanding into a greater or lesser number of shares of Common Stock (whether
with or without par value) shall not be deemed to be a reclassification of the
Common Stock of the Company for the purposes of this clause (v).
(vi) Rounding of Calculations: Minimum Adjustment. All calculations
under this subparagraph (f) shall be made to the nearest cent or to the nearest
one
-22-
hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in the Series B
Conversion Price shall be made if the amount of such adjustment would be less
than 1% of the Series B Conversion Price then in effect, but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
1% or more of the Series B Conversion Price then in effect.
(vii) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this paragraph (f) shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event (A)
issuing to the holder of any share of Series B Preferred Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of a fractional share of Common Stock pursuant
to subparagraph (e) of this paragraph 4; provided that the Company upon request
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional shares, and such cash,
upon the occurrence of the event requiring such adjustment.
g. CURRENT MARKET PRICE
The Current Market Price at any date shall mean the price per share of
Common Stock on such date determined by the Board of Directors as provided
below. The Current Market Price shall be the average of the daily closing
prices per share of Common Stock for 30 consecutive business days ending no more
than 15 business days before the day in question (as adjusted for any stock
dividend, split, combination or reclassification that took effect during such 30
business day period). The closing price for each day shall be the last reported
sales price regular way or, in case no such reported sales take place on such
day, the average of the last reported bid and asked prices regular way, in
either case on the principal national securities exchange on which the Common
Stock is listed or admitted to trading, or if not listed or admitted to trading
on any national securities exchange, the average of the highest bid and the
lowest asked prices quoted on the National Association of Securities Dealers
Automated Quotation System; provided that if the Common Stock is not traded in
such manner that the quotations referred to above are available for the period
required hereunder, Current Market Price per share of Common Stock shall be
deemed to be the higher of (i) book value or (ii) fair value as determined by an
investment banking firm of nationally recognized standing selected by the
unanimous vote of the Board of Directors, irrespective of any accounting
treatment.
-23-
h. STATEMENT REGARDING ADJUSTMENTS
Whenever the Series B Conversion Price shall be adjusted as provided
in subparagraph 4(f), the Company shall forthwith file, at the office of any
transfer agent for the Series B Preferred Stock and at the principal office of
the Company, a statement showing in detail the facts requiring such adjustment
and the Series B Conversion Price that shall be in effect after such adjustment,
and the Company shall also cause a copy of such statement to be sent by mail,
first class postage prepaid, to each holder of shares of Series B Preferred
Stock at its address appearing on the Company's records. Each such statement
shall be signed by the Company's independent public accountants. Where
appropriate, such copy may be given in advance and may be included as part of a
notice required to be mailed under the provisions of subparagraph 4(i).
i. NOTICE TO HOLDERS
In the event the Company shall propose to take any action of the type
described in clause (i) (but only if the action of the type described in clause
(i) would result in an adjustment in the Series B Conversion Price), (iii), (iv)
or (v) of subparagraph 4(f), the Company shall give notice to each holder of
shares of Series B Preferred Stock in the manner set forth in subparagraph 4(h),
which notice shall specify the record date, if any, with respect to any such
action and the approximate date on which such action is to take place. Such
notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Series B Conversion Price
and the number, kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series B Preferred Stock. In the case
of any action which would require the fixing of a record date, such notice shall
be given at least 15 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 20 days prior to the taking of such
proposed action. Failure to give such notice, or any defect therein, shall not
affect the legality or validity of any such action, or the rights of holders of
Series B Preferred Stock with respect to such action.
j. TREASURY STOCK
For the purposes of this paragraph 4, the sale or other disposition of
any Common Stock of the Company theretofore held in its treasury shall be deemed
to be an issuance thereof.
k. COSTS
The Company shall pay all documentary, stamp, transfer or other
transactional taxes attributable to the issuance or delivery of shares of Common
Stock of the Company upon conversion of any shares of Series B Preferred Stock
provided that the
-24-
Company shall not be required to pay any taxes which may be payable in respect
of any transfer involved in the issuance or delivery of any certificate for such
shares in a name other than that of the holder of the share of Series B
Preferred Stock in respect of which such shares are being issued.
l. RESERVATION OF SHARES
The Company shall reserve at all times so long as any shares of Series
B Preferred Stock remain outstanding, free from preemptive rights, out of its
treasury stock or its authorized but unissued shares of Common Stock, or both,
solely for the purpose of effecting the conversion of the shares of Series B
Preferred Stock, sufficient shares of Common Stock to provide for the conversion
of all outstanding shares of Series B Preferred Stock.
m. APPROVALS
If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series B Preferred Stock require registration with or
approval of any governmental authority under any Federal or state law before
such shares may be validly issued or delivered upon conversion, then the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If, and so long as, any Common
Stock into which the shares of Series B Preferred Stock are then convertible is
listed on any national securities exchange, the Company will, if permitted by
the rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such Common Stock issuable upon conversion.
n. VALID ISSUANCE
All shares of Common Stock which may be issued upon conversion of the
shares of Series B Preferred Stock will upon issuance by the Company be duly and
validly issued, fully paid and nonassessable and free from all taxes, liens and
charges with respect to the issuance thereof and the Company shall take no
action which will cause a contrary result (including without limitation, any
action which would cause the Series B Conversion Price to be less than the par
value, if any, of the Common Stock).
o. CERTAIN DIVIDENDS AND DISTRIBUTIONS
In the event the Company shall declare a cash dividend or other
distribution upon its Common Stock payable otherwise than out of retained
earnings or net profits or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other Persons, evidences of indebtedness issued by the Company or others,
other assets (other than cash) or any options, warrants or other rights to
purchase any of the foregoing, then each holder of the Series B
-25-
Preferred Stock then outstanding shall, upon the exercise of his right to
convert after the record date fixed for the determination of the holders of
Common Stock of the Company entitled to receive such dividend or distribution
(or if none is fixed, after the date such dividend or distribution is made),
receive (in addition to the shares of Common Stock deliverable upon such
conversion), the dividend or distribution (or, at the option of the Company,
cash in an amount equal to the fair value thereof at the time of such dividend
or distribution as determined by the Board of Directors) which would have been
paid or distributed to such holder if he had converted immediately prior to such
record date (or if none, the date of such dividend or distribution).
5. REDEMPTION
Except as the holders of Series B Preferred Stock are entitled to have
their shares redeemed pursuant to Paragraph 2 hereof, the Company shall not
redeem the Series B Preferred Stock, in whole or in part.
6. RETIREMENT OF SHARES
Shares of Series B Preferred Stock which have been issued and have been
redeemed, repurchased or reacquired in any manner by the Company shall be
retired and shall not be reissued.
7. GENERAL PROVISIONS
(a) The term "Person" as used herein means any corporation, partnership,
trust, organization, association, other entity or individual.
(b) The term "outstanding," when used with reference to shares of stock,
shall mean issued shares, excluding shares held by the Company or a subsidiary.
(c) All accounting terms used herein and not expressly defined herein shall
have the meanings given to them in accordance with generally accepted accounting
principles.
(d) The headings of the paragraphs, subparagraphs, clauses and subclauses
of this Article are for convenience of reference only and shall not define,
limit or affect any of the provisions hereof.
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TERMS AND PROVISIONS
OF
SERIES C PREFERRED STOCK
SERIES C PREFERRED STOCK, $.01 PAR VALUE
1. DIVIDENDS
The holders of shares of Series C Preferred Stock shall entitled to receive
regular cash dividends, if, when and as declared by the Board of Directors, at
the annual rate of $.3328 per share, exclusive of any adjustment pursuant to
subparagraph 4(f) hereof. Dividends shall be noncumulative. The holders of
shares of Series C Preferred Stock shall be entitled to no dividends with
respect to such Series C Preferred Stock other than as stated in this paragraph
1. Declared but unpaid dividends shall be accrued but shall not bear interest.
No dividend or distribution in cash or other property (other than a stock
dividend payable solely in shares of Common Stock) on any class of common stock
of the Company shall be declared or paid or set apart for payment in any fiscal
year unless a dividend in the amount per share set forth above on the Series C
Preferred Stock shall have been paid in full in such fiscal year.
2. PREFERENCE ON LIQUIDATION, ETC.
In the event of any voluntary or involuntary liquidation, distribution of
assets (other than the payment of dividends), dissolution or winding up of the
Company, before any payment or distribution of the assets of the Company
(whether capital or surplus) shall be made to or set apart for the holders of
shares of Common Stock or the holders of shares of Series A Preferred Stock or
Series B Preferred Stock, the holders of shares of Series C Preferred Stock
shall be entitled to receive payment of $20.00 per share held by them plus an
amount equal to any declared but unpaid dividends thereon to the date of final
distribution to such holders.
If, upon any liquidation, distribution of assets, dissolution or winding up
of the Company, the assets of the Company, or proceeds thereof, distributable
among the holders of shares of Series C Preferred Stock shall be insufficient to
pay in full the respective preferential amounts on the shares of Series C
Preferred Stock, then such assets, or the proceeds thereof, shall be distributed
among such holders ratably in accordance with the respective amounts which would
be payable on such shares if all amounts payable thereon were paid in full. For
the purposes of this paragraph 2, the voluntary sale, lease or transfer (for
cash, shares of stock, securities or other consideration) of all or
substantially all of the assets of the Company to, or a consolidation or merger
of the Company with, one or more Persons shall not be deemed to be a
liquidation, distribution of assets, dissolution or winding up, voluntary or
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involuntary provided, that any holder of shares of Series C Preferred Stock
shall have the right to treat (i) any sale, lease or transfer of 50% or more of
the outstanding capital stock or assets of the Company or (ii) any consolidation
or merger in which the stockholders of the Company receive distributions of
cash, property or securities of an entity other than the Company as a result of
such consolidation or merger (other than a merger or consolidation effected
solely for the purpose of changing the state of incorporation of the Company) as
a liquidation of the Company, under this paragraph 2 and, upon receipt of such
holder's Series C stock certificates for cancellation, be entitled to a
preference to the extent set forth above with respect to the shares of Series C
Preferred Stock held by such holder.
After the payment or setting apart of payment to holders of Series C
Preferred Stock, holders of Series A Preferred Stock and Series B Preferred
Stock and holders of Common Stock outstanding as of October 9, 1985, of the
respective preferential amounts so payable to them, the Series C Preferred
Stock, the Series B Preferred Stock and the Series A Preferred Stock shall be
deemed to have been converted into Common Stock and the holders of each share of
Common Stock shall receive pro rata the remaining assets of the Company.
3. VOTING
a. GENERAL
In addition to the special voting rights provided below and by
applicable law, the holders of shares of Series C Preferred Stock shall be
entitled to vote upon all matters upon which holders of the Common Stock have
the right to vote, and each share of Series C Preferred Stock shall be entitled
to the number of votes equal to the largest number of full shares of Common
Stock into which such shares of Series C Preferred Stock could be converted
pursuant to the applicable provisions of paragraph 4 hereof, at the record date
for the determination of the stockholders entitled to vote on such matters, or,
if no such record date is established, at the date such vote is taken or any
written consent of stockholders is solicited, such votes to be counted together
with all other shares of capital stock having general voting powers and not
separately as a class. In all cases where the holders of shares of Series C
Preferred Stock have the right to vote separately as a class, such holders shall
be entitled to one vote for each such share held by them.
b. SPECIAL CLASS VOTE
Without the consent of the holders of at least 55% of the aggregate
number of shares of Series C Preferred Stack then outstanding, given in writing
or by vote at a meeting of stockholders called for such purpose, the company
will not (A) increase the authorized amount of Series C Preferred Stock; (B)
create, designate or increase the authorized amount of any other class or series
of stock nor reclassify the rights of any
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class of capital stock or issue any debt convertible into any class of capital
stock; (C) amend, alter or repeal the Certificate of Incorporation or Bylaws of
the Company so as to adversely affect, either directly or indirectly, the
preferences, rights or powers of the Series C Preferred Stock; (D) merge or
consolidate with or into any other Person, or sell, lease or transfer 50% or
more of its assets or business to another Person; (E) purchase, lease or
otherwise acquire all or substantially all of the assets of any other Person in
any transaction in which the fair market value of such assets exceeds an amount
equal to ten percent of the Company's total assets; (F) voluntarily dissolve,
liquidate or wind up the affairs of the Company or any Subsidiary or carry out
any partial liquidation or distribution of the assets of the Company or any such
Subsidiary or any transaction in the nature of a partial liquidation or
distribution; (G) authorize or adopt any stock option plan for the Company's
directors or employees other than the 1986 Combined Incentive and Non-Qualified
Stock Option Plan in effect on December 22, 1987, including its predecessor plan
(the "1986 Plan") or the Directors' Nonqualified Stock Option Plan in effect on
December 22, 1987 (the "Directors' Plan") or amend the 1986 Plan or the
Directors' Plan (except for amendments made pursuant to the requests of state
securities, or "blue sky," authorities in connection with the qualification or
registration of such plans); or (H) grant any additional registration rights
with respect to its capital stock.
4. CONVERSION RIGHTS
The Series C Preferred Stock shall be convertible into Common Stock as
follows.
a. OPTIONAL CONVERSION
Subject to and upon compliance with the provisions of this paragraph
4, the holder of any shares of Series C Preferred Stock shall have the right at
such holder's option, at any time or from time to time, to convert any of such
shares of Series C Preferred Stock into fully paid and nonassessable shares of
Common Stock at the Series C Conversion Price (as hereinafter defined) in effect
on the Series C Conversion Date (as hereinafter defined) upon the terms
hereinafter set forth.
b. AUTOMATIC CONVERSION
Each outstanding share of Series C Preferred Stock shall automatically
be converted, without any further act of the Company or its stockholders, into
fully paid and nonassessable shares of Common Stock pursuant to the formula as
set forth in subparagraph 4(c) hereof upon the closing of a public offering
underwritten by an investment banking firm of nationally recognized standing
pursuant to an effective registration statement under the Securities Act of
1933, as amended, covering the offering and sale of the Common Stock in which
the aggregate gross offering proceeds equal or exceed $15,000,000, the price per
share of which equals or exceeds $23.00 (as appropriately adjusted for any stock
dividend, stock split, recapitalization or combination
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of shares) and there are at least 350 record or beneficial holders of Common
Stock immediately subsequent to the closing of the sale of such shares.
c. SERIES C CONVERSION PRICE
Each share of Series C Preferred Stock shall be converted into the number
of shares of Common Stock as is determined by dividing (x) $20.00 by (y) the
Series C Conversion Price in effect on the Series C Conversion Date. The Series
C Conversion Price at which shares of Common Stock shall initially be issuable
upon conversion of the shares of Series C Preferred Stock shall be $20.00. The
Series C Conversion Price shall be subject to adjustment as set forth in
subparagraph 4(f) hereof. No payment or adjustment shall be made for any
dividends on the Common Stock issuable upon such conversion.
d. MECHANICS OF CONVERSION
Upon the occurrence of the events specified in subparagraph 4(b)
hereof, the outstanding shares of Series C Preferred Stock shall be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; provided, that the Company shall not be obligated
to issue to any such holder certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing the shares of
Series C Preferred Stock are delivered to the Company or any transfer agent of
the Company. The holder of any shares of Series C Preferred Stock may exercise
the conversion right specified in subparagraph 4(a) hereof as to any part
thereof by surrendering to the Company or any transfer agent of the Company the
certificate or certificates for the shares to be converted, accompanied by
written notice stating that the holder elects to convert all or a specified
portion of the shares represented thereby. Conversion of the Series C Preferred
Stock shall be deemed to have been effected on the date on which the event
specified with respect to such Series C Preferred Stock in subparagraph 4(b)
hereof shall have occurred or on the date when delivery of notice of an election
to convert and certificates for shares is made, as the case may be, and such
date is referred to herein with respect to the Series C Preferred Stock as the
"Series C Conversion Date." Subject to the provisions of subparagraph 4(f)(vii)
hereof, as promptly as practicable thereafter (and after surrender of the
certificate or certificates representing shares of Series C Preferred Stock to
the Company or any transfer agent of the Company in the case of conversions
pursuant to subparagraph 4(b) hereof), the Company shall issue and deliver to
such holder a certificate or certificates for the number of full shares of
Common Stock to which such holder is entitled and a check or cash with respect
to any fractional interest in a share of Common Stock as provided in
subparagraph 4(e) hereof and any dividends on the Series C Preferred Stock which
such holder is entitled to receive, but has not yet received. Subject to the
provisions of subparagraph 4(f)(vii) hereof, the Person in whose name the
certificate or certificates for Common Stock are to
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be issued shall be deemed to have become a holder of record of such Common Stock
on the applicable Series C Conversion Date. Upon conversion of only a portion of
the number of shares covered by a certificate representing shares of Series C
Preferred Stock surrendered for conversion (in the case of conversion pursuant
to subparagraph 4(a) hereof), the Company shall issue and deliver to the holder
of the certificate so surrendered for conversion, at the expense of the Company,
a new certificate covering the number of shares of Series C Preferred Stock
representing the unconverted portion of the certificate so surrendered.
e. FRACTIONAL SHARES
No fractional shares of Common Stock or scrip shall be issued upon
conversion of shares of Series C Preferred Stock. If more than one share of
Series C Preferred Stock shall be surrendered for conversion at any one time by
the same holder, the number of full shares of Common Stock issuable upon
conversion thereof shall be computed on the basis of the aggregate number of
shares of Series C Preferred Stock so surrendered. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of any
shares of Series C Preferred Stock, the Company shall pay a cash adjustment in
respect of such fractional interest in an amount equal to that fractional
interest of the then Current Market Price, as defined in subparagraph 4(g)
hereof.
f. CONVERSION PRICE ADJUSTMENTS FOR THE SERIES C PREFERRED STOCK
The Conversion Price for the Series C Preferred Stock shall be subject
to adjustment from time to time as follows:
(i) (A) Common Stock Issued at a Price Less than the Series C
Conversion Price and Equal to or Greater than 84% of the Series C Conversion
Price. If the Company shall issue Common Stock other than Excluded Stock, as
defined in subparagraph 4(f)(ii) hereof, for a consideration per share less than
the initial Series C Conversion Price as set forth in subparagraph 4(c) hereof
(as adjusted pursuant to subparagraphs 4(f)(iii) through 4(f)(v) hereof) and
equal to or greater than 84% of the initial Series C Conversion Price as set
forth in subparagraph 4(c) above (as adjusted pursuant to subparagraphs
4(f)(iii) through 4(f)(v), the Series C Conversion Price in effect immediately
prior to each such issuance shall immediately (except as provided below) be
reduced to the price determined by dividing (1) an amount equal to the sum of
(A) the number of shares of Common Stock outstanding immediately prior to such
issuance plus the number of shares of Common Stock then issuable upon conversion
of shares of Series C Preferred Stock, multiplied by the Series C Conversion
Price in effect immediately prior to such issuance and (B) the consideration, if
any, received by the Company upon such issuance, by (2) the total number of
shares of Common Stock
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outstanding immediately after such issuance plus the number of shares of Common
Stock then issuable upon conversion of shares of Series C Preferred Stock.
(B) Common Stock Issued at a Price Less than 84% of the Series C
Conversion Price. If the Company shall issue any Common Stock other than
Excluded Stock, as defined in subparagraph 4(f)(ii) hereof, without
consideration or for a consideration less than 84% of the initial Series C
Conversion Price as set forth in subparagraph 4(c) hereof (as adjusted pursuant
to subparagraphs 4(f)(iii) through 4(f)(v) hereof) (for example, $16.80 on
December 22, 1987), then the Series C Conversion Price in effect immediately
prior to such issuance shall be immediately reduced to a price per share equal
to the consideration per share received by the Company.
For the purposes of any adjustment of the Series C Conversion Price
pursuant to clause (i) above, the following provisions shall be applicable:
(A) Cash. In the case of the issuance of Common Stock for cash,
the amount of the consideration received by the Company shall be deemed to be
the amount of the cash proceeds received by the Company for such Common Stock
before deducting therefrom any reasonable discounts, commissions, taxes or other
expenses allowed, paid or incurred by the Company for any underwriting or
otherwise in connection with the issuance and sale thereof.
(B) Consideration Other than Cash. In the case of the issuance of
Common Stock (otherwise than upon the conversion of shares of capital stock or
other securities of the Company pursuant to their original terms) for a
consideration in whole or in part other than cash, including securities acquired
in exchange therefor (other than securities by their terms so exchangeable), the
consideration other than cash shall be deemed to be the fair value thereof as
determined by the Board of Directors, irrespective of any accounting treatment;
provided, that such fair value as determined by the Board of Directors shall not
exceed the aggregate Current Market Price of the shares of Common Stock being
issued as of the date the Board of Directors authorizes the issuance of such
shares.
(C) Options and Convertible Securities. In the case of the
issuance of (i) options, warrants or other rights to purchase or acquire Common
Stock (whether or not at the time exercisable), (ii) securities by their terms
convertible into or exchangeable for Common Stock (whether or not at the time so
convertible or exercisable), or (iii) options, warrants or rights to purchase
such convertible or exchangeable securities (whether or not at the time
exercisable) (other than the Series C Preferred Stock):
(1) the aggregate maximum number of shares of Common Stock
deliverable upon exercise of such options, warrants or other rights to purchase
or acquire Common Stock shall be deemed to have been issued at the time such
options,
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warrants or rights were issued and for a consideration equal to the
consideration (determined in the manner provided in subclauses (A) and (B)
above), if any, received by the Company upon the issuance of such options,
warrants or rights plus the minimum purchase price provided in such options,
warrants or rights for the Common Stock covered thereby;
(2) the aggregate maximum number of shares of Common Stock
deliverable upon conversion of or in exchange for any such convertible or
exchangeable securities, or upon the exercise of options, warrants or other
rights to purchase or acquire such convertible or exchangeable securities and
the subsequent conversion or exchange thereof, shall be deemed to have been
issued at the time such securities were issued or such options, warrants or
rights were issued and for a consideration equal to the consideration, if any,
received by the Company for any such securities and related options, warrants or
rights (excluding any cash received on account of accrued interest or accrued
dividends), plus the minimum additional consideration, if any, to be received by
the Company upon the conversion or exchange of such securities and the exercise
of any related options, warrants or rights (the consideration in each case to be
determined in the manner provided in subclauses (A) and (B) above);
(3) on any change in the number of shares of Common Stock
deliverable upon exercise of any such options, warrants or rights or conversion
of or exchange for such convertible or exchangeable securities or any change in
the consideration to be received by the Company upon such exercise, conversion
or exchange, including, but not limited to, a change resulting from the
antidilution provisions thereof, the Series C Conversion Price as then in effect
shall automatically be readjusted to such Series C Conversion Price as would
have been obtained had an adjustment been made upon the issuance of such
options, warrants or rights not exercised prior to such change, or securities
not converted or exchanged prior to such change, upon the basis of such change;
(4) on the expiration or cancellation of any such options,
warrants or rights, or the termination of the right to convert or exchange such
convertible or exchangeable securities, if the Series C Conversion Price shall
have been adjusted upon the issuance thereof, such Series C Conversion Price
shall automatically be readjusted to such Series C Conversion Price as would
have been obtained had an adjustment been made upon the issuance of such
options, warrants, rights or securities on the basis of the issuance of only the
number of shares of Common Stock actually issued upon the exercise of such
options, warrants or rights, or upon the conversion or exchange of such
securities; and
(5) if the Series C Conversion Price shall have been
adjusted upon the issuance of any such options, warrants, rights or convertible
or exchangeable securities, no further adjustment of the Series C Conversion
Price shall be made for the actual issuance of
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Common Stock upon the exercise thereof; provided, that no increase in the Series
C Conversion Price shall be made pursuant to subclauses (1), (2) or (3) of this
subclause (C).
(ii) Excluded Stock. "Excluded Stock" shall mean shares of Common
Stock issued or reserved for issuance by the Company (A) as a stock dividend
payable in shares of Common Stock, (B) upon any subdivision or split-up of the
outstanding shares of Common Stock, (C) upon conversion of shares of Series A
Preferred Stock or shares of Series B Preferred Stock, or (D) pursuant to sales
of Common Stock or stock options permitted under the 1985 Incentive Stock Option
Plan, the 1986 Combined Incentive and Nonqualified Stock Option Plan, as
amended, or the Egghead, Inc. Nonqualified Directors' Plan, each substantially
as in effect an December 22, 1987.
(iii) Stock Dividends. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series C Preferred
Stock is increased by a stock dividend payable in shares of Common Stock or by a
subdivision or split-up of shares of Common Stock, then immediately after the
record date fixed for the determination of holders of Common Stock entitled to
receive such stock dividend or the effective date of such subdivision or split-
up, as the case may be, the Series C Conversion Price shall be automatically
reduced so that the holder of any shares of Series C Preferred Stock thereafter
converted shall be entitled to receive the number of shares of Common Stock of
the Company which he would have owned immediately following such action had such
shares of Series C Preferred Stock been converted immediately prior thereto.
(iv) Combination of Stock. If the number of shares of Common Stock
outstanding at any time after the date of issuance of the Series C Preferred
Stock is decreased by a combination of the outstanding shares of Common Stock,
then, immediately after the effective date of such combination, the Series C
Conversion Price shall be automatically increased so that the holder of any
shares of Series C Preferred Stock thereafter converted shall be entitled to
receive the number of shares of Common Stock of the Company which he would have
owned immediately following such action had such shares of Series C Preferred
Stock been converted immediately prior thereto.
(v) Reorganizations, etc. In case of any capital reorganization of
the Company, or of any reclassification of the Common Stock, or in case of the
consolidation of the Company with or the merger of the Company with or into any
other Person or of the sale, lease or other transfer of all or substantially all
of the assets of the Company to any other Person, each share of Series C
Preferred Stock shall after such capital reorganization, reclassification,
consolidation, merger, sale, lease or other transfer be convertible into the
number of shares of stock or other securities or property to which the Common
Stock issuable (at the time of such capital reorganization, reclassification,
consolidation, merger, sale, lease or other transfer) upon conversion of such
share of Series C Preferred Stock would have been entitled upon such capital
reorganization,
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reclassification, consolidation, merger, sale, lease or other transfer; and in
any such case, if necessary, the provisions set forth herein with respect to the
rights and interests thereafter of the holders of the shares of Series C
Preferred Stock shall be automatically adjusted so as to be applicable, as
nearly as may reasonably be possible, to any shares of stock or other securities
or property thereafter deliverable on the conversion of the shares of Series C
Preferred Stock. The subdivision or combination of shares of Common Stock
issuable upon conversion of shares of Series C Preferred Stock at any time
outstanding into a greater or lesser number of shares of Common Stock (whether
with or without par value) shall not be deemed to be a reclassification of the
Common Stock of the Company for the purposes of this clause (v).
(vi) Rounding of Calculations; Minimum Adjustment. All calculations
under this subparagraph (f) shall be made to the nearest cent or to the nearest
one hundredth (1/100th) of a share, as the case may be. Any provision of this
paragraph 4 to the contrary notwithstanding, no adjustment in the Series C
Conversion Price shall be made if the amount of such adjustment would be less
than 1% of the Series C Conversion Price then in effect, but any such amount
shall be carried forward and an adjustment with respect thereto shall be made at
the time of and together with any subsequent adjustment which, together with
such amount and any other amount or amounts so carried forward, shall aggregate
1% or more of the Series C Conversion Price then in effect.
(vii) Timing of Issuance of Additional Common Stock Upon Certain
Adjustments. In any case in which the provisions of this subparagraph (f) shall
require that an adjustment shall become effective immediately after a record
date for an event, the Company may defer until the occurrence of such event (A)
issuing to the holder of any share of Series C Preferred Stock converted after
such record date and before the occurrence of such event the additional shares
of Common Stock issuable upon such conversion by reason of the adjustment
required by such event over and above the shares of Common Stock issuable upon
such conversion before giving effect to such adjustment and (B) paying to such
holder any amount of cash in lieu of a fractional share of Common Stock pursuant
to subparagraph (e) of this paragraph 4; provided, that the Company upon request
shall deliver to such holder an appropriate instrument evidencing such holder's
right to receive such additional shares, and such cash, upon the occurrence of
the event requiring such adjustment.
g. CURRENT MARKET PRICE
The Current Market Price at any date shall mean the price per share of
Common Stock on such date determined by the Board of Directors as provided in
this subparagraph (g). The Current Market Price shall be the average of the
daily closing sale prices per share of Common Stock for 30 consecutive business
days ending no more than 15 business days before the day in question (as
adjusted for any stock dividend, split, combination or reclassification that
took effect during such 30 business day period). The
-35-
closing sale price for each day shall be the last reported sales price or, in
case no such reported sales take place on such day, the average of the last
reported bid and asked prices, in either case on the principal, national
securities exchange on which the Common Stock is listed or admitted to trading,
or if not listed or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automated Quotation System;
provided, that if the Common Stock is not traded in such manner that the
quotations referred to above are available for the period required hereunder,
Current Market Price per share of Common Stock shall be deemed to be the higher
of (i) book value or (ii) fair value as determined by an investment banking firm
of nationally recognized standing selected by the Board of Directors.
h. STATEMENT REGARDING ADJUSTMENTS
Whenever the Series C Conversion Price shall be adjusted as provided
in subparagraph 4(f) hereof, the Company shall as soon as practicable file, at
the office of any transfer agent for the Series C Preferred Stock and at the
principal office of the Company, a statement showing in detail the facts
requiring such adjustment and the Series C Conversion Price that shall be in
effect after such adjustment, and the Company shall also cause a copy of such
statement to be sent by mail, first class postage prepaid, to each holder of
shares of Series C Preferred Stock at its address appearing on the Company's
records. Each such statement shall be signed by the Company's independent
public accountants. Where appropriate, such copy may be given in advance and
may be included as part of a notice required to be mailed under the provisions
of subparagraph 4(i) hereof.
i. NOTICE TO HOLDERS
In the event the Company shall propose to take any action of the type
described in clause (i) (but only if the action of the type described in clause
(i) would result in an adjustment in the Series C Conversion Price), (iii), (iv)
or (v) of subparagraph 4(f) hereof, the Company shall give notice to each holder
of shares of Series C Preferred Stock in the manner set forth in subparagraph
4(h) hereof, which notice shall specify the record date, if any, with respect to
any such action and the approximate date on which such action is to take place.
Such notice shall also set forth such facts with respect thereto as shall be
reasonably necessary to indicate the effect of such action (to the extent such
effect may be known at the date of such notice) on the Series C Conversion Price
and the number, kind or class of shares or other securities or property which
shall be deliverable or purchasable upon the occurrence of such action or
deliverable upon conversion of shares of Series C Preferred Stock. In the case
of any action which would require the fixing of a record date, such notice shall
be given at least 15 days prior to the date so fixed, and in case of all other
action, such notice shall be given at least 20 days prior to the taking of such
proposed action. Failure to give such
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notice, or any defect therein, shall not affect the legality or validity of any
such action, or the rights of holders of Series C Preferred Stock with respect
to such action.
j. TREASURY STOCK
For the purposes of this paragraph 4, the sale or other disposition of
any Common Stock of the Company theretofore held in its treasury shall be deemed
to be an issuance thereof.
k. COSTS
The Company shall pay all documentary, stamp, transfer or other
transactional taxes attributable to the issuance or delivery of shares of Common
Stock of the Company upon conversion of any shares of Series C Preferred Stock
provided, that the Company shall not be required to pay any taxes which may be
payable in respect of any transfer involved in the issuance or delivery of any
certificate for such shares in a name other than that of the holder of the
shares of Series C Preferred Stock in respect of which such shares are being
issued.
l. RESERVATION OF SHARES
The Company shall reserve at all times, so long as any shares of
Series C Preferred Stock remain outstanding, free from preemptive rights, out of
its treasury stock or its authorized but unissued shares of Common Stock, or
both, solely for the purpose of effecting the conversion of the shares of Series
C Preferred Stock, sufficient shares of Common Stock to provide for the
conversion of all outstanding shares of Series C Preferred Stock.
m. APPROVALS
If any shares of Common Stock to be reserved for the purpose of
conversion of shares of Series C Preferred Stock require registration with or
approval of any governmental authority under any Federal or state law before
such shares may be validly issued or delivered upon conversion, then the Company
will in good faith and as expeditiously as possible endeavor to secure such
registration or approval, as the case may be. If, and so long as, any Common
Stock into which the shares of Series C Preferred Stock are then convertible is
listed on any national securities exchange, the Company will, if permitted by
the rules of such exchange, list and keep listed on such exchange, upon official
notice of issuance, all shares of such Common Stock issuable upon conversion.
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n. VALID ISSUANCE
All shares of Common Stock which may be issued upon conversion of the
shares of Series C Preferred Stock will, upon issuance by the Company, be duly
and. validly issued, fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issuance thereof and the Company shall
take no action which will cause a contrary result (including without limitation,
any action which would cause the Series C Conversion Price to be less than the
par value, if any, of the Common Stock).
o. CERTAIN DIVIDENDS AND DISTRIBUTIONS
In the event the Company shall declare a cash dividend or other
distribution upon its Common Stock payable otherwise than out of retained
earnings or net profits or shall distribute to holders of its Common Stock
shares of its capital stock (other than Common Stock), stock or other securities
of other Persons, evidences of indebtedness issued by the Company or others,
other assets (other than cash) or any options, warrants or other rights to
purchase any of the foregoing, then each holder of the Series C Preferred Stock
then outstanding shall, upon the exercise of his right to convert after the
record date fixed for the determination of the holders of Common Stock of the
Company entitled to receive such dividend or distribution (or if none is fixed,
after the date such dividend or distribution is made), receive (in addition to
the shares of Common Stock deliverable upon such conversion), the dividend or
distribution (or, at the option of the Company, cash in an amount equal to the
fair value thereof at the time of such dividend or distribution as determined by
the Board of Directors) which would have been paid or distributed to such holder
if he had converted immediately prior to such record date (or if none, the date
of such dividend or distribution).
5. REDEMPTION
Except as the holders of Series C Preferred Stock are entitled to have
their shares redeemed pursuant to paragraph 2 hereof, the Company shall not
redeem the Series C Preferred Stock, in whole or in part.
6. RETIREMENT OF SHARES
Shares of Series C Preferred Stock which have been issued and have been
redeemed, repurchased or reacquired in any manner by the Company shall be
retired and shall not be reissued.
7. GENERAL PROVISIONS
(a) All capitalized terms used herein and not otherwise defined herein
shall have the meanings assigned thereto in the Convertible Subordinated Note
and
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Preferred Stock Purchase Agreement among the Company and certain Purchasers,
dated as of December 22, 1987.
(b) The term "outstanding," when used with reference to shares of
stock, shall mean issued shares, excluding shares held by the Company or a
subsidiary.
(c) All accounting terms used herein and not expressly defined herein
shall have the meanings given to them in accordance with generally accepted
accounting principles.
(d) The headings of the paragraphs, subparagraphs, clauses and
subclauses hereof are for convenience of reference only and shall not define,
limit or affect any of the provisions hereof.
Within the limitations established by law, the Board of Directors is
authorized to issue additional shares of preferred stock in one or more
additional series and to fix the terms and provisions of each such series,
including the dividend rights and preferences over dividends on the common
stock, dividend rates, rights and terms of redemption (including sinking fund
provisions), redemption price or prices, liquidation preferences (including
preferences over common stock), conversion rights and voting rights, and the
number of shares constituting any such series and the designation thereof, or
any of the foregoing. The transfer of any share of this corporation shall be
subject to restrictions, if any, contained in the corporation's bylaws or in
agreements among the shareholders.
ARTICLE VI - SHAREHOLDERS' RIGHTS
Shareholders of this corporation have no preemptive rights to acquire
additional shares issued by the corporation, except as may be provided to
preferred shareholders.
ARTICLE VII - DIRECTORS
The first directors of the corporation are eleven (11) in number and their
names and addresses are:
Name Address
- ---- -------
Victor D. Alhadeff Egghead Discount Software
22027 - 17th Avenue S.E.
Bothell, WA 98021
Paul G. Allen Asymetrix
110 - 110th Avenue N.E.
Bellevue, WA 98004
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Name Address
- ---- -------
Bert R. Cohen Capital Insight
190 N. Canon Drive
Beverly Hills, CA 90210
Ronald P. Erickson Kargianis, Austin & Erickson
47th Floor
Prudential Venture Capital
717 5th Avenue, Suite 1600
William S. Field Columbia Center
Seattle, WA 98104
New York, NY 10022
Steven E. Lebow Donaldson, Lufkin & Jenrette
Securities Corporation
2121 Avenue of the Stars
Suite 3000
Los Angeles, CA 90067
George P. Orban Office Mart Holdings Corp.
501 First Avenue N., Suite 1000
St. Petersburg, FL 33701
Herman Sarkowsky 3330 Rainier Bank Tower
Seattle, WA 98101
Stuart M. Sloan Sloan Capital Companies
120 Lakeside Avenue, Suite 300
Seattle, WA 98122
Samuel N. Stroum Stroum Enterprises
1001 4th Avenue, Suite 3714
Seattle, WA 98154
Ronald A. Weinstein Sloan Capital Companies
120 Lakeside Avenue, Suite 300
Seattle, WA 98122
Directors Alhadeff, Allen, Erickson and Orban shall serve until the first
annual meeting of shareholders; Directors Field, Stroum and Weinstein shall
serve until the second annual meeting of shareholders; and Directors Cohen,
Lebow, Sarkowsky and
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Sloan shall serve until the third annual meeting of shareholders; and each
director shall serve until his successor is elected and qualified.
ARTICLE VIII - INCORPORATOR
The name and address of the incorporator are:
Name Address
- ---- -------
Michael J. Erickson Bogle & Gates
The Bank of California Center
Seattle, Washington 98164
ARTICLE IX - VOTING RIGHTS
At each election for directors, every shareholder entitled to vote at such
election has the right to vote in person or by proxy the number of shares of
stock held by him for as many persons as there are directors to be elected. No
cumulative voting for directors shall be permitted.
ARTICLE X - LIMITATION ON LIABILITY OF DIRECTORS
No director of the corporation shall be personally liable to the
corporation or its shareholders for monetary damages for his or her conduct as a
director, except for (i) acts or omissions that involve intentional misconduct
or a knowing violation of law by the director, (ii) approval of distributions or
loans in violation of RCW 23A.08.400, or (iii) any transaction from which the
director will personally receive a benefit in money, property or services to
which the director is not legally entitled. If the Washington Business
Corporation Act is hereafter amended to authorize corporate action further
eliminating or limiting the personal liability of directors, then the liability
of a director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Washington Business Corporation Act, as so amended. Any
amendment to or repeal of this Article shall not adversely affect any right or
protection of a director of the corporation for or with respect to any acts or
omissions of such director occurring prior to such amendment or repeal.
ARTICLE XI - AMENDMENT OF ARTICLES
The corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation, in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
shareholders and directors are subject to this reserved power.
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Adopted by resolution of the corporation's Board of Directors on April 18,
1988.
/s/ Stephen J. Schweickert
--------------------------
Stephen J. Schweickert
Secretary
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