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EXHIBIT 4.2
CERTIFICATE OF DETERMINATION
OF RIGHTS, PREFERENCES, PRIVILEGES AND RESTRICTIONS
OF SERIES B PREFERRED STOCK OF
NEOGENE TECHNOLOGIES, INC.
a California corporation
Alvin J. Glasky and Samuel Gulko hereby certify as follows:
1. We are the President and Secretary, respectively of NeoGene
Technologies, Inc., a California corporation (the "Corporation").
2. The number of shares of the Corporation's Series B Preferred Stock is
150,000 shares, none of which has been issued.
3. Pursuant to authority given under the Articles of Incorporation of
the Corporation, and in accordance with the provisions of Section 401 of the
California Corporations Code, the Board of Directors of the Corporation (the
"Board") has duly adopted the following recitals and resolutions which hereby
create this Certificate of Determination of Rights, Preferences, Privileges and
Restrictions of Series B Preferred Stock of the Corporation (this "Certificate
of Determination"):
WHEREAS, Article Five of the Amended and Restated Articles of
Incorporation of the Corporation authorizes 5,000,000 shares of Preferred Stock
(the "Preferred Stock") of which 150,000 shares have been designated as Series A
Preferred Stock (the "Series A Preferred Stock");
WHEREAS, in accordance with the provisions of Section 401 of the
California Corporations Code, and pursuant to the Articles of Incorporation, the
Board of Directors is authorized and empowered to designate the rights,
preferences, privileges and restrictions of such Preferred Stock; and
WHEREAS, the second series of Preferred Stock has been designated the
"Series B Preferred Stock."
NOW THEREFORE BE IT RESOLVED, that Series B of the class of authorized
Preferred Stock of the Corporation is hereby created, and that the designation
and amount thereof and the voting powers, preferences and relative,
participating, optional and other special rights of the shares of such Series,
and the qualifications, limitations or restrictions thereof are as follows:
I. DESIGNATION AND AMOUNT.
A. SERIES B PREFERRED STOCK. The shares of the second series of
Preferred Stock of the Corporation is hereby designated "Series B Preferred
Stock" and the number of shares constituting such series is 150,000.
B. RIGHTS PREFERENCES AND PRIVILEGES. The relative rights, preferences,
restrictions, and other matters relating to the Series B Preferred Stock or the
holders thereof are as follows:
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1. Dividends Rights of Preferred. The holders of Series B
Preferred Stock shall be entitled to receive, when and as declared by the Board
out of funds legally available therefor, cumulative dividends at the rate per
share of Series B Preferred Stock of $3.15 per annum (as adjusted for any stock
split, combination, consolidation or stock distributions or stock dividends with
respect to such shares), payable, subject to the provisions of this Section 1,
semiannually on August 31 and February 28 of each year (each, a "Dividend
Payment Date"). Such dividend shall accrue on each Dividend Payment Date, and
shall be paid to the holders of record of the Series B Preferred Stock on the
record date set for such dividend payment, or, if no such record date is set, to
the holders of record of the Series B Preferred Stock on the date such payment
is made. The Corporation, at its option, may make dividend payments in cash,
shares of Series B Preferred Stock, or both. The number of shares of Series B
Preferred Stock deliverable with respect to any such dividend shall equal the
quotient obtained by dividing the amount of such dividend payable in shares of
Series B Preferred Stock by the then applicable liquidation preference for one
share of Series B Preferred Stock, as set forth in Section 2(a) below, provided
that the Corporation shall be entitled to pay cash in lieu of delivering any
fractional shares hereunder. Such dividend shall be paid to the holders of the
Series B Preferred on a pari passu basis with any dividend required to be paid
to the holders of the Series A Preferred Stock. Unless all accrued but unpaid
dividends on the Series B Preferred shall have been paid or declared and a sum
sufficient for the payment thereof set apart, (i) no dividend shall be paid or
declared on any shares of the Corporation's common stock, no par value (the
"Common Stock"), and (ii) no shares of Common Stock shall be purchased, redeemed
or acquired by the Corporation and no monies shall be paid into or set aside or
made available for a sinking fund for the purchase, redemption or acquisition
thereof. Notwithstanding the foregoing, the Corporation shall not be prohibited
from repurchasing shares of Common Stock from the directors, officers or
employees of the Corporation or any Subsidiary pursuant to agreements under
which the Corporation has the option to repurchase such shares upon the
termination of employment or consulting relationship, where such repurchase has
been duly authorized by the Board.
2. Liquidation.
(a) Preference. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or involuntary,
subject to the rights of any other series of Preferred Stock that may from time
to time come into existence, the holders of the Series B Preferred Stock shall
be entitled to receive, prior and in preference to any distribution of any of
the assets of the Corporation to the holders of any equity securities of the
Corporation (other than the Series A Preferred Stock, which shall rank pari
passu with the Series B Preferred Stock with respect to any such distribution)
by reason of their ownership thereof, an amount equal to $45.00 (as adjusted for
any stock split, combination, consolidation or stock distributions or stock
dividends with respect to such shares) for each share of Series B Preferred
Stock then held by them. If, upon the occurrence of such event, the assets and
funds thus distributed among the holders of the Series B Preferred Stock shall
be insufficient to permit the payment to such holders of the full aforesaid
preferential amounts, then, subject to the rights of any other series of
Preferred Stock that may from time to time come into existence, the entire
assets and funds of the Corporation legally available for distribution shall be
distributed among the holders of the Series A Preferred Stock and the Series B
Preferred Stock on a pari passu basis in proportion to the relationship that the
number of shares of Series A Preferred Stock or Series B Preferred Stock held by
each such holder bears to the total number of shares of Series A Preferred Stock
and the Series B Preferred Stock outstanding.
(b) Remaining Assets. Upon the completion of the
distribution required by Section 2(a) above and any other distribution that may
be required with respect to any other series of Preferred Stock that may from
time to time come into existence, the remaining assets of the
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Corporation available for distribution to stockholders shall be distributed
among the holders of the Common Stock pro rata based on the number of shares of
Common Stock held by each.
3. Voting Rights. Except as otherwise provided by the California
General Corporation Law ("California Law"), the holders of the Series B
Preferred Stock shall have no voting power whatsoever, and no holder of Series B
Preferred Stock shall vote or otherwise participate in any proceeding in which
actions shall be taken by the Corporation or the shareholders thereof or be
entitled to notification as to any meeting of the shareholders.
To the extent that under California Law the vote of the holders
of the Series B Preferred Stock, voting separately as a class, is required to
authorize a given action of the Corporation, the affirmative vote or consent of
the holders of at least a majority of the outstanding shares of the Series B
Preferred Stock at a duly held meeting at which a quorum is present or by
written consent of a majority of the shares of Series B Preferred Stock (except
as otherwise maybe required under California Law) shall constitute the approval
of such action by the class. To the extent that under California Law the holders
of the Series B Preferred Stock are entitled to vote on a matter with holders of
Series A Preferred Stock, voting together as one class, each share of Series A
Preferred Stock and Series B Preferred Stock shall be entitled to one vote for
each share of Common Stock into which such share could be converted as of the
record date for the taking of such vote of shareholders. To the extent that
under California Law the holders of the Series B Preferred Stock are entitled to
vote on a matter with holders of Common Stock, voting together as one class,
each share of Series B Preferred Stock shall be entitled to one vote for each
share of Common Stock into which such share of Series B Preferred Stock could be
converted as of the record date for the taking of such vote of shareholders.
Holders of the Series B Preferred Stock shall be entitled to notice of all
shareholder meetings or written consents with respect to which they would be
entitled to vote, which notice would be provided pursuant to the Corporation's
Bylaws and applicable statutes.
4. Conversion Rights. The holders of Series B Preferred Stock
shall have conversion rights as follows (the "Conversion Rights"):
(a) Conversion at Option of Holder. Subject to Section
4(d), each share of Series B Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such share, at
the principal office of the Corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $45.00 by the Conversion Price applicable to such share,
determined as hereafter provided, in effect on the date the certificate is
surrendered for conversion. The initial Conversion Price per share of Series B
Preferred Stock shall be $45.00. Such initial Conversion Price shall be subject
to adjustment as set forth in Section 5.
(b) Conversion at Option of Corporation. [Intentionally
deleted.]
(c) Automatic Conversion. Each share of Series B
Preferred Stock then outstanding (and not otherwise subject to a conversion
exercise by a holder thereof pursuant to Section 4(a)) shall automatically be
converted into shares of Common Stock at the Conversion Price at the time in
effect for such share immediately upon the earlier to occur of (i) the closing
of the Corporation's sale of its Common Stock in a firm commitment underwritten
public offering pursuant to a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), which results in aggregate gross cash
proceeds to the Corporation of $25,000,000, based on a pre-money valuation of
the Corporation of at least $80,000,000 and (ii) the fifth anniversary of the
date of issuance of such share.
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(d) Mechanics of Conversion. Before any holder of Series
B Preferred Stock shall be entitled to convert the same into shares of Common
Stock pursuant to Section 4(a) above, such holder shall surrender the
certificate or certificates therefor, duly endorsed in blank or accompanied by
appropriate instruments of transfer, at the principal office of the Corporation
or of any transfer agent for Series B Preferred Stock, and shall give written
notice to the Corporation of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Corporation shall, no later than three (3)
Business Days following delivery of the Conversion notice, issue and deliver at
such office to such holder of Series B Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid.
Notwithstanding the foregoing, subject to applicable law, in the event a holder
of shares of Common Stock acquired upon conversion of Series B Preferred Stock
may resell such shares without restriction pursuant to an effective registration
statement or otherwise, the Corporation shall cause the transfer agent with
respect to its Common Stock, if such transfer agent is then participating in the
Depositary Trust Company ("DTC") Fast Automated Securities Transfer ("FAST")
program, to electronically transmit the shares of Common Stock issuable upon
such conversion by crediting the account of such holder's prime broker with DTC
through DTC's Deposit Withdrawal Agent Commission ("DWAC") system, within (3)
Business Days after such conversion. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series B Preferred Stock to be converted, and the
person or persons entitled to receive the shares of Common Stock issuable upon
such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock as of such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act the conversion may, at the option of the Corporation, be
conditioned upon the closing with the underwriters of the sale of securities
pursuant to such offering, in which event the person(s) entitled to receive
Common Stock upon conversion of the Series B Preferred Stock shall not be deemed
to have converted such Series B Preferred Stock until immediately prior to the
closing of such sale of securities. Notwithstanding the foregoing, in the event
of an automatic conversion of the Series B Preferred Stock pursuant to Section
4(c) above, from and after the effective time of such conversion, the
outstanding certificates representing shares of Series B Preferred Stock shall
thereafter represent the right to receive a certificate or certificates (or a
credit through DWAC, if applicable) for the number of shares of Common Stock
into which such shares of Series B Preferred Stock have been converted, and the
holders of the Series B Common Stock as of the date of such conversion shall be
treated for all purposes as the record holders of the shares of Common Stock
issuable upon such conversion as of such date.
(e) No Fractional Shares. No fractional shares of Common
Stock shall be issued upon the conversion of any share or shares of the Series B
Preferred Stock, and all such fractional shares shall be disregarded. In lieu
thereof, the Corporation shall pay in cash the fair market value of such
fractional share as determined by the Board of Directors of the Corporation. The
number of shares issuable upon such conversion shall be determined on the basis
of the total number of shares of Series B Preferred Stock the holder is at that
time converting into Common Stock and the number of shares of Common Stock
issuable upon such aggregate conversion.
(f) Other Distributions. In the event the Corporation at
any time or from time to time makes any distribution payable in securities or
other property of the Corporation (other than Common Stock or Common Stock
Equivalents (as defined in Section 5(a)(1) below)), securities of other persons,
evidences of indebtedness issued by the Corporation or other persons or assets,
then and in each such event provision shall be made so that the holders of
Series B Preferred Stock shall receive upon conversion thereof the amount of
securities and other property of the Corporation
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which they would have received had their shares of Series B Preferred Stock been
converted into shares of Common Stock on the date of such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities and other property receivable by
them as aforesaid during such period, subject to all other adjustments called
for during such period under Section 5 with respect to the rights of the holders
of Series B Preferred Stock.
(g) No Reissuance. Upon any conversion of Series B
Preferred Stock pursuant to this Section 4, the shares of Series B Preferred
Stock which are converted shall not be reissued. Upon conversion of all of the
then outstanding Series B Preferred Stock, shares of Series B Preferred Stock
shall not be deemed outstanding for any purpose whatsoever.
(h) Reservation of Common Stock. The Corporation shall
at all times reserve and keep available, out of its authorized but unissued
Common Stock, solely for the purpose of effecting the conversion of the Series B
Preferred Stock, the full number of shares of Common Stock deliverable upon the
conversion of all Series B Preferred Stock from time to time outstanding. The
Corporation shall from time to time (subject to obtaining necessary director and
shareholder action), in accordance with the laws of the State of California,
increase the authorized amount of its Common Stock if at any time the authorized
number of shares of Common Stock remaining unissued shall not be sufficient to
permit the conversion of all of the shares of Preferred Stock at the time
outstanding.
5. Adjustments to Conversion Price.
(a) Conversion Price Adjustments for Certain Events. The
Conversion Price of the Series B Preferred Stock shall be subject to adjustment
from time to time as follows:
(1) In the event the Corporation should at any
time or from time to time after the date upon which any shares of Series B
Preferred Stock were first issued (the "Purchase Date") fix a record date for
the effectuation of a split or subdivision of the outstanding shares of Common
Stock or the determination of holders of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common Stock or
other securities or rights convertible into, or entitling the holder thereof to
receive directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the Conversion Price of the Series B Preferred Stock shall be appropriately
decreased so that the number of shares of Common Stock issuable on conversion of
each share of Series B Preferred Stock shall be increased in proportion to such
increase in the aggregate number of shares of Common Stock outstanding taking
into account those shares of Common Stock issuable with respect to any such
Common Stock Equivalents, with the number of shares issuable with respect to
Common Stock Equivalents determined from time to time as provided in Section
5(c)(3).
(2) If the number of shares of Common Stock
outstanding at any time after the Purchase Date is decreased by a combination of
the outstanding shares of Common Stock, then, following the record date of such
combination, the Conversion Price for the Series B Preferred Stock shall be
appropriately increased so that the number of shares of Common Stock issuable on
conversion of each share of Series B Preferred Stock shall be decreased in
proportion to such decrease in the aggregate number of shares of Common Stock
outstanding.
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(b) Recapitalization, Merger, Etc. If at any time or
from time to time there shall be a recapitalization, reclassification,
combination, subdivision, merger, transfer, exchange, sale or other disposition
of all or substantially all of the Corporation's assets, stock split, stock
dividend, reverse stock split or other distribution in respect of the Common
Stock (other than as provided for elsewhere in this Section 5 or in Section 2 or
Section 4), provision shall be made so that the holders of the Series B
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series B Preferred Stock, the number of shares of stock or other securities or
property of the Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 5 with respect to the rights of the holders of the
Series B Preferred Stock after the recapitalization to the end that the
provisions of this Section 5 (including adjustment of the Conversion Prices then
in effect and the number of shares purchasable upon conversion of the Series B
Preferred Stock) shall be applicable after that event and be as nearly
equivalent as practicable.
(c) Issuance of Additional Stock below Conversion Price.
If the Corporation shall issue, after the Purchase Date, any Additional Stock
(as defined below) for a consideration per share less than the Conversion Price
in effect immediately prior to the issuance of such Additional Stock, the
Conversion Price in effect immediately prior to each such issuance shall
automatically be adjusted to equal the consideration per share paid for such
Additional Stock determined in accordance with Section 5(c)(2), unless otherwise
provided in this Section 5(c); provided, however, that if no shares of Series A
Preferred Stock (or any other securities of the Corporation which are
convertible into shares of Common Stock providing for a similar adjustment as a
result of such issuance) are outstanding on the date of such issuance of
Additional Stock, (x) if such date is prior to or is the third anniversary of
the Purchase Date, the Conversion Price to be in effect after the date of such
issuance shall be adjusted by multiplying the Conversion Price in effect
immediately prior to the date of such issuance by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on the date
of such issuance plus the number of shares of Common Stock which the aggregate
consideration for the total number of shares of Additional Stock so to be issued
(or the aggregate initial conversion price of the convertible securities so to
be issued) would purchase at the Conversion Price in effect immediately prior to
the date of such issuance and of which the denominator shall be the number of
shares of Common Stock outstanding on the date of such issuance plus the number
of additional shares of Additional Stock to be issued (or into which the
convertible securities so to be issued are initially convertible), unless
otherwise provided in this Section 5(c), and (y) if such date is after the third
anniversary of the Purchase Date, the Conversion Price shall not be adjusted
pursuant to this Section 5(c).
(1) Additional Stock. For purposes of this
Section 5, "Additional Stock" shall mean any shares of Common Stock or capital
stock, securities, options, warrants to purchase or other instruments of similar
effect convertible into or exchangeable for Common Stock issued (or deemed to
have been issued pursuant to Section 5(c)(3)) by the Corporation after the
Purchase Date other than:
(A) Common Stock issued pursuant to a
transaction described in Section 5(b) hereof,
(B) Common Stock (or securities options,
warrants or other rights convertible into or exchangeable shares of Common
Stock) issuable or issued to employees, consultants or directors of the
Corporation pursuant to a stock option plan, agreement or
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arrangement or restricted stock plan, agreement or arrangement approved by the
Board of Directors of the Corporation,
(C) Capital stock, or options or
warrants to purchase capital stock, issued to financial institutions, placement
agents or lessors in connection with commercial credit arrangements, capital
financings, equipment financings or similar transactions,
(D) Shares of Common Stock or Preferred
Stock issuable upon exercise of warrants outstanding as of the date of this
Certificate of Determination,
(E) Capital stock or warrants or options
to purchase capital stock issued in connection with bona fide acquisitions,
mergers, strategic relationships or similar transactions, the terms of which are
approved by the Board of Directors of the Corporation, and
(F) Shares of Common Stock issued or
issuable upon conversion of the Series A Preferred Stock or the Series B
Preferred Stock.
(2) Determination of Consideration. In the case
of the issuance of Common Stock for cash, the consideration shall be deemed to
be the amount of cash paid therefor before deducting any reasonable discounts,
commissions or other expenses allowed, paid or incurred by the Corporation for
any underwriting or otherwise in connection with the issuance and sale thereof.
In the case of the issuance of Common Stock for a consideration in whole or in
part other than cash, the consideration other than cash shall be deemed to be
the fair market value thereof as determined by the Board of Directors.
(3) Deemed Issuances of Common Stock. In the
case of the issuance (whether before, on or after the Purchase Date) of options
to purchase or rights to subscribe for Common Stock, securities by their terms
convertible into or exchangeable for Common Stock or options to purchase or
rights to subscribe for such convertible or exchangeable securities, the
following provisions shall apply for all purposes of this Section 5(c):
(A) The aggregate maximum number of
shares of Common Stock deliverable upon exercise (assuming the satisfaction of
any conditions to exercisability, including without limitation, the passage of
time, but without taking into account potential antidilution adjustments) of
such options to purchase or rights to subscribe for Common Stock shall be deemed
to have been issued at the time such options or rights were issued and for a
consideration equal to the consideration (determined in the manner provided in
Section 5(c)(2)), if any, received by the Corporation upon the issuance of such
options or rights plus the minimum exercise price provided in such options or
rights (without taking into account potential antidilution adjustments) for the
Common Stock covered thereby.
(B) The aggregate maximum number of
shares of Common Stock deliverable upon conversion of or in exchange (assuming
the satisfaction of any conditions to convertibility or exchangeability,
including, without limitation, the passage of time, but without taking into
account potential antidilution adjustments) for any such convertible or
exchangeable securities or upon the exercise of options to purchase or rights to
subscribe for such convertible or exchangeable securities and subsequent
conversion or exchange thereof shall be deemed to have been issued at the time
such securities were issued or such options or rights were issued and for a
consideration equal to the consideration, if any, received by the Corporation
for any such securities and related options 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 Corporation
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(without taking into account potential antidilution adjustments) upon the
conversion or exchange of such securities or the exercise of any related options
or rights (the consideration in each case to be determined in the manner
provided in Section 5(c)(2)).
(C) In the event of any change in the
number of shares of Common Stock deliverable or in the consideration payable to
the Corporation upon exercise of such options or rights or upon conversion of or
in exchange for such convertible or exchangeable securities, including, but not
limited to, a change resulting from the antidilution provisions thereof, the
Conversion Price of the Series B Preferred Stock, to the extent in any way
affected by or computed using such options, rights or securities, shall be
recomputed to reflect such change, but no further adjustment shall be made for
the actual issuance of Common Stock or any payment of such consideration upon
the exercise of any such options or rights or the conversion or exchange of such
securities.
(D) Upon the expiration of any such
options or rights, the termination of any such rights to convert or exchange or
the expiration of any options or rights related to such convertible or
exchangeable securities, the Conversion Price of the Series B Preferred Stock,
to the extent in any way affected by or computed using such options, rights or
securities or options or rights related to such securities, shall be recomputed,
but only to the extent the Corporation did not pay any consideration in
connection with such expiration or termination, to reflect the issuance of only
the number of shares of Common Stock (and convertible or exchangeable securities
which remain in effect) actually issued upon the exercise of such options or
rights, upon the conversion or exchange of such securities or upon the exercise
of the options or rights related to such securities.
(E) The number of shares of Common Stock
deemed issued and the consideration deemed paid therefor pursuant to Sections
5(c)(3)(A) and 5(c)(3)(B) shall be appropriately adjusted to reflect any change,
termination or expiration of the type described in either Section 5(c)(3)(C) or
5(c)(3)(D).
(4) Circumstances in Which Conversion Price Not
Adjusted. Notwithstanding any other provisions of this Section 5(c), except to
the limited extent provided for in Sections 5(c)(3)(C) and 5(c)(3)(D), no
adjustment of the Conversion Price pursuant to this Section 5(c) shall have the
effect of increasing the Conversion Price above (i) the Conversion Price in
effect immediately prior to such adjustment or (ii) the initial Conversion Price
specified in Section 4(a). No readjustment pursuant to Sections 5(c)(3)(C) and
5(c)(3)(D) above shall have the effect of increasing the Conversion Price to an
amount which exceeds the lower of (x) the Conversion Price on the original
adjustment date and (y) the Conversion Price that would have resulted from the
issuance of Additional Stock between the original adjustment date and such
readjustment date.
(d) Conversion Price Adjustments for Certain
Distributions. If the Corporation shall distribute, during the period commencing
on the Purchase Date and ending on the second anniversary of the Purchase Date
(provided that, for any distributions occurring subsequent to the second
anniversary of the Purchase Date, the holders of record of the Series B
Preferred Stock shall have received notice of such distribution at least 15 days
prior to the record date established for holders of Common Stock to receive such
distribution), to all holders of Common Stock evidences of its indebtedness or
assets (excluding cash dividends with respect to the Corporation's Common Stock
to the extent such dividend payments (such payments deemed made on the record
date established therefor) in any twelve-month period do not exceed $2.25 per
share of Common Stock (which number shall subject to equitable adjustments for
stock splits, recombinations and similar events)) or rights or warrants to
subscribe for or purchase any security (excluding those referred to in
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Sections 5(a), (b) and (c) and other than with respect to rights granted
pursuant to a stockholders rights plan adopted by the Corporation), then in each
such case the Conversion Price of the Series B Preferred Stock shall be adjusted
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 fair market
value of one share of Common Stock determined as of the record date mentioned
above and the numerator shall be the fair market value of one share of Common
Stock determined as of such record date less the then fair market value at such
record date of the portion of such assets or evidence of indebtedness or rights
or warrants so distributed applicable to one outstanding share of Common Stock
as determined by the Corporation's independent certified public accountants that
regularly examine the financial statements of the Corporation (the "Appraiser").
For purposes of this Section 5(d), the "fair market value" of one share of
Common Stock shall be determined as follows:
(1) if the Common Stock is traded on a
securities exchange or The Nasdaq Stock Market or actively traded
over-the-counter:
(A) if the Common Stock is traded on a
securities exchange or The Nasdaq Stock Market, the fair market value shall be
deemed to be the average of the closing sale prices of the Common Stock for the
five (5) trading days immediately prior to (but not including) the record date
mentioned above; or
(B) if the Common Stock is actively
traded over-the-counter, the fair market value shall be deemed to be average of
the closing bid or, if the closing bid is not reported, the closing sales price
for the five (5) trading days immediately prior to (but not including) the
record date mentioned above; or
(2) if (i) is not applicable, the fair market
value of one share of Common Stock shall be at the highest price per share which
the Corporation could obtain on the date of calculation from a willing buyer
(not a current employee or director) for shares of Common Stock sold by the
Corporation, from authorized but unissued shares, as determined in good faith by
the Board of Directors, unless the Corporation is at such time subject to an
acquisition including the sale, conveyance or disposal of all or substantially
all of the Corporation's property or business or the Corporation's merger into
or consolidation with any other corporation (other than a wholly-owned
subsidiary corporation) or any other transaction or series of related
transactions in which more than fifty percent (50%) of the voting power of the
Corporation is disposed of, other than a merger effected exclusively for the
purpose of changing the domicile of the Corporation, in which case the fair
market value of one share of Common Stock shall be deemed to be the value
received by the holders of Common Stock pursuant to such acquisition.
(e) Notification of Adjustment. Upon the occurrence of
each adjustment or readjustment of the Conversion Price for the Series B
Preferred Stock pursuant to this Section 5, the Corporation at its expense shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to each holder of Series B Preferred Stock a
certificate setting forth such adjustment or readjustment showing in detail the
facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the reasonable written request at any time of any holder of Series B
Preferred Stock, furnish or cause to be furnished to such holder, a like
certificate setting forth (i) such adjustments and readjustments, (ii) the
Conversion Price then in effect and (iii) the number of shares of Common Stock
and the amount, if any, of other property which at the time would be received
upon the conversion of the Series B Preferred Stock. Any notices required by the
provisions of this Section 5 to be given to the holders of shares of Series B
Preferred Stock shall be deemed given if deposited in the United States mail,
first class, postage
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prepaid and addressed to each holder of record at its address appearing on the
books of the Corporation.
6. No Redemption. The Series B Preferred Stock is not
redeemable.
7. Protective Provisions. Notwithstanding the provisions of
Section 3, so long as any shares of Series B Preferred Stock are outstanding,
the Corporation shall not, without the affirmative vote of the holders of a
majority of the shares of the Series B Preferred Stock then outstanding, (i)
alter or change adversely the powers, preferences or rights given to the Series
B Preferred Stock, (ii) authorize or create any class or series of stock ranking
as to dividends or distribution of assets upon a liquidation senior to the
Series B Preferred Stock, (iii) amend its articles of incorporation or other
charter documents so as to affect adversely any rights of the holders of the
Series B Preferred Stock, (iv) increase the authorized number of shares of
Series B Preferred Stock, or (v) enter into any agreement with respect to the
foregoing which is not conditioned upon the Corporation obtaining the
affirmative vote of the holders of a majority of the shares of the Series B
Preferred Stock then outstanding as provided in clauses (i)-(iv).
We further declare under penalty of perjury under the laws of
the State of California that the matters set forth in this Certificate of
Determination are true and correct of our own knowledge.
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IN WITNESS WHEREOF, the undersigned have executed this
Certificate of Determination this 14th day of December, 2000.
/s/ Alvin J. Glasky
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Alvin J. Glasky, President
/s/ Samuel Gulko
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Samuel Gulko, Secretary
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