EXHIBIT 3.7 -- CERTIFICATE OF DETERMINATION OF CONVERTIBLE SERIES B PREFERRED
STOCK OF INCOMNET, INC., DATED JULY 29, 1997
The undersigned, Melvyn Reznick and Stephen Caswell, hereby certify
that:
I. They are the duly elected and acting President and Secretary,
respectively, of Incomnet, Inc., a California corporation (the "Company").
II. The Articles of Incorporation of the Company authorizes 100,000
shares of preferred stock, no par value per share. The number of shares of
Convertible Series A Preferred Stock authorized is 4,000, of which 2,075 are
issued and outstanding. The number of shares of Convertible Series B
Preferred Stock authorized herein is 2,900, none of which have been issued.
III. The following is a true and correct copy of resolutions duly
adopted by the Board of Directors at a meeting duly held on Thursday, July
13, 1997, which constituted all requisite action on the part of the Company
for adoption of such resolutions.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board of
Directors") is authorized to provide for the issuance of the shares of
Preferred Stock in series, and by filing a certificate pursuant to the
applicable law of the State of California, to establish from time to time the
number of shares to be included in each such series, and to fix the
designations, powers, preferences and rights of the shares of each such
series and the qualifications, limitations or restrictions thereof.
WHEREAS, the Board of Directors desires, pursuant to its authority
as aforesaid, to designate a new series of preferred stock, set the number of
shares constituting such series and fix the rights, preferences, privileges
and restrictions of such series.
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
designates a new series of preferred stock and the number of shares
constituting such series, and fixes the rights, preferences, privileges and
restrictions relating to such series as follows:
Section 1. DESIGNATION, AMOUNT AND PAR VALUE.
The series of Preferred Stock shall be designated as the Convertible
Series B Preferred Stock (the "Preferred Stock"), and the number of shares so
designated shall be 2,900. The par value of each share of Preferred Stock
shall be no par value. Each share of Preferred Stock shall have a stated
value of $1,000.00 per share (the "Stated Value").
Section 2. DIVIDENDS.
(a) Holders of Preferred Stock shall be entitled to receive, when
and as declared by the Board of Directors out of funds legally available
therefor, and the Company shall pay, cumulative dividends at the rate per
share (as a percentage of the Stated Value per share) equal to 6% per annum,
payable in cash or shares of Common Stock, in arrears on the Conversion Date
(as hereinafter defined). Dividends on the Preferred Stock shall accrue
daily commencing on
the Original Issue Date (as defined in Section 6) and shall be deemed to
accrue on such date whether or not earned or declared and whether or not
there are profits, surplus or other funds of the Company legally available
for the payment of dividends. The party that holds the Preferred Stock on an
applicable record date for any dividend payment will be entitled to receive
such dividend payment and any other accrued and unpaid dividends which
accrued prior to such dividend payment date, without regard to any sale or
disposition of such Preferred Stock subsequent to the applicable record date
but prior to the applicable dividend payment date. Except as otherwise
provided herein, if at any time the Company pays less than the total amount
of dividends then accrued to any class of Preferred Stock, such payment shall
be distributed ratably among the holders of such class based upon the number
of shares held by each holder. No dividends may be declared or paid on the
Convertible Series B Preferred Stock until all cumulative unpaid dividends
have been declared and paid on the outstanding Convertible Series A Preferred
Stock.
(b) So long as any Preferred Stock shall remain outstanding,
neither the Company nor any subsidiary thereof shall redeem, purchase or
otherwise acquire directly or indirectly any Junior Securities (as defined in
Section 6), except the redemption of shares in payment of short swing profits
payable to the Company pursuant to Section 16(b) of the Securities Exchange
Act of 1934, as amended, nor shall the Company directly or indirectly pay or
declare any cash dividend or make any cash distribution (other than a
dividend or distribution described in Section 4) upon, nor shall any cash
distribution be made in respect of, any Junior Securities, nor shall any
monies be set aside for or applied to the purchase or redemption (through a
sinking fund or otherwise) of any Junior Securities, except as described
above, unless all dividends on the Preferred Stock for all past dividend
periods shall have been paid.
Section 3. VOTING RIGHTS.
Except as otherwise provided herein and as otherwise provided by law, the
Preferred Stock shall have no voting rights. However, so long as any shares
of Preferred Stock are outstanding, the Company shall not, without the
affirmative vote of the holders of a majority of the shares of the Preferred
Stock then outstanding, (i) alter or change adversely the powers, preferences
or rights given to the Preferred Stock or (ii) authorize or create any class
of stock ranking as to dividends or distribution of assets upon a Liquidation
(as defined below) senior to, prior to or PARI PASSU with the Preferred Stock.
Section 4. LIQUIDATION.
Upon any liquidation, dissolution or winding-up of the Company, whether
voluntary or involuntary (a "Liquidation"), the holders of shares of
Preferred Stock shall be entitled to receive out of the assets of the
Company, whether such assets are capital or surplus, for each share of
Preferred Stock an amount equal to the Stated Value, plus an amount equal to
accrued but unpaid dividends per share, whether declared or not, but without
interest, before any distribution or payment shall be made to the holders of
any Junior Securities, and if the assets of the Company shall be insufficient
to pay in full such amounts, then the entire assets to be distributed shall
be distributed among the holders of Preferred Stock ratably in accordance
with the respective amounts that would be payable on such shares if all
amounts payable thereon were paid in full. A sale, conveyance or disposition
of all or substantially all of the assets of the Company or the effectuation
by the Company of a transaction or series of related transactions in which
more than
50% of the voting power of the Company is disposed of shall be deemed a
Liquidation; PROVIDED that, a consolidation or merger of the Company with or
into any other company or companies shall not be treated as a Liquidation,
but instead shall be subject to the provisions of Section 5. The Company
shall mail written notice of any such Liquidation, not less than 60 days
prior to the payment date stated therein, to each record holder of Preferred
Stock. No liquidation preference may be paid to the holders of the
Convertible Series B Preferred Stock until the full liquidation preference
has been paid to the holders of the outstanding Convertible Series A
Preferred Stock.
Section 5. CONVERSION.
(a) Each share of Preferred Stock shall be convertible into shares
of Common Stock, at the Conversion Ratio as defined in Section 6 hereof, at
the option of the holder in whole or in part at any time after the expiration
of the earlier to occur of (i) 120 days after the Original Issue Date or (ii)
60 days after the date that the Securities and Exchange Commission (the
"Commission") declares effective under the Securities Act of 1933, as amended
(the "Securities Act"), a registration statement (the "Registration
Statement") covering the shares of Common Stock into which the Preferred
Stock is convertible in accordance with the terms hereof. The holder shall
effect conversions by surrendering the certificate or certificates
representing the shares of Preferred Stock to be converted to the Company,
together with a conversion notice (the "Holder Conversion Notice") in the
manner set forth in Section 5(j) hereof. Each Holder Conversion Notice shall
specify the number of shares of Preferred Stock to be converted and the date
on which such conversion is to be effected, which date may not be prior to
the date the Holder delivers such Notice by facsimile (the "Holder Conversion
Date"). Each Holder Conversion Notice, once given, shall be irrevocable. If
the holder is converting less than all shares of Preferred Stock represented
by the certificate or certificates tendered by the holder with the Holder
Conversion Notice, the Company shall promptly deliver to the holder a
certificate for such number of shares as have not been converted.
(b) Provided that ten (10) Trading Days (as defined in Section 6)
shall have elapsed from the date the Commission declared the Registration
Statement effective under the Securities Act, each share of the Preferred
Stock shall automatically convert into shares of Common Stock at the
Conversion Ratio after the expiration of one year after the Original Issue
Date. Upon the conversion of shares of Preferred Stock pursuant Section 5(b)
herein, the holders of the Preferred Stock shall surrender the certificates
representing such shares at the office of the Company or of any transfer
agent for the Preferred Stock or Common Stock. The date on which an automatic
conversion occurs pursuant to Section 5(b) herein is referred to herein as
the "Automatic Conversion Date." Each of a "Holder Conversion Date" and an
"Automatic Conversion Date" is sometimes referred to herein as a "Conversion
Date."
(c) (i) If the average of the Per Share Market Value (as defined
in Section 6) for the five (5) Trading Days immediately preceding the date
that the Company receives any Holder Conversion Notice is less than $2.00,
then the Company shall have the right, exercisable by notice to the tendering
Holder by the close of business on the Business Day following the Company's
receipt of such Conversion Notice, to redeem the Preferred Stock tendered for
conversion pursuant to such Holder Conversion Notice at a price equal to the
product of (i) the average of the Per Share Market Value for the five (5)
Trading Days immediately preceding the Conversion Date, (ii) the number of
shares of Preferred Stock which would then be converted but for this section,
and (iii) the Conversion Ratio. Such redemption price will be paid by the
Company within ten (10) Business Days of its receipt of such Holder
Conversion Notice. If the Company fails for any reason to pay such
redemption price within such period, the Company shall effect the conversion
of Preferred Shares subject to such Holder Conversion Notice at the lesser of
the Conversion Price measured on the Conversion Date indicated in the Holder
Conversion Notice and the Conversion Price measured at the end of such ten
(10) Business Day period. The Holder shall have the right, exercisable at
any time when the Per Share Market Value is such that the Company would have
the right of redemption contemplated in this section were it to receive a
Holder Conversion Notice, to deliver to the Company (by facsimile) a letter
inquiring whether the Company would exercise such redemption right if it
received a Holder Conversion Notice within five (5) calendar days of its
receipt of such letter, which such inquiry letter shall set forth the number
of shares that would be subject to such Holder Conversion Notice. The
Company shall respond to the inquiry letter (by facsimile) by the close of
business on the Business Day after which it is received, which response shall
be binding upon it with respect to the Conversion Notice that is subject to
such inquiry letter. The Company shall be deemed to have waived its
redemption right if it fails for any reason to respond by facsimile to the
Holder delivering such inquiry letter by the close of business on the
Business Day after its receipt of the inquiry letter.
(ii) Not later than three (3) Trading Days after the Conversion
Date, the Company will deliver to the holder (i) a certificate or
certificates which shall be free of restrictive legends and trading
restrictions (other than those then required by law and as set forth in the
Purchase Agreement), representing the number of shares of Common Stock being
acquired upon the conversion of shares of Preferred Stock and (ii) one or
more certificates representing the number of shares of Preferred Stock not
converted; provided, however that the Company shall not be obligated to issue
certificates evidencing the shares of Common Stock issuable upon conversion
of any shares of Preferred Stock until certificates evidencing such shares of
Preferred Stock are either delivered for conversion to the Company or any
transfer agent for the Preferred Stock or Common Stock, or the holder
notifies the Company that such certificates have been lost, stolen or
destroyed and provides a bond (or other adequate security reasonably
acceptable to the Company) satisfactory to the Company to indemnify the
Company from any loss incurred by it in connection therewith. The Company
shall, upon request of the holder, use its best efforts to deliver any
certificate or certificates required to be delivered by the Company under
this Section 5(c) electronically through the Depository Trust Corporation or
another established clearing corporation performing similar functions. In
the case of a conversion pursuant to a Holder Conversion Notice, if such
certificate or certificates are not delivered by the date required under this
Section 5(c), the holder shall be entitled by written notice to the Company
at any time on or before such holder's receipt of such certificate or
certificates thereafter, to rescind such conversion, in which event the
Company shall immediately return the certificates representing the shares of
Preferred Stock tendered for conversion.
(d) (i) The conversion price for each share of Preferred Stock
(the "Conversion Price") in effect on any Conversion Date shall be the LESSER
of X OR Y; where X is the GREATER of (a) [$(BID PRICE AT FUNDING) ] or (b)
[ C ] / [ ( { C / F } + 1.50 ) / 2 ] where C = the average Per Share Market
Value for the five (5) Trading Days immediately preceding the Conversion Date
and F = the Per Share Market Value on the Trading Day immediately preceding
the Original Issue Date; and Y = 80% of the average Per Share Market Value
for the five (5) Trading Days immediately preceding the Conversion Date;
provided, however, if the Registration Statement is not declared effective by
the Commission for any reason by the Effective Date (as defined in the
Registration Rights Agreement between the Company and the holder pursuant to
which the Registration Statement is being prepared and filed), then for each
of the first three months after such Effective Date that such registration
statement shall not have been so declared effective, clause (a) and (b) above
shall be decreased by 3% (i.e., a reduction of 3% at the end of the first
such month and 6% at the end of the second such month).
(ii) If the Company, at any time while any shares of Preferred
Stock are outstanding, (a) shall pay a stock dividend or otherwise make a
distribution or distributions on shares of its Junior Securities payable in
shares of its capital stock (whether payable in shares of its Common Stock or
of capital stock of any class), (b) subdivide outstanding shares of Common
Stock into a larger number of shares, (c) combine outstanding shares of
Common Stock into a smaller number of shares, or (d) issue by
reclassification of shares of Common Stock any shares of capital stock of the
Company, the Conversion Price designated in Section 5(d)(i) shall be
multiplied by a fraction of which the numerator shall be the number of shares
of Common Stock outstanding before such event and of which the denominator
shall be the number of shares of Common Stock outstanding after such event.
Any adjustment made pursuant to this Section 5(d)(ii) shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such dividend or distribution and shall become effective
immediately after the effective date in the case of a subdivision,
combination or re-classification.
(iii) If the Company, at any time while any shares of
Preferred Stock are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the Per Share Market Value of
Common Stock at the record date mentioned below, the Conversion Price
designated in Section 5(d)(i) shall be multiplied by a fraction, of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of Common Stock offered for
subscription or purchase, and of which the numerator shall be the number of
shares of Common Stock (excluding treasury shares, if any) outstanding on the
date of issuance of such rights or warrants plus the number of shares which
the aggregate offering price of the total number of shares so offered would
purchase at such Per Share Market Value. Such adjustment shall be made
whenever such rights or warrants are issued, and shall become effective
immediately after the record date for the determination of stockholders
entitled to receive such rights or warrants. However, upon the expiration of
any right or warrant to purchase Common Stock the issuance of which resulted
in an adjustment in the Conversion Price designated in Section 5(d)(i)
pursuant to this Section 5(d)(iii), if any such right or warrant shall expire
and shall not have been exercised, the Conversion Price designated in Section
5(d)(i) shall immediately upon such expiration be recomputed and effective
immediately upon such expiration be increased to the price which it would
have been (but reflecting any other adjustments in the Conversion Price made
pursuant to the provisions of this Section 5 after the issuance of such
rights or warrants) had the adjustment of the Conversion Price made upon the
issuance of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(iv) If the Company, at any time while shares of Preferred
Stock are outstanding, shall distribute to all holders of Common Stock (and
not to holders of Preferred Stock) evidences of its indebtedness or assets or
rights or warrants to subscribe for or purchase any security (excluding those
referred to in Section 5(d)(iii) above) then in each such case the Conversion
Price at which each share of Preferred Stock shall thereafter be convertible
shall be
determined by multiplying the Conversion Price in effect immediately prior to
the record date fixed for determination of stockholders entitled to receive
such distribution by a fraction of which the denominator shall be the Per
Share Market Value of Common Stock determined as of the record date mentioned
above, and of which the numerator shall be such Per Share Market Value of the
Common Stock on such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness so
distributed applicable to one outstanding share of Common Stock as determined
by the Board of Directors in good faith; provided, however that in the event
of a distribution exceeding ten percent (10%) of the net assets of the
Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm
that regularly examines the financial statements of the Company) (an
"Appraiser") selected in good faith by the holders of a majority in interest
of the shares of Preferred Stock; and provided, further that the Company,
after receipt of the determination by such Appraiser shall have the right to
select an additional Appraiser, in which case the fair market value shall be
equal to the average of the determinations by each such Appraiser. In either
case the adjustments shall be described in a statement provided to all
holders of Preferred Stock of the portion of assets or evidences of
indebtedness so distributed or such subscription rights applicable to one
share of Common Stock. Such adjustment shall be made whenever any such
distribution is made and shall become effective immediately after the record
date mentioned above.
(v) All calculations under this Section 5 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(vi) Whenever the Conversion Price is adjusted pursuant to
Section 5(d)(ii),(iii), (iv) or (v), the Company shall promptly mail to each
holder of Preferred Stock, a notice setting forth the Conversion Price after
such adjustment and setting forth a brief statement of the facts requiring
such adjustment.
(vii) In case of any reclassification of the Common Stock,
any consolidation or merger of the Company with or into another person, the
sale or transfer of all or substantially all of the assets of the Company or
any compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the holders of the Preferred Stock
then outstanding shall have the right thereafter to convert such shares only
into the shares of stock and other securities and property receivable upon or
deemed to be held by holders of Common Stock following such reclassification,
consolidation, merger, sale, transfer or share exchange, and the holders of
the Preferred Stock shall be entitled upon such event to receive such amount
of securities or property as the shares of the Common Stock of the Company
into which such shares of Preferred Stock could have been converted
immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange would have been entitled. The terms of any such
consolidation, merger, sale, transfer or share exchange shall include such
terms so as to continue to give to the holder of Preferred Stock the right to
receive the securities or property set forth in this Section 5(d)(vii) upon
any conversion following such consolidation, merger, sale, transfer or share
exchange. This provision shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share
exchanges.
(viii) If:
(a) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(b) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(c) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital stock
of any class or of any rights; or
(d) the approval of any stockholders of the Company shall
be required in connection with any reclassification
of the Common Stock of the Company (other than a
subdivision or combination of the outstanding shares
of Common Stock), any consolidation or merger to
which the Company is a party, any sale or transfer of
all or substantially all of the assets of the
Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash
or property; or
(e) the Company shall authorize the voluntary or
involuntary dissolution, liquidation or winding-up of
the affairs of Company;
then the Company shall cause to be filed at each office or agency maintained
for the purpose of conversion of Preferred Stock, and shall cause to be
mailed to the holders of Preferred Stock at their last addresses as they
shall appear upon the stock books of the Company, at least 30 calendar days
prior to the applicable record or effective date hereinafter specified, a
notice stating (x) the date on which a record is to be taken for the purpose
of such dividend, distribution, redemption, rights or warrants, or if a
record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights
or warrants are to be determined, or (y) the date on which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, share exchange, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or any defect therein
or in the mailing thereof shall not affect the validity of the corporate
action required to be specified in such notice.
(e) If at any time conditions shall arise by reason of action taken
by the Company which in the opinion of the Board of Directors are not
adequately covered by the other provisions hereof and which might materially
and adversely affect the rights of the holders of Preferred Stock (different
than or distinguished from the effect generally on rights of holders of any
class of the Company's capital stock) or if at any time any such conditions
are expected to
arise by reason of any action contemplated by the Company, the Company shall
mail a written notice briefly describing the action contemplated and the
material adverse effects of such action on the rights of the holders of
Preferred Stock at least 30 calendar days prior to the effective date of such
action, and an Appraiser selected by the holders of majority in interest of
the Preferred Stock shall give its opinion as to the adjustment, if any (not
inconsistent with the standards established in this Section 5), of the
Conversion Price (including, if necessary, any adjustment as to the
securities into which shares of Preferred Stock may thereafter be
convertible) and any distribution which is or would be required to preserve
without diluting the rights of the holders of shares of Preferred Stock;
PROVIDED, however, that the Company, after receipt of the determination by
such Appraiser, shall have the right to select an additional Appraiser, in
which case the adjustment shall be equal to the average of the adjustments
recommended by each such Appraiser. The Board of Directors shall make the
adjustment recommended forthwith upon the receipt of such opinion or opinions
or the taking of any such action contemplated, as the case may be; PROVIDED,
however, that no such adjustment of the Conversion Price shall be made which
in the opinion of the Appraiser(s) giving the aforesaid opinion or opinions
would result in an increase of the Conversion Price to more than the
Conversion Price then in effect.
(f) The Company covenants that it will at all times reserve and
keep available out of its authorized and unissued Common Stock solely for the
purpose of issuance upon conversion of Preferred Stock as herein provided,
free from preemptive rights or any other actual contingent purchase rights of
persons other than the holders of Preferred Stock, such number of shares of
Common Stock as shall be issuable (taking into account the adjustments and
restrictions of Section 5(b) and Section 5(d) hereof) upon the conversion of
all outstanding shares of Preferred Stock. The Company covenants that all
shares of Common Stock that shall be so issuable shall, upon issue, be duly
and validly authorized, issued and fully paid and nonassessable.
(g) Upon a conversion hereunder the Company shall not be required
to issue stock certificates representing fractions of shares of Common Stock,
but may if otherwise permitted, make a cash payment in respect of any final
fraction of a share based on the Per Share Market Value at such time. If the
Company elects not, or is unable, to make such a cash payment, the holder of
a share of Preferred Stock shall be entitled to receive, in lieu of the final
fraction of a share, one whole share of Common Stock.
(h) The issuance of certificates for shares of Common Stock on
conversion of Preferred Stock shall be made without charge to the holders
thereof for any documentary stamp or similar taxes that may be payable in
respect of the issue or delivery of such certificate, provided that the
Company shall not be required to pay any tax that may be payable in respect
of any transfer involved in the issuance and delivery of any such certificate
upon conversion in a name other than that of the holder of such shares of
Preferred Stock so converted and the Company shall not be required to issue
or deliver such certificates unless or until the person or persons requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid.
(i) Shares of Preferred Stock converted into Common Stock shall be
canceled and shall have the status of authorized but unissued shares of
preferred stock.
(j) Each Holder Conversion Notice shall be given by facsimile and
by mail, postage prepaid, addressed to the attention of the Secretary of the
Company at the facsimile
telephone number and address of the principal place of business of the
Company. The notice of the Automatic Conversion Date shall be given by
facsimile and by mail, postage prepaid, addressed to each holder of Preferred
Stock at the facsimile telephone number and address of such holder appearing
on the books of the Company or provided to the Company by such holder, or if
no such facsimile telephone number or address appears or is so provided, at
the principal place of business of the holder. Any such notice shall be
deemed given and effective upon the earliest to occur of (i)(a) if such
Conversion Notice is delivered via facsimile at the facsimile telephone
number specified in this Section 5(j) prior to 4:30 p.m. (Eastern Standard
Time) on any date, such date (or, in the case of a notice of Automatic
Conversion, the next Trading Day) or such later date as is specified in the
Conversion Notice, and (b) if such Conversion Notice is delivered via
facsimile at the facsimile telephone number specified in this Section 5(j)
after 4:30 p.m. (Eastern Standard Time) on any date, the next date (or, in
the case of a notice of Automatic Conversion, the next Trading Day after such
next day) or such later date as is specified in the Conversion Notice, (ii)
five days after deposit in the United States mails or (iii) upon actual
receipt by the party to whom such notice is required to be given.
Section 6. DEFINITIONS. For the purposes hereof, the following
terms shall have the following meanings:
"Common Stock" means shares now or hereafter authorized of the class
of Common Stock, no par value, of the Company and stock of any other class
into which such shares may hereafter have been reclassified or changed.
"Conversion Ratio" means, at any time, a fraction, of which the
numerator is Stated Value plus accrued but unpaid dividends, and of which the
denominator is the Conversion Price at such time.
"Junior Securities" means the Common Stock and all other equity
securities of the Company, except the Company's Convertible Series A
Cumulative Preferred Stock and the Company's Convertible Series B Cumulative
Preferred Stock.
"Original Issue Date" shall mean the date of the first issuance of
any shares of the Preferred Stock regardless of the number transfers of any
particular shares of Preferred Stock and regardless of the number of
certificates which may be issued to evidence such Preferred Stock.
"Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on The NASDAQ
Stock Market or other stock exchange on which the Common Stock has been
listed or if there is no such price on such date, then the closing bid price
on such exchange on the date nearest preceding such date, or (b) if the
Common Stock is not listed on The NASDAQ Stock Market or any stock exchange,
the closing bid for a share of Common Stock in the over-the-counter market,
as reported by the NASD at the close of business on such date, or (c) if the
Common Stock is not quoted on the NASD, the closing bid price for a share of
Common Stock in the over-the-counter market as reported by the National
Quotation Bureau Incorporated (or similar organization or agency succeeding
to its functions of reporting prices), or (d) if the Common Stock is no
longer publicly traded the fair market value of a share of Common Stock as
determined by an Appraiser (as defined in Section 5(d)(iv) above) selected in
good faith by the holders of a majority in interest of the shares of the
Preferred Stock; PROVIDED, however, that the Company, after receipt of the
determination by such Appraiser, shall have the right to select an additional
Appraiser, in which case, the fair market value shall be equal to the average
of the determinations by each such Appraiser.
"Person" means a corporation, an association, a partnership,
organization, a business, an individual, a government or political
subdivision thereof or a governmental agency.
"Purchase Agreement" means the Convertible Preferred Stock Purchase
Agreement, dated as of the Original Issue Date, between the Company and the
original holder of the Preferred Stock.
"Trading Day" means (a) a day on which the Common Stock is traded on
NASDAQ or principal stock exchange on which the Common Stock has been listed,
or (b) if the Common Stock is not listed on NASDAQ or any stock exchange, a
day on which the Common Stock is traded in the over-the-counter market, as
reported by the NASD, or (c) if the Common Stock is not quoted on the NASD, a
day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its functions
of reporting prices).
Section 7. NOTICES. Any notice required by the provisions hereof to
be given to the holders of shares of Preferred Stock shall be deemed given
when personally delivered to such holder or five business days after the same
has been deposited in the United States mail, certified or registered mail,
return receipt requested, postage prepaid, and addressed to each holder of
record at his address appearing on the books of the Company.
Dated: July 29, 1997
/s/ MELVYN REZNICK
------------------------------------
Melvyn Reznick, President
/s/ STEPHEN A. CASWELL
------------------------------------
Stephen A. Caswell, Secretary
Melvyn Reznick and Stephen A. Caswell hereby declare under penalty of perjury
under the laws of the State of California that they have read the foregoing
certificate and know the contents thereof and that the same is true of their
own knowledge.
Dated: July 29, 1997
/s/ MELVYN REZNICK
------------------------------------
Melvyn Reznick, President
/s/ STEPHEN A. CASWELL
------------------------------------
Stephen A. Caswell, Secretary