Exhibit 3.1
RESTATED ARTICLES OF INCORPORATION
OF
MONITRONICS INTERNATIONAL, INC.
October 21, 2003
ARTICLE ONE
Monitronics International, Inc., a Texas corporation (the "Corporation"),
pursuant to the provisions of Article 4.07 of the Texas Business Corporation
Act, hereby adopts these Restated Articles of Incorporation which accurately
copy the Articles of Incorporation of the Corporation and all amendments thereto
that are in effect to date and which contain no change in any provision thereof.
The Board of Directors of the Corporation approved these Restated Articles of
Incorporation on October 21, 2003.
ARTICLE TWO
The name of the Corporation is Monitronics International, Inc.
ARTICLE THREE
The following Articles of Incorporation correctly set forth without change
the Articles of Incorporation as heretofore amended and hereby supersede the
Corporation's existing Articles of Incorporation and all amendments thereto:
RESTATED ARTICLES OF INCORPORATION
OF
MONITRONICS INTERNATIONAL, INC.
ARTICLE ONE
The name of the corporation is Monitronics International, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose or purposes for which the corporation is organized are the
transaction of any and all lawful business for which a corporation may be
incorporated under the Texas Business Corporation Act.
ARTICLE FOUR
The aggregate number of shares which the corporation shall have authority
to issue is 61,500,795 shares, consisting of: 50,700,000 shares of Common Stock
(i) 50,000,000 shares of
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which shall be classified as Class A Common Stock, $0.01 par value ("Class A
Common Stock"), and (ii) 700,000 shares of which shall be classified as Class B
Common Stock, $0.01 par value ("Class B Common Stock"); and 10,800,795 shares of
Preferred Stock (i) 4,000,000 shares of which shall be designated as Series A
Preferred Stock, $0.01 par value ("Series A Preferred Stock"), (ii) 5,000,000
shares of which shall be designated as Series B Preferred Stock, $0.01 par value
("Series B Preferred Stock"), (ii) 1,409,375 shares of which shall be designated
as Series C Preferred Stock, $0.01 par value ("Series C Preferred Stock"), (iii)
251,420 shares of which shall be designated as Series C-1 Preferred Stock, $0.01
par value ("Series C-1 Preferred Stock" and, together with the Series C
Preferred Stock, the "Series C Stock"), (iv) 70,000 shares of which shall be
designated as Series D-1 Preferred Stock, $0.01 par value ("Series D-1 Preferred
Stock"), and (v) 70,000 shares of which shall be designated as Series D-2
Preferred Stock, $0.01 par value ("Series D-2 Preferred Stock" and, together
with the Series D-1 Preferred Stock, the "Series D Preferred Stock"). The
corporation may purchase its own shares to the extent that may be allowed by
law. The Series A Preferred Stock, the Series B Preferred Stock, the Series C
Stock and the Series D Preferred Stock have the voting powers, the designations,
preferences and relative, participating, optional or other special rights and
qualifications, limitations or restrictions set forth below. The Series D
Preferred Stock shall, with respect to dividend rights, redemption rights and
rights upon liquidation, winding up or dissolution, whether voluntary or
involuntary, whether now or hereafter issued, rank senior to all other capital
stock or equity securities of the corporation. The Series C Preferred Stock and
the Series C-1 Preferred Stock shall, with respect to dividend rights,
redemption rights and rights upon liquidation, winding up or dissolution,
whether voluntary or involuntary, whether now or hereafter issued, rank senior
to all other capital stock or equity securities of the corporation other than
the Series D Preferred Stock.
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock,
Series C-1 Preferred Stock and Series D Preferred Stock
Part 1. Dividends.
1.A. Subject to paragraphs 1E, 1F, 1G, 1J and 1K below, the holders of
Series A Preferred Stock shall be entitled to receive dividends at the rate of
$0.08 per share (as adjusted for any combinations or splits with respect to such
shares) per annum, payable out of funds legally available therefor. Such
dividends shall be cumulative and shall accrue on each share from day to day,
commencing on the date of issuance of such share, whether or not earned or
declared. Subject to paragraphs 1E, 1F, 1G, 1J and 1K below, accrued dividends
shall be payable quarterly, in arrears, on each March 31, June 30, September 30
and December 31 (each, a "Quarterly Dividend Reference Date"), commencing on the
first Quarterly Dividend Reference Date following June 30, 1999, and shall be
payable in cash (except as provided in part 5), when, and if, paid.
1.B. Subject to paragraphs 1E, 1F, 1J and 1K below, the holders of Series B
Preferred Stock shall be entitled to receive dividends at the rate of $0.08 per
share (as adjusted for any combinations or splits with respect to such shares)
per annum, payable out of funds legally available therefor. Such dividends shall
be cumulative and shall accrue on each share from day to day, commencing on the
date of issuance of such share, whether or not earned or declared. Subject to
paragraphs 1E, 1F, 1J and 1K below, accrued dividends shall be payable
quarterly, in
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arrears, on each Quarterly Dividend Reference Date, commencing on the first
Quarterly Dividend Reference Date following June 30, 1999, and shall be payable
in cash (except as provided in part 5), when, and if, paid.
1.C. Subject to paragraphs 1E, 1J and 1K below, the holders of Series C
Stock shall be entitled to receive dividends on each share of Series C Stock
held by such person at the Applicable Series C Dividend Rate Per Share (as
defined in part 8) (as adjusted for any combinations or splits with respect to
such shares), payable out of funds legally available therefor. Such dividends
shall accrue during each year at the Applicable Series C Dividend Rate Per Share
on a daily basis from and including the date of issuance of such share of Series
C Stock to and including the date on which the Series C Liquidation Value and/or
Series C-1 Liquidation Value, as the case may be, of such share is paid. Such
dividends shall accrue whether or not they have been declared and whether or not
there are profits, surplus or other funds of the corporation legally available
for the payment of dividends; provided, however, in the event that (i) all
accrued but unpaid dividends in respect of the Series C Preferred Stock are paid
in accordance with paragraphs 1L or 5L of these Articles of Incorporation and
(ii) the Series C-1 Preferred Stock is redeemed in accordance with paragraph 3E
of these Articles of Incorporation, the holders of Series C Preferred Stock
shall be entitled to receive dividends on each share of Series C Stock held by
such person at the Applicable Revised Series C Dividend Rate Per Share (as
defined in part 8) (as adjusted for any combinations or splits with respect to
such shares) and the provisions of this paragraph shall apply to the Applicable
Revised Series C Dividend Rate Per Share as if it were the Applicable Series C
Dividend Rate for the purposes thereof. Such dividends shall be cumulative such
that all accrued and unpaid dividends shall be fully paid or declared with funds
irrevocably set apart for payment before any dividend, distribution or payment
may be made with respect to any Series A Preferred Stock, Series B Preferred
Stock, Common Stock or any other series or class of capital stock of the
corporation (other than the Series D Preferred Stock). The Series D-1 Original
Issue Date shall be deemed to be the "date of issuance" of each share of Series
C Stock regardless of the number of times transfer of each such share is made on
the stock records maintained by or for the corporation and regardless of the
number of certificates which may be issued to evidence each such share. Subject
to paragraphs 1E, 1J and 1K below, accrued dividends shall be payable quarterly,
in arrears, on each Quarterly Dividend Reference Date, commencing on the first
Quarterly Dividend Reference Date following June 30, 2001, and shall be payable
in cash, when, and if, paid.
1.D. Subject to paragraphs 1J and 1K below, dividends on each share of
Series D Preferred Stock shall accrue on a daily basis at the rate of 13.5% per
annum of the sum of the Series D Liquidation Price (as defined in paragraph
2A(i)) plus all accumulated and unpaid dividends thereon, from and including the
date of issuance of such share of Series D Preferred Stock to and including the
date on which the Series D Liquidation Value (as defined in paragraph 2A(i)) of
such share is paid or, in the case of each share of Series D-1 Preferred Stock,
the date on which such share is converted into Series D-2 Preferred Stock and
Class A Common Stock. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
corporation legally available for the payment of dividends. Such dividends shall
be cumulative such that all accrued and unpaid dividends shall be fully paid or
declared with funds irrevocably set apart for payment before any dividend,
distribution or payment may be made with respect to any Series A Preferred
Stock, Series B Preferred Stock,
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Series C Stock, Common Stock or any other series or class of capital stock of
the corporation. The date on which the corporation initially issues any shares
of Series D-1 Preferred Stock shall be deemed to be the "date of issuance" of
(i) such share of Series D-1 Preferred Stock and (ii) the share of Series D-2
Preferred Stock into which such share of Series D-1 Preferred Stock is converted
hereunder in order that, without duplication, the accumulated and/or accrued and
unpaid dividends on any share of Series D-1 Preferred Stock that is converted
into a share of Series D-2 Preferred Stock will be deemed to be accumulated
and/or accrued on such share of Series D-2 Preferred Stock, in each case
regardless of the number of times transfer of each such share is made on the
stock records maintained by or for the corporation and regardless of the number
of certificates which may be issued to evidence each such share. To the extent
not paid on each April 30 and October 31 (each, a "Semi-Annual Dividend
Reference Date"), commencing on the first Semi-Annual Dividend Reference Date
following May 1, 2001, all dividends which have accrued on each share of Series
D Preferred Stock during the six-month period (or other period in the case of
the initial Semi-Annual Dividend Reference Date after the date of issuance of
such share) ending upon each such Semi-Annual Dividend Reference Date shall be
accumulated and shall remain accumulated and accrued dividends with respect to
such share of Series D Preferred Stock until paid. Dividends accruing on the
Series D Preferred Stock shall be payable solely in cash and not in kind, when,
and if, paid.
1.E. No dividends or other distributions (whether in cash, securities or
other property, other than dividends paid on shares of Common Stock and
consisting solely of shares of Common Stock of the same class) shall be paid on
or declared and set apart for any Series A Preferred Stock, Series B Preferred
Stock, Series C Stock, Common Stock or any other series or class of capital
stock of the corporation (other than Series D Preferred Stock) at any time when
any Series D Preferred Stock is outstanding.
1.F. Subject to paragraph 1E above, no dividends or other distributions
(whether in cash, securities or other property, other than dividends paid on
shares of Common Stock and consisting solely of shares of Common Stock of the
same class) shall be paid on or declared and set apart for any Series A
Preferred Stock or Series B Preferred Stock or any other series or class of
capital stock of the corporation (other than the Series D Preferred Stock) on
any Quarterly Dividend Reference Date until dividends in the total amount due on
such date to holders of the Series C Stock, including any dividends that have
accumulated but remain unpaid, shall have been paid or declared and set apart
for payment on or prior to such Quarterly Dividend Reference Date.
1.G. Subject to paragraphs 1E and 1F above, no dividends or other
distributions (whether in cash, securities or other property, other than
dividends paid on shares of Common Stock and consisting solely of shares of
Common Stock of the same class) shall be paid on or declared and set apart for
any Series A Preferred Stock on any Quarterly Dividend Reference Date until
dividends in the total amount due on such date to holders of the Series B
Preferred Stock, including any dividends that have accumulated but remain
unpaid, shall have been paid or declared and set apart for payment on or prior
to such Quarterly Dividend Reference Date.
1.H. Subject to paragraphs 1E, 1F and 1G above, no dividends or other
distributions (other than dividends paid on shares of Common Stock and
consisting solely of shares of Common Stock of the same class) shall be paid on
or declared and set apart for any Common
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Stock or any other class or series of stock of the corporation during any fiscal
year of the corporation until dividends in the total amount of $0.08 per share
(as adjusted for any combinations or splits with respect to such shares) on the
Series A Preferred Stock, $0.08 per share (as adjusted for any combinations or
splits with respect to such shares) on the Series B Preferred Stock, in respect
of each share of Series C Stock, the Applicable Series C Dividend Rate Per Share
or Applicable Revised Series C Dividend Rate Per Share, as the case may be (each
as adjusted for any combinations or splits with respect to such shares), and, in
respect of each share of Series D Preferred Stock, 13.5% per annum of the sum of
the Series D Liquidation Price, plus in each case all accumulated and unpaid
dividends thereon, shall have been paid or declared and set apart for payment
during that fiscal year and any prior year in which dividends have accumulated
but remain unpaid, and no dividends shall be paid on any share of Common Stock
(other than dividends paid on shares of Common Stock and consisting solely of
shares of Common Stock of the same class) unless a dividend (including the
amount of any dividends paid pursuant to the above provisions of this paragraph
1H, in the case of Series A Preferred Stock and Series C Stock only) or other
distribution is paid with respect to all outstanding shares of Series A
Preferred Stock, Series C Preferred Stock and Series D-1 Preferred Stock in an
amount for each such share of Series A Preferred Stock, Series C Preferred Stock
or Series D-1 Preferred Stock, as the case may be, equal to or greater than the
aggregate amount of such dividends or other distributions for the number of
shares of Common Stock into which each outstanding share of Series A Preferred
Stock, Series C Preferred Stock and Series D-1 Preferred Stock could then be
converted.
1.I. Subject to paragraph 1E above, in the event the corporation shall
declare a distribution (other than any distribution described in paragraphs 1A
through 1D and 1F through 1H) payable in securities of the corporation or other
Persons (other than dividends paid on shares of Common Stock and consisting
solely of shares of Common Stock of the same class), evidences of indebtedness
issued by the corporation or other Persons, assets (excluding cash dividends) or
options or rights to purchase any such securities or evidences of indebtedness,
and at such time, there are no declared or accrued but unpaid dividends then
owed in respect of any share of Preferred Stock, then, in each such case, the
holders of the outstanding shares of Series A Preferred Stock, Series C
Preferred Stock and Series D-1 Preferred Stock shall be entitled to receive a
proportionate share of any such distribution as though the holders of the
outstanding shares of Series A Preferred Stock, Series C Preferred Stock and
Series D-1 Preferred Stock were the holders of the number of shares of Common
Stock into which the outstanding shares of Series A Preferred Stock, Series C
Preferred Stock and Series D-1 Preferred Stock could be converted as of the
record date fixed for the determination of the holders of Common Stock of the
corporation entitled to receive such distribution.
1.J. The corporation may elect not to pay dividends under paragraphs 1A,
1B, 1C or 1D (i) if a Default or Event of Default is then continuing under the
Credit Agreement, or (ii) to the extent the payment of dividends pursuant to
paragraph 1A, 1B, 1C or 1D would cause a Default or Event of Default under the
Credit Agreement to occur; provided, that if the corporation elects to suspend
the payment of dividends under this paragraph 1J, dividends shall continue to
accrue pursuant to this part 1 and shall be payable out of funds legally
available therefor immediately after no Default or Event of Default is then
continuing under the Credit Agreement, and to the extent the corporation may pay
such dividends without causing a Default
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or Event of Default of Section 6 of the Credit Agreement. A Default or Event of
Default will not be "continuing" if it has been waived.
1.K. The corporation shall not pay cash dividends under paragraphs 1A, 1B,
1C or 1D at any time when any of the Notes are outstanding; provided, that if
the corporation is not permitted to pay dividends as a result of this paragraph
1K, dividends shall continue to accrue pursuant to this part 1 and shall be
payable pursuant to this part 1 out of funds legally available therefor at the
time when no Notes remain outstanding.
1.L. Subject to paragraph 1E above, immediately prior to, or concurrently
with, the closing of the Initial Public Offering, the corporation shall declare
and pay a dividend to the holders of the Series C Preferred Stock in an amount
equal to the aggregate amount of all declared or accrued but unpaid dividends in
respect of the Series C Preferred Stock.
Part 2. Liquidation Preference.
2.A. In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary:
(i) The holders of the Series D Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets
or surplus funds of the corporation to the holders of the Series A
Preferred Stock, Series B Preferred Stock, Series C Stock, Common Stock or
any other capital stock of the corporation by reason of their ownership
thereof (the "Series D Liquidation Preference"), (a) an amount for each
share of Series D-1 Preferred Stock then held by them equal to $1,000.00
(as adjusted for any combinations or splits with respect to such shares)
(the "Series D-1 Liquidation Price") plus accrued or declared but unpaid
dividends on such share of Series D-1 Preferred Stock (together with the
Series D-1 Liquidation Price, the "Series D-1 Liquidation Value" of such
share) and (b) an amount for each share of Series D-2 Preferred Stock then
held by them equal to the sum of (1) $1,000.00 minus the product of $0.01
and the number of shares of Class A Common Stock issued along with the
issuance of such share of Series D-2 Preferred Stock at the time of the
conversion of the share of Series D-1 Preferred Stock which was converted
into such share of Series D-2 Preferred Stock and shares of Class A Common
Stock and (2) the product of $0.01 and the number of shares of Class A
Common Stock issued along with the issuance of such share of Series D-2
Preferred Stock at the time of the conversion of the share of Series D-1
Preferred Stock which was converted into such share of Series D-2 Preferred
Stock and shares of Class A Common Stock (as adjusted for any combinations
or splits with respect to such shares) (such sum being the "Series D-2
Liquidation Price") plus accrued or declared but unpaid dividends on such
share of Series D-2 Preferred Stock (together with the Series D-2
Liquidation Price, the "Series D-2 Liquidation Value" of such share) (the
Series D-1 Liquidation Price and Series D-2 Liquidation Price shall be
referred to in these Articles of Incorporation as the "Series D Liquidation
Price" and the Series D-1 Liquidation Value and Series D-2 Liquidation
Value shall be referred to in these Articles of Incorporation as the
"Series D Liquidation Value"). If upon the occurrence of such event, the
assets and funds thus distributed among the holders of the Series D
Preferred Stock shall be insufficient to permit the payment to such holders
of such full preferential
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amount, then the entire assets and funds of the corporation legally
available for distribution shall be distributed ratably among the holders
of the Series D Preferred Stock in proportion to the Series D Liquidation
Value of the shares of Series D Preferred Stock then held by them.
(ii) After payment to the holders of the Series D Preferred Stock of
the full amount to which they are entitled under subparagraph (i) above,
the holders of the Series C Stock shall be entitled to receive, prior and
in preference to any distribution of any of the assets or surplus funds of
the corporation to the holders of the Series A Preferred Stock, Series B
Preferred Stock, Common Stock or any other capital stock of the corporation
by reason of their ownership thereof (the "Series C Liquidation
Preference"), (a) an amount for each share of Series C Preferred Stock then
held by them equal to the greater of (i) $19.689579 (as adjusted for any
combinations or splits with respect to such shares) plus declared or
accrued but unpaid dividends on such share of Series C Preferred Stock and
(ii) the amount each share of Series C Preferred Stock would be entitled
pro rata, together with the Series A Preferred Stock, the Series D-1
Preferred Stock, the Common Stock and any other securities entitled to
participate with the Common Stock in liquidation, assuming conversion into
the largest number of full shares of Common Stock into which such share of
Series C Preferred Stock could be converted (pursuant to the provisions of
part 5 of these Articles of Incorporation), had all shares of Series C
Preferred Stock been converted at the date fixed for such liquidation,
dissolution or winding up of the corporation (such greater amount being the
"Series C Preferred Liquidation Value" of such share) and (b) an amount for
each share of Series C-1 Preferred Stock then held by them equal to
$19.689579 (as adjusted for any combinations or splits with respect to such
shares) plus declared or accrued but unpaid dividends on such share of
Series C-1 Preferred Stock (the "Series C-1 Liquidation Value" of such
share) (the Series C Preferred Liquidation Value and the Series C-1
Liquidation Value shall be referred to in these Articles of Incorporation
as the "Series C Liquidation Value"). If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series C
Stock shall be insufficient to permit the payment to such holders of such
full preferential amount, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series C Stock in proportion to the Series C
Preferred Liquidation Value or Series C-1 Liquidation Value, as the case
may be, of the shares of Series C Stock then held by them.
(iii) After payment to the holders of the Series D Preferred Stock and
the Series C Stock of the full amount to which they are entitled under
subparagraphs (i) and (ii) above, 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 or surplus funds of the corporation to
the holders of the Series A Preferred Stock, Common Stock or any other
capital stock of the corporation by reason of their ownership thereof (the
"Series B Liquidation Preference"), an amount for each share of Series B
Preferred Stock then held by them equal to $1.00 (as adjusted for any
combinations or splits with respect to such shares) plus accrued or
declared but unpaid dividends on such share of Series B Preferred Stock
(the "Series B Liquidation Value" of such share). If upon the occurrence of
such event, the assets and funds thus distributed among the holders of the
Series B Preferred
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Stock shall be insufficient to permit the payment to such holders of such
full preferential amount, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock in proportion to the
shares of Series B Preferred Stock then held by them.
(iv) After payment to the holders of the Series D Preferred Stock, the
Series C Stock and the Series B Preferred Stock of the full amount to which
they are entitled under subparagraphs (i), (ii) and (iii) above, the
holders of the Series A Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds
of the corporation to the holders of the Common Stock or any other capital
stock of the corporation by reason of their ownership thereof (the "Series
A Liquidation Preference"), an amount for each share of Series A Preferred
Stock then held by them equal to $1.00 (as adjusted for any combinations or
splits with respect to such shares) plus accrued or declared but unpaid
dividends on such share of Series A Preferred Stock (the "Series A
Liquidation Value" of such share). If upon the occurrence of such event,
the assets and funds thus distributed among the holders of the Series A
Preferred Stock shall be insufficient to permit the payment to such holders
of such full preferential amount, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock in proportion to the
shares of Series A Preferred Stock then held by them.
(v) Subject to the payment in full of the Series D Liquidation
Preference, the Series C Liquidation Preference, the Series B Liquidation
Preference and the Series A Liquidation Preference as provided in
subparagraphs (i), (ii), (iii) and (iv) above, all remaining assets and
surplus funds of the corporation shall be distributed among holders of
Common Stock and the holders of Series A Preferred Stock and Series D-1
Preferred Stock, ratably in proportion to the shares of Common Stock then
held by them and the shares of Common Stock into which the shares of Series
A Preferred Stock and Series D-1 Preferred Stock then held by them could be
converted.
2.B. For purposes of this part 2, a "liquidation" shall, at the option of
both (i) the holders of at least 66-2/3% of the outstanding shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and, if
clause (ii) of this paragraph does not apply, Series D Preferred Stock, voting
together as a single class and not as separate classes or series, and (ii) if,
as a result of any such transaction deemed to be a "liquidation" for purposes of
this part 2, the holders of Series D Preferred Stock would receive any
consideration other than cash or would receive cash consideration in an
aggregate amount that is less than the aggregate Series D Liquidation Value for
all shares of Series D Preferred Stock, the holders of at least 66-2/3% of the
outstanding shares of Series D Preferred Stock, voting as a separate class,
include:
(a) a consolidation or merger of the corporation with or into any
other corporation, or any other Person, other than a wholly-owned
Subsidiary of the corporation, excluding any transaction in which
shareholders of the corporation prior to the transaction will maintain
voting control of the resulting entity after the transaction;
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(b) any corporate reorganization in which the corporation shall
not be the continuing or surviving entity resulting from such
reorganization;
(c) a sale of all or substantially all of the assets of the
corporation; or
(d) a statutory share exchange in which any Person acquires all
of the outstanding shares of any class or series of capital stock of
the corporation;
such that the holders of Series A Preferred Stock, Series B Preferred Stock,
Series C Stock and Series D Preferred Stock shall be paid in cash or in
securities received from the acquiring corporation, or in a combination thereof,
at the closing of any such transaction, an amount equal to the amount per share
which would be payable to the holders of Series A Preferred Stock, Series B
Preferred Stock, Series C Stock and Series D Preferred Stock pursuant to this
part 2 in a liquidation of the corporation.
2.C. Any securities to be delivered to the holders of Series A Preferred
Stock, Series B Preferred Stock, Series C Stock or Series D Preferred Stock
pursuant to paragraph 2B above shall be valued as follows:
(i) Securities not subject to restrictions on free transferability:
(a) if traded on a securities exchange, the value shall be deemed
to be the average of the security's closing prices on such exchange
over the 30-day period ending three days prior to the closing;
(b) if actively traded over-the-counter, the value shall be
deemed to be the average of the closing bid prices over the 30-day
period ending three days prior to the closing; and
(c) if there is no active public market, the value shall be the
fair market value thereof, as mutually determined by a majority of the
disinterested directors and the holders of a majority of the
outstanding shares of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, voting
together as a single class and not as a separate class or series, or,
in the absence of such agreement, by an independent appraisal paid for
by the corporation; and
(ii) Securities subject to investment letter or other restrictions on
free marketability shall be valued at an appropriate discount from the fair
market value determined as above in subparagraphs (i)(a), (i)(b) or (i)(c)
to reflect the approximate fair market value thereof, as mutually
determined by a majority of the disinterested directors and the holders of
a majority of the outstanding Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D Preferred Stock, voting
together as a single class and not as separate classes or series or, in the
absence of such agreement, by an independent appraisal paid for by the
corporation.
2.D. The corporation shall give each holder of record of Series A Preferred
Stock, Series B Preferred Stock, Series C Stock and Series D Preferred Stock
written notice of any
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impending transaction described in paragraph 2B above not later than 20 days
prior to the shareholders meeting called to approve such transaction or 20 days
prior to the closing of such transaction, whichever is earlier, and shall also
notify such holders in writing of the final approval of such transaction. The
first of said notices shall describe the material terms and conditions of the
contemplated transaction as well as the terms and conditions of this part 2, and
the corporation shall thereafter give such holders prompt notice of any material
changes. The transaction shall in no event take place sooner than 20 days after
the mailing by the corporation of the first notice provided for herein or sooner
than 20 days after the mailing by the corporation of any notice of material
changes provided for herein; provided, however, that such periods may be
shortened upon the written consent of both (i) the holders of a majority of the
outstanding Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and, if clause (ii) of this Paragraph does not apply, Series D
Preferred Stock, voting together as a single class and not as separate series,
and (ii) if, as a result of any such transaction deemed to be a "liquidation"
for purposes of this part 2, the holders of Series D Preferred Stock would
receive any consideration other than cash or would receive cash consideration in
an aggregate amount that is less than the aggregate Series D Liquidation Value
for all shares of Series D Preferred Stock, the holders of a majority of the
outstanding shares of Series D Preferred Stock, voting as a separate class.
Part 3. Redemptions.
3.A. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, on the first business day following the closing
of a Qualified Public Offering with respect to the Series B Preferred Stock (the
"Series B Public Offering Mandatory Redemption Date"), the corporation shall
redeem (the "Series B Public Offering Mandatory Redemption") all shares of
Series B Preferred Stock as are then outstanding at a price per share equal to
the Series B Redemption Price (as defined in paragraph 3G).
3.B. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, at any time and from time to time after July
31, 2007, the holders of a majority of the outstanding shares of Series B
Preferred Stock may elect to require the corporation to redeem (the "Series B
Mandatory Redemption") all shares of Series B Preferred Stock as are then
outstanding at a price per share equal to the Series B Redemption Price (as
defined in paragraph 3G). The holders of a majority of the outstanding shares of
Series B Preferred Stock may elect to require the corporation to effect the
Series B Mandatory Redemption by giving written notice (a "Series B Redemption
Notice") to the corporation and the other holders of Preferred Stock of such
election and setting forth a date (the "Series B Mandatory Redemption Date") on
which such Series B Mandatory Redemption shall be consummated; provided,
however, such Series B Mandatory Redemption Date shall not be less than 90 days
nor more than 120 days after the delivery of such Series B Redemption Notice.
Subject to Part 3 of the Shareholders Agreement and paragraph 3R of these
Articles of Incorporation, upon receipt of a Series B Redemption Notice, the
corporation (and such holders) will be obligated to redeem all shares of Series
B Preferred Stock on the Series B Mandatory Redemption Date.
3.C. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, at any time and from time to time after July
31, 2007, the holders of a majority of the outstanding shares of Series A
Preferred Stock may elect to require the
10
corporation to redeem (the "Series A Mandatory Redemption") all shares of Series
A Preferred Stock as are then outstanding at a price per share equal to the
Series A Redemption Price (as defined in paragraph 3H). The holders of a
majority of the outstanding shares of Series A Preferred Stock may elect to
require the corporation to effect the Series A Mandatory Redemption by giving
written notice (a "Series A Redemption Notice") to the corporation and the other
holders of Preferred Stock of such election and setting forth a date (the
"Series A Mandatory Redemption Date") on which such Series A Mandatory
Redemption shall be consummated; provided, however, such Series A Mandatory
Redemption Date shall not be less than 90 days nor more than 120 days after the
delivery of such Series A Redemption Notice. Subject to Part 3 of the
Shareholders Agreement and paragraph 3R of these Articles of Incorporation, upon
receipt of a Series A Redemption Notice, the corporation (and such holders) will
be obligated to redeem all shares of Series A Preferred Stock on the Series A
Mandatory Redemption Date.
3.D. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, at any time and from time to time after the
earlier to occur of (i) July 31, 2007 or (ii) the first date (the "Change of
Control Date") prior to the Initial Public Offering as Austin Ventures (as
defined in the Series C Purchase Agreement) and its affiliates do not own,
collectively, at least 28.5% of the voting stock of the corporation, on a fully
diluted basis, or do not hold the highest percentage ownership of the voting
stock of the corporation of any shareholder of the corporation, on a fully
diluted basis, (a) the holders of a majority of the outstanding shares of Series
C Preferred Stock may elect to require the corporation to redeem (the "Series C
Mandatory Redemption") all shares of Series C Preferred Stock as are then
outstanding at a price per share equal to the Series C Redemption Price (as
defined in paragraph 3I) and (b) the holders of a majority of the outstanding
shares of Series C-1 Preferred Stock may elect to require the corporation to
redeem (the "Series C-1 Mandatory Redemption" and, together with the Series C
Mandatory Redemption, the "Series C Holders Mandatory Redemptions") all shares
of Series C-1 Preferred Stock as are then outstanding at a price per share equal
to the Series C-1 Redemption Price (as defined in paragraph 3I) . The holders of
a majority of the outstanding shares of Series C Preferred Stock and/or Series
C-1 Preferred Stock, as the case may be, may elect to require the corporation to
effect the Series C Holders Mandatory Redemptions by giving written notice (a
"Series C Redemption Notice" and, together with the Series B Redemption Notice
and the Series A Redemption Notice, the "Redemption Notices") to the corporation
and the other holders of Preferred Stock of such election and setting forth a
date (the "Series C Mandatory Redemption Date") on which such Series C Holders
Mandatory Redemptions shall be consummated; provided, however, such Series C
Mandatory Redemption Date shall not be less than 90 days nor more than 120 days
after the delivery of such Series C Redemption Notice. Subject to Part 3 of the
Shareholders Agreement and paragraph 3R of these Articles of Incorporation, upon
receipt of a Series C Redemption Notice, the corporation (and such holders) will
be obligated to redeem all shares of Series C Preferred Stock and/or Series C-1
Preferred Stock, as the case may be, on the Series C Mandatory Redemption Date.
3.E. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation and provided that no shares of Series D
Preferred Stock are outstanding on the Series C-1 Public Offering Mandatory
Redemption Date (as defined below), in addition to the redemption rights set
forth in paragraph 3D of these Articles of Incorporation, concurrently with the
closing of the Initial Public Offering (the "Series C-1 Public Offering
Mandatory
11
Redemption Date"), the corporation shall redeem (the "Series C-1 Public Offering
Mandatory Redemption") all shares of Series C-1 Preferred Stock as are then
outstanding at a price per share equal to the Series C-1 Redemption Price (as
defined in paragraph 3I).
3.F. Concurrently with the closing of the Initial Public Offering (the
"Series D Mandatory Redemption Date"), the corporation shall redeem (the "Series
D Mandatory Redemption") (i) all shares of Series D-2 Preferred Stock as are
then outstanding at a price per share equal to the respective Series D-2
Redemption Price (as defined in paragraph 3J) for such shares and (ii) the
minimum number of shares of Series D Underlying Common Stock (if any) that are
required to be redeemed so that the percentage of votes that may be cast by the
holders of Series D Stock in the election of directors of the corporation
immediately after giving effect to the Initial Public Offering and the
redemption of Series D Underlying Common Stock pursuant to this clause (ii) is
less than 80% of the percentage of votes that may be cast by the holders of
Series D Stock in the election of directors of the corporation immediately prior
to giving effect to the Initial Public Offering and redemption, at a price per
share equal to the Initial Public Offering Price Per Share. Notwithstanding
paragraph 3Q of these Articles of Incorporation, the corporation will not effect
the Initial Public Offering of Common Stock at any time when any Series D
Preferred Stock is outstanding unless it concurrently effects in full the
redemption(s) required by this paragraph 3F.
3.G. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, the holders of Series B Preferred Stock shall
be entitled to receive from the corporation on the Series B Public Offering
Mandatory Redemption Date or a Series B Mandatory Redemption Date an amount in
cash for each share of Series B Preferred Stock equal to $1.00 (as adjusted for
combinations or splits with respect to such shares), plus any accrued or
declared but unpaid dividends on such share of Series B Preferred Stock (the
"Series B Redemption Price"); provided, however, if any shares of Series D
Preferred Stock are outstanding on the Series B Public Offering Mandatory
Redemption Date, each holder of shares of Series B Preferred Stock shall, in
lieu of cash, receive for each share of Series B Preferred Stock such number of
fully paid and nonassessable shares of Class A Common Stock as is determined by
dividing the Series B Redemption Price at the time of closing of the Qualified
Public Offering in question by the Qualified Public Offering Price Per Share.
3.H. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, the holders of Series A Preferred Stock shall
be entitled to receive from the corporation on the Series A Mandatory Redemption
Date an amount in cash for each share of Series A Preferred Stock equal to $1.00
(as adjusted for combinations or splits with respect to such shares), plus any
accrued or declared but unpaid dividends on such share of Series A Preferred
Stock (the "Series A Redemption Price").
3.I. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, the holders of Series C Preferred Stock shall
be entitled to receive from the corporation on the Series C Mandatory Redemption
Date an amount in cash for each share of Series C Preferred Stock equal to
$19.689579 (as adjusted for combinations or splits with respect to such shares),
plus any accrued or declared but unpaid dividends on such share of Series C
Preferred Stock (the "Series C Redemption Price"). Subject to Part 3 of the
Shareholders Agreement and paragraph 3R of these Articles of Incorporation and
provided that no shares of
12
Series D Preferred Stock are outstanding on the Series C Mandatory Redemption
Date or the Series C-1 Public Offering Mandatory Redemption Date, as applicable,
the holders of Series C-1 Preferred Stock shall be entitled to receive from the
corporation on the Series C Mandatory Redemption Date or the Series C-1 Public
Offering Mandatory Redemption Date, as applicable, an amount in cash for each
share of Series C-1 Preferred Stock equal to $19.689579 (as adjusted for
combinations or splits with respect to such shares), plus any accrued or
declared but unpaid dividends on such share of Series C-1 Preferred Stock (the
"Series C-1 Redemption Price").
3.J. The holders of Series D-2 Preferred Stock shall be entitled to receive
from the corporation on the Series D Mandatory Redemption Date an amount in cash
for each share of Series D-2 Preferred Stock to be redeemed on such Series D-2
Mandatory Redemption Date equal to $1,000.00 (as adjusted for combinations or
splits with respect to such shares), plus any accrued or declared but unpaid
dividends on such share of Series D-2 Preferred Stock (the "Series D-2
Redemption Price" of such share). The holders of Series D Underlying Common
Stock shall be entitled to receive from the corporation on the Series D
Mandatory Redemption Date an amount in cash for each share of Series D
Underlying Common Stock to be redeemed on such Series D Mandatory Redemption
Date equal to the Initial Public Offering Price Per Share.
3.K. If all Series D-2 Preferred Stock and Series D Underlying Common Stock
that the corporation is then required to redeem has been redeemed and the funds
of the corporation legally available for redemption of Series C Preferred Stock
and/or Series C-1 Preferred Stock, as the case may be, on the Series C Mandatory
Redemption Date and/or the Series C-1 Public Offering Redemption Date are
insufficient to redeem the total number of shares of Series C Preferred Stock
and/or Series C-1 Preferred Stock, as the case may be, to be redeemed on the
Series C Mandatory Redemption Date and/or Series C-1 Public Offering Redemption
Date, those funds that are legally available will be applied to the shares of
Series C Stock to be redeemed as follows: (i) if applicable, ratably among the
holders of the Series C Preferred Stock and Series C-1 Preferred Stock based
upon the aggregate Series C Redemption Price and the aggregate Series C-1
Redemption Price, then (ii) with respect to each of the Series C Preferred Stock
and Series C-1 Preferred Stock to be redeemed, ratably among the holders of
shares of each of the Series C Preferred Stock and Series C-1 Preferred Stock to
be redeemed based upon (a) in the case of the holders of shares of Series C
Preferred Stock, the aggregate Series C Redemption Price of such shares held by
each holder and (b) in the case of the holders of shares of Series C-1 Preferred
Stock, the aggregate Series C-1 Redemption Price of such shares held by each
holder. At any time and from time to time thereafter when additional funds of
the corporation are legally available for redemption of shares of Series C
Stock, such funds immediately will be applied to redeem the balance of the
shares of Series C Stock that have not been redeemed and such funds will not be
used for any other purpose, including to redeem any shares of Series B Preferred
Stock or Series A Preferred Stock that the corporation is obligated to redeem.
3.L. If all Series D-2 Preferred Stock and Series D Underlying Common Stock
and Series C Stock that the corporation is then required to redeem have been
redeemed and the funds of the corporation legally available for redemption of
Series B Preferred Stock on the Series B Mandatory Redemption Date are
insufficient to redeem the total number of shares of Series B Preferred Stock to
be redeemed on the Series B Mandatory Redemption Date, those funds that are
legally available will be applied to the Series B Preferred Stock, ratably among
the holders of the shares to be redeemed based upon the aggregate Series B
Redemption Price of such shares
13
held by each such holder. At any time and from time to time thereafter when
additional funds of the corporation are legally available for redemption of
shares of Series B Preferred Stock, such funds immediately will be applied to
redeem the balance of the shares of Series B Preferred Stock that have not been
redeemed and such funds will not be used for any other purpose, including to
redeem any shares of Series A Preferred Stock that the corporation is obligated
to redeem.
3.M. If all Series D-2 Preferred Stock and Series D Underlying Common
Stock, Series C Stock and Series B Preferred Stock that the corporation is then
required to redeem have been redeemed and the funds of the corporation legally
available for redemption of Series A Preferred Stock on the Series A Mandatory
Redemption Date are insufficient to redeem the total number of shares of Series
A Preferred Stock to be redeemed on the Series A Mandatory Redemption Date,
those funds that are legally available will be applied to the Series A Preferred
Stock ratably among the holders of the shares to be redeemed based upon the
aggregate Series A Redemption Price of such shares held by each such holder. At
any time and from time to time thereafter when additional funds of the
corporation are legally available for redemption of shares of Series A Preferred
Stock, such funds immediately will be applied to redeem the balance of the
shares of Series A Preferred Stock that the corporation has become obligated to
redeem on the Series A Mandatory Redemption Date but which it has not redeemed
and such funds will not be used for any other purpose.
3.N. No share of Series A Preferred Stock, Series B Preferred Stock, Series
C Stock, Series D-2 Preferred Stock or Series D Underlying Common Stock is
entitled to any dividends accruing after the date on which the Series A
Redemption Price, the Series B Redemption Price, the Series C Redemption Price,
the Series C-1 Redemption Price, the Series D-2 Redemption Price or the
Qualified Public Offering Price Per Share, respectively, with respect to such
share is paid. On such date, all rights of the holder of such share of Series A
Preferred Stock, Series B Preferred Stock, Series C Stock, Series D-2 Preferred
Stock or Series D Underlying Common Stock will cease, and such share of Series A
Preferred Stock, Series B Preferred Stock, Series C Stock, Series D-2 Preferred
Stock or Series D Underlying Common Stock will not be deemed to be outstanding.
3.O. Any shares of Series A Preferred Stock, Series B Preferred Stock,
Series C Stock or Series D Stock that are redeemed or otherwise acquired by the
corporation will be cancelled and will not be reissued, sold or transferred. If
fewer than the total number of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Stock or Series D Stock represented by any certificate
are redeemed, a new certificate representing the number of unredeemed shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Stock or Series D
Stock will be issued to the holder thereof without cost to such holder within
three business days after surrender of the certificate representing the redeemed
shares.
3.P. Subject to Part 3 of the Shareholders Agreement and paragraph 3R of
these Articles of Incorporation, neither the corporation nor any Subsidiary will
redeem, repurchase or otherwise acquire any shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Stock, Series D-1 Preferred Stock or Series
D-2 Preferred Stock, except as expressly authorized herein or pursuant to a
purchase offer made, as applicable:
14
(i) pro-rata to all holders of shares of each of Series D-1 Preferred
Stock and Series D-2 Preferred Stock as follows: (a) ratably among the
holders of Series D-1 Preferred Stock and Series D-2 Preferred Stock to be
purchased based upon the aggregate purchase price for all of the
outstanding Series D-1 Preferred Stock and the aggregate purchase price for
all of the outstanding Series D-2 Preferred Stock then (b) with respect to
each of the Series D-1 Preferred Stock and the Series D-2 Preferred Stock
to be purchased, ratably among all of the holders of shares of each of
Series D-1 Preferred Stock and Series D-2 Preferred Stock to be purchased
on the basis of (x) in the case of the holders of shares of Series D-1
Preferred Stock, the number of shares of Series D-1 Preferred Stock owned
by each such holder and (y) in the case of the holders of shares of Series
D-2 Preferred Stock, the number of shares of Series D-2 Preferred Stock
owned by each such holder;
(ii) pro-rata to all holders of shares of Series C Preferred Stock on
the basis of the number of shares of Series C Preferred Stock owned by each
such holder and only if all shares of Series D Preferred Stock have been
redeemed, repurchased or otherwise acquired by the corporation;
(iii) pro-rata to all holders of shares of Series C-1 Preferred Stock
on the basis of the number of shares of Series C-1 Preferred Stock owned by
each such holder and only if all shares of Series D Preferred Stock have
been redeemed, repurchased or otherwise acquired by the corporation;
(iv) pro-rata to all holders of shares of Series B Preferred Stock on
the basis of the number of shares of Series B Preferred Stock owned by each
such holder and only if all shares of Series D Preferred Stock and Series C
Stock have been redeemed, repurchased or otherwise acquired by the
corporation; or
(v) pro-rata to all holders of shares of Series A Preferred Stock on
the basis of the number of shares of Series A Preferred Stock owned by each
such holder and only if all shares of Series D Preferred Stock, Series C
Stock and Series B Preferred Stock have been redeemed, repurchased or
otherwise acquired by the corporation.
3.Q. Notwithstanding anything in this part 3 to the contrary, neither the
corporation nor any Subsidiary will redeem, repurchase or otherwise acquire any
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Stock,
Series D Stock or any other series or class of capital stock of the corporation
while any Notes are outstanding, or if prohibited under the Credit Agreement. If
on the date that the holders of the Series A Preferred Stock, the Series B
Preferred Stock, the Series C Stock, the Series D Stock or other series or class
of capital stock of the corporation could elect to require the corporation to
effect the redemption of such Series A Preferred Stock, Series B Preferred
Stock, Series C Stock, Series D Stock or any other series or class of capital
stock of the corporation any Notes are outstanding or the redemption of the
Series A Preferred Stock, Series B Preferred Stock, the Series C Stock, Series D
Stock or other series or class of capital stock of the corporation is prohibited
under the Credit Agreement, the time for giving such notice shall be extended
until 100 days following the date (the "Extension Date") upon which no Notes
remain outstanding and the redemption of the Series A Preferred Stock, the
15
Series B Preferred Stock, the Series C Stock, Series D Stock or any other series
or class of capital stock of the corporation is no longer prohibited under the
Credit Agreement.
3.R. Notwithstanding any other provision of this part 3, (i) no holder of
Preferred Stock will deliver a Redemption Notice to the corporation pursuant to
this part 3 and (ii) neither the corporation nor any Subsidiary will redeem,
repurchase or otherwise acquire any shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Stock or any other series or class of capital stock of
the corporation (other than Series D Stock) at any time (a) during each period
(each, a "Non-Redemption Period") beginning on the date of the receipt by the
corporation of a Sale Notice (as defined in the Shareholders Agreement) and
ending on the date that the corporation elects, pursuant to Paragraph 3C(b) of
the Shareholders Agreement, to suspend all efforts to consummate the Sale of the
Company initiated by such Sale Notice or (b) if any Series D-2 Preferred Stock
or Series D Underlying Common Stock that is required at such time to be redeemed
pursuant to paragraph 3F of these Articles of Incorporation by the corporation
has not been redeemed. Any Redemption Notice delivered during a Non-Redemption
Period shall have no force or effect, and any Redemption Notice delivered to the
corporation at any time other than during a Non-Redemption Period shall be
deemed rescinded and such Redemption Notice shall have no further force or
effect if, prior to the consummation of the redemption contemplated by such
Redemption Notice, the corporation receives a Sale Notice.
Part 4. Voting Rights.
4.A. Except as otherwise provided in these Articles of Incorporation or the
Act, the Series A Preferred Stock, the Series C Preferred Stock and the Series
D-1 Preferred Stock will vote together with the Common Stock as a single class
on all matters to come before the shareholders of the corporation, and the
Common Stock shall not be entitled to vote separately as a class on any matter.
In any such vote, each holder of Class A Common Stock will be entitled to one
vote per share of Class A Common Stock held by such holder and each holder of
Series A Preferred Stock, Series C Preferred Stock and Series D-1 Preferred
Stock will be entitled to one vote for each share of Common Stock into which
such Preferred Stock held by such holder is then convertible. Except as
otherwise provided in these Articles of Incorporation or the Act, the holders of
Series B Preferred Stock, the Series C-1 Preferred Stock or Series D-2 Preferred
Stock will have no right to vote their shares of Series B Preferred Stock,
Series C-1 Preferred Stock or Series D-2 Preferred Stock on any matters to be
voted on by the shareholders of the corporation. Except as otherwise provided in
these Articles of Incorporation or the Act, the holders of Class B Common Stock
will have no right to vote their shares of Class B Common Stock on any matters
to be voted on by the shareholders of the corporation.
4.B. On any matter specifically requiring the vote of only the holders of
the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock
and Series D Preferred Stock, the Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock, or the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, as the
case may be, voting together as a single class pursuant to these Articles of
Incorporation, each holder of Series B Preferred Stock, Series C-1 Preferred
Stock and Series D-2 Preferred Stock (if applicable) will be entitled to one
vote per share of Series B Preferred Stock, Series C-1 Preferred Stock or Series
D-2 Preferred Stock held by such holder and each holder of Series A Preferred
Stock, Series C Preferred Stock and Series D-1 Preferred Stock (if
16
applicable) will be entitled to one vote for each share of Common Stock into
which such Preferred Stock held by such holder is then convertible.
4.C. Without first obtaining the approval or consent of the holders of at
least 66-2/3% of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, voting together as a single class
and not as separate classes or series, the corporation shall not:
(i) issue any capital stock, options, warrants or rights to purchase
or acquire capital stock, or any other equity securities, other than (A)
pursuant to an Approved Plan or the exercise of options or other rights
granted pursuant thereto, (B) upon conversion of shares of Series A
Preferred Stock, (C) upon conversion of shares of Series B Preferred Stock,
(D) upon conversion of shares of Series C Preferred Stock, (E) upon
conversion of shares of Series D-1 Preferred Stock, (F) pursuant to the
Series D-1 Purchase Agreement, (G) the issuance of the Warrant Shares upon
the exercise of the Warrants or (H) the Class A Common Stock issuable upon
conversion of any outstanding Class B Common Stock;
(ii) except as required pursuant to the Shareholders Agreement, sell
or dispose of in any manner all or any substantial portion of its
properties or assets, liquidate, dissolve or enter into any merger,
consolidation or similar transaction; or
(iii) acquire any interest in any Person (whether by a purchase of
assets, purchase of stock or other securities, merger or otherwise, or
create any Subsidiary other than a wholly owned Subsidiary), other than
purchases (either directly, or indirectly through the purchase of 100% of
the outstanding stock of the Person) of monitoring alarm contracts in the
ordinary course of business of the corporation.
4.D. Without first obtaining the approval or consent of the holders of at
least 66-2/3% of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and Series C-1 Preferred Stock, each
voting as separate series and not as a single class, the corporation shall not
make any amendment to these Articles of Incorporation or the corporation's
bylaws, or file any resolution of the Board of Directors with the Texas
Secretary of State containing any provisions, which would increase the number of
authorized shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and/or Series C-1 Preferred Stock, as the case may be,
or adversely affect or otherwise impair the rights or the relative preferences
and priorities of the holders of the Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock and/or Series C-1 Preferred Stock, as
the case may be, under these Articles of Incorporation.
4.E. Without first obtaining the approval or consent of the holders of at
least 66-2/3% of the outstanding shares of Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock, each voting as separate series and
not as a single class, the corporation shall not purchase, redeem or otherwise
acquire or retire for value any of its capital stock or other equity securities
or declare or make any dividend or other distribution with respect to any of its
capital stock or other equity securities (other than a dividend or distribution
payable solely in shares of Common Stock), except that this provision shall not
prevent (i) the repurchase by the corporation of (a) capital stock from
employees at cost pursuant to agreements with such employees
17
approved by the Board of Directors (with a majority of the Purchaser Directors
concurring) or (b) Preferred Stock and Common Stock required under part 3 hereof
or (ii) a liquidation of the corporation under part 2 hereof.
Part 5. Conversion.
The holders of Series A Preferred Stock, Series B Preferred Stock, Series C
Preferred Stock and Series D-1 Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
5.A. Right to Convert. Subject to the provisions of paragraph 5C, (i) each
share of Series A 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
office of the corporation or any transfer agent for such share, into such number
of fully paid and nonassessable shares of Class A Common Stock as is determined
by dividing $1.00 by the Series A Conversion Price (as defined below) in effect
at the time of conversion, (ii) each share of Series B Preferred Stock shall be
convertible, at the option of the holder thereof, concurrently with the closing
of a Qualified Public Offering with respect to the Series B Preferred Stock, at
the office of the corporation or any transfer agent for such share, into such
number of fully paid and nonassessable shares of Class A Common Stock as is
determined by dividing the Series B Redemption Price at the time of closing of
such Qualified Public Offering by the Qualified Public Offering Price Per Share,
(iii) each share of Series C Preferred Stock shall be convertible, at the option
of the holder thereof, (a) at any time after the expiration of the Additional
Financing Period, (b) during the Additional Financing Period, concurrently with
upon the closing of a Qualified Public Offering with respect to the Series C
Preferred Stock or (c) during the Additional Financing Period, concurrently with
the closing of a sale of Triggering Securities (as defined in the Co-Sale
Agreement) but in the case of this clause (c) only if the holder has elected to
sell shares of Common Stock at such closing and then only to the extent
necessary so that the holder holds the number of shares of Common Stock to be
sold at such closing, at the office of the corporation or any transfer agent for
such share, into such number of fully paid and nonassessable shares of Class A
Common Stock as is determined by dividing $19.689579 by the Series C Conversion
Price (as defined below) in effect at the time of conversion, and (iv) each
share of Series D-1 Preferred Stock shall be convertible, at the option of the
holder thereof, (a) at any time after the expiration of the Additional Financing
Period, (b) during the Additional Financing Period, concurrently with the
closing of a Qualified Public Offering with respect to the Series D Preferred
Stock or (c) during the Additional Financing Period, concurrently with the
closing of a sale of Triggering Securities (as defined in the Co-Sale Agreement)
but in the case of this clause (c) only if the holder has elected to sell shares
of Common Stock at such closing and then only to the extent necessary so that
the holder holds the number of shares of Common Stock to be sold at such
closing, at the office of the corporation or any transfer agent for such share,
into (1) one fully paid and nonassessable share of Series D-2 Preferred Stock
and (2) a quantity of fully paid and nonassessable shares of Class A Common
Stock equal to the Series D-1 Conversion Amount in effect at the time of
conversion. Shares of Series C-1 Preferred Stock and Series D-2 Preferred Stock
shall not be convertible.
5.B. Automatic Conversion. Each share of Series A Preferred Stock shall
automatically be converted into shares of Class A Common Stock at the then
effective Series A
18
Conversion Price immediately upon the closing of a Qualified Public Offering
with respect to the Series A Preferred Stock. Each share of Series C Preferred
Stock shall automatically be converted into shares of Class A Common Stock at
the then effective Series C Conversion Price immediately upon the closing of a
Qualified Public Offering with respect to the Series C Preferred Stock. Each
share of Series D-1 Preferred Stock shall automatically be converted into (i)
one fully paid and nonassessable share of Series D-2 Preferred Stock and (ii) a
quantity of fully paid and nonassessable shares of Class A Common Stock equal to
the Series D-1 Conversion Amount in effect at the time of conversion immediately
upon the closing of a Qualified Public Offering with respect to the Series D
Preferred Stock.
5.C. Mechanics of Conversion. Before (i) any holder of Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock shall be entitled to
convert shares of Series A Preferred Stock, Series B Preferred Stock or Series C
Preferred Stock into shares of Class A Common Stock or (ii) any holder of Series
D-1 Preferred Stock shall be entitled to convert shares of Series D-1 Preferred
Stock into shares of Series D-2 Preferred Stock and shares of Class A Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the corporation or of any transfer agent for
such shares, and shall give written notice to the corporation at such office
that such holder elects to convert the same and shall state therein the name or
names in which the certificate or certificates for shares of Series D-2
Preferred Stock and/or Class A Common Stock, as applicable, are to be issued.
The corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock or Series D-1 Preferred Stock a certificate or
certificates for the number of shares of Series D-2 Preferred Stock and/or Class
A Common Stock, as applicable, to which the holder shall be entitled as
aforesaid. Such conversion shall be deemed to have been made immediately prior
to the close of business on the date of surrender of the shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or Series
D-1 Preferred Stock to be converted, and the Person or Persons entitled to
receive the shares of Series D-2 Preferred Stock and/or Class A Common Stock, as
applicable, issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Series D-2 Preferred Stock and/or
Class A Common Stock, as applicable, on such date. In the event of an automatic
conversion of the Series A Preferred Stock, Series C Preferred Stock or Series
D-1 Preferred Stock, the Board of Directors may elect to treat the conversion of
the shares of Series A Preferred Stock, Series C Preferred Stock or Series D-1
Preferred Stock as having been made effective as of the date of the event
resulting in the automatic conversion.
5.D. Adjustments to Conversion Prices and the Series D Dilution Factor for
Dilutive Issues.
(i) Conversion Prices and Series D Dilution Factor. The initial Series
A Conversion Price shall be $1.00 per share. The initial Series C
Conversion Price shall be $19.689579 per share. The initial Series D
Dilution Factor shall be an amount equal to 1.00. The Series A Conversion
Price, the Series C Conversion Price and the Series D Dilution Factor shall
be subject to adjustment as set forth in this part 5.
19
(ii) Special Definitions. For purposes hereof, the following
definitions apply:
(a) "Options" shall mean rights, options, or warrants to
subscribe for, purchase or otherwise acquire either Common Stock or
Convertible Securities, but shall not include the Warrants (other than
the 2001 Warrants).
(b) "Convertible Securities" shall mean any evidences of
indebtedness, shares (other than Common Stock, Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or Series
D-1 Preferred Stock) or other securities convertible into or
exchangeable for Common Stock.
(c) "Additional Shares of Common Stock" shall mean all shares of
Common Stock issued (or, pursuant to paragraph 5D(iv), deemed to be
issued) by the corporation after the Series D-1 Original Issue Date
other than shares of Common Stock issued or issuable:
(1) upon conversion of shares of the Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D-1 Preferred Stock;
(2) to officers, directors or employees of, or consultants
to, the corporation or any Subsidiary, on terms approved by the
Board of Directors (including shares of Common Stock issued or
issuable upon exercise of options granted pursuant to any
Approved Plan);
(3) as a dividend or distribution on Series A Preferred
Stock, Series B Preferred Stock or Series C Preferred Stock;
(4) pursuant to the acquisition of another Person by merger,
purchase of all or substantially all of the assets of such Person
or reorganization;
(5) upon the exercise of the Warrants or the conversion of
Class B Common Stock into Class A Common Stock;
(6) upon the issuance of Series D-1 Preferred Stock pursuant
to the Series D-1 Purchase Agreement; or
(7) upon the issuance of Bundled Securities, but not in
excess of 1,114,181 shares of Common Stock (subject to adjustment
for all combinations and splits), in the aggregate (any such
securities issued in excess of such amount shall be deemed
Additional Shares of Common Stock), in one or more Third Party
Financings;
provided, however, that (A) shares of Common Stock deemed to be issued pursuant
to paragraph 5D(iv) upon the issuance of Series D-1 Preferred Stock as described
in subparagraph (c)(6) shall be deemed Additional Shares of Common Stock issued
at a price of $0.01 per share for the purposes of determining any adjustments to
the Series C Conversion Price (as provided in
20
5(D)(viii)), (B) on or prior to the date of the expiration of the Additional
Financing Period only, the issuance of shares of Common Stock (or, pursuant to
paragraph 5D(iv), shares of Common Stock deemed to be issued) as described in
subparagraph (c)(7) shall be deemed to be an issuance of Additional Shares of
Common Stock for the purposes of determining any adjustments to the Series A
Conversion Price and the Series C Conversion Price, (C) the issuance of shares
of Common Stock (or, pursuant to paragraph 5D(iv), shares of Common Stock deemed
to be issued) as described in subparagraph (c)(2) (but only to the extent such
shares are issued or deemed to be issued to an Eligible Employee), subparagraph
(c)(3) and subparagraph (c)(4) shall be deemed to be an issuance of Additional
Shares of Common Stock for purposes of determining any adjustment to the Series
D Dilution Factor, and (D) on or prior to the date of the expiration of the
Additional Financing Period only, the issuance of shares of Common Stock (or,
pursuant to paragraph 5D(iv), shares of Common Stock deemed to be issued) as
described in subparagraph (c)(2) (but only to the extent such shares are issued
or deemed to be issued to an Eligible Employee), subparagraph (c)(3),
subparagraph (c)(4) and subparagraph (c)(7) shall be deemed to be an issuance of
Additional Shares of Common Stock for purposes of determining the number of
Fully Diluted Shares of Common Stock.
(iii) No Adjustment of Conversion Price or Series D Dilution Factor.
No adjustment in the Series A Conversion Price of Series A Preferred Stock
shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common
Stock issued or deemed to be issued by the corporation is less than the
Series A Conversion Price in effect on the date of, and immediately prior
to such issue. No adjustment in the Series B Conversion Price of Series B
Preferred Stock shall be made in respect of the issuance of Additional
Shares of Common Stock. No adjustment in the Series C Conversion Price of
Series C Preferred Stock shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
corporation is less than the Series C Conversion Price in effect on the
date of, and immediately prior to such issue. No adjustment in the Series D
Dilution Factor shall be made in respect of the issuance of Additional
Shares of Common Stock unless the consideration per share for an Additional
Share of Common Stock issued or deemed to be issued by the corporation is
less than the Market Price of Class A Common Stock determined as of the
date of such issue.
(iv) Deemed Issue of Additional Shares of Common Stock. In the event
the corporation at any time or from time to time after the Series D-1
Original Issue Date shall issue any Options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities then entitled to receive any such Options or Convertible
Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained
therein designed to protect against dilution) of Common Stock issuable upon
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common Stock issued
as of the time of such issue or, in case such a record date shall have been
fixed, as of the close of business on such record date, provided that in
any such case in which Additional Shares of Common Stock are deemed to be
issued:
21
(a) no further adjustments in the Series A Conversion Price,
Series C Conversion Price or Series D Dilution Factor shall be made
upon the subsequent issue of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities;
(b) if such Options or Convertible Securities by their terms
provide, with the passage of time or otherwise, for any increase in
the consideration payable to the corporation, or decrease in the
number of shares of Common Stock issuable upon the exercise,
conversion or exchange thereof, then the Series A Conversion Price,
Series C Conversion Price or Series D Dilution Factor computed upon
the original issue thereof (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments based thereon,
shall, upon any such increase or decrease becoming effective, be
recomputed to reflect such increase or decrease insofar as it affects
such Options or the rights of conversion or exchange under such
Convertible Securities (provided, however, that no such adjustment of
the Series A Conversion Price, the Series C Conversion Price or Series
D Dilution Factor shall affect Common Stock previously issued upon
conversion of Series A Preferred Stock, Series C Preferred Stock or
Series D-1 Preferred Stock);
(c) upon the expiration of any such Options (other than any
Option that is acquired for value by the corporation or a Subsidiary
or cancelled for value) or any rights of conversion or exchange under
such Convertible Securities which shall not have been exercised, the
Series A Conversion Price, Series C Conversion Price or Series D
Dilution Factor computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed
as if:
(1) in the case of Convertible Securities or Options for
Common Stock the only Additional Shares of Common Stock issued
were the shares of Common Stock, if any, actually issued upon the
exercise of such Options or the conversion or exchange of such
Convertible Securities and the consideration received therefor
was the consideration actually received by the corporation for
the issue of all such Options, whether or not exercised, plus the
consideration actually received by the corporation upon such
exercise, or for the issue of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the corporation upon
such conversion or exchange, and
(2) in the case of Options for Convertible Securities, only
the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options
and the consideration received by the corporation for the
Additional Shares of Common Stock deemed to have been then issued
was the consideration actually received by the corporation for
the issue of all such Options, whether or not
22
exercised, plus the consideration deemed to have been received by
the corporation (determined pursuant to paragraph 5D(ix)) upon
the issue of the Convertible Securities with respect to which
such Options were actually exercised;
(d) no adjustment of the conversion rate for the Series A
Preferred or Series C Preferred Stock shall have the effect of
increasing the Series A Conversion Price or Series C Conversion Price
to an amount which exceeds the lower of (1) the Series A Conversion
Price or Series C Conversion Price on the original adjustment date, or
(2) the Series A Conversion Price or Series C Conversion Price that
would have resulted from any actual issuance of Additional Shares of
Common Stock between the original adjustment date and such
readjustment date;
(e) no adjustment of the Series D Dilution Factor shall have the
effect of decreasing the Series D Dilution Factor to an amount which
is lower than the higher of (1) the Series D Dilution Factor on the
original adjustment date or (2) the Series D Dilution Factor that
would have resulted from any actual issuance of Additional Shares of
Common Stock and the operation of any other provision of this part 5
between the original adjustment date and such readjustment date;
(f) in the case of any Options that expire by their terms not
more than 30 days after the date of issue thereof, no adjustment of
the Series A Conversion Price, the Series C Conversion Price or Series
D Dilution Factor shall be made, except as to shares of Series A
Preferred Stock, Series C Preferred Stock or Series D-1 Preferred
Stock converted during such period, until the expiration or exercise
of all such Options, whereupon such adjustment shall be made in the
same manner provided in clause (c) above; and
(g) if any such record date shall have been fixed and such
Options or Convertible Securities are not issued on the date fixed
thereof, the adjustment previously made in the Series A Conversion
Price, Series C Conversion Price or Series D Dilution Factor that
became effective on such record date shall be cancelled as of the
close of business on such record date, and shall instead be made on
the actual date of issuance, if any.
(v) Adjustment of Series A Conversion Price Upon Issuance of
Additional Shares of Common Stock. Subject to subparagraph 5D(viii), in the
event the corporation, at any time after the Series D-1 Original Issue
Date, shall issue Additional Shares of Common Stock (including Additional
Shares of Common Stock deemed to be issued pursuant to paragraph 5D(iv))
without consideration or for a consideration per share less than the Series
A Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Series A Conversion Price shall be
reduced, concurrently with such issue, to the price (calculated to the
nearest $0.0001) obtained by multiplying the Series A Conversion Price in
effect immediately prior to the time of such issue or sale by a fraction,
the numerator of which shall be (a) the number of shares of Common Stock
outstanding (or deemed to be outstanding hereunder) immediately prior
23
to such issue or sale multiplied by the Series A Conversion Price
immediately prior to such issue or sale plus (b) the consideration received
(or deemed to be received hereunder) by the corporation upon such issue or
sale, and the denominator of which shall be the product of (c) the total
number of shares of Common Stock outstanding (or deemed to be outstanding
hereunder) immediately after such issue or sale, multiplied by (d) the
Series A Conversion Price immediately prior to such issue or sale.
Notwithstanding the foregoing, no adjustment of the Series A Conversion
Price shall be made in an amount less than $0.0001 per share, but any such
lesser adjustment shall be carried forward and shall be made at the time of
and together with the next subsequent adjustment which together with any
adjustments so carried forward shall amount to $0.0001 per share or more.
Upon each adjustment of the Series A Conversion Price, the Series A
Preferred Stock shall thereafter be convertible, at the Series A Conversion
Price resulting from such adjustment, into the number of shares of Class A
Common Stock obtained by multiplying the Series A Conversion Price in
effect immediately prior to such adjustment by the number of shares of
Class A Common Stock into which the Series A Preferred Stock was
convertible pursuant hereto immediately prior to such adjustment and
dividing the product thereof by the Series A Conversion Price resulting
from such adjustment.
(vi) Adjustment of Series C Conversion Price Upon Issuance of
Additional Shares of Common Stock. Subject to subparagraph 5D(viii), in the
event the corporation, after the Series D-1 Original Issue Date, shall
issue Additional Shares of Common Stock (including Additional Shares of
Common Stock deemed to be issued pursuant to paragraph 5D(iv)) without
consideration or for a consideration per share less than the Series C
Conversion Price in effect on the date of and immediately prior to such
issue, then and in such event, such Series C Conversion Price shall be
reduced, concurrently with such issue, to the price (calculated to the
nearest $0.0001) obtained by multiplying the Series C Conversion Price in
effect immediately prior to the time of such issue or sale by a fraction,
the numerator of which shall be the sum of (a) the number of shares of
Common Stock outstanding (or deemed to be outstanding hereunder)
immediately prior to such issue or sale multiplied by the Series C
Conversion Price immediately prior to such issue or sale plus (b) the
consideration received (or deemed to be received hereunder) by the
corporation upon such issue or sale, and the denominator of which shall be
the product of (c) the total number of shares of Common Stock outstanding
(or deemed to be outstanding hereunder) immediately after such issue or
sale, multiplied by (d) the Series C Conversion Price immediately prior to
such issue or sale. Notwithstanding the foregoing, no adjustment of the
Series C Conversion Price shall be made in an amount less than $0.0001 per
share, but any such lesser adjustment shall be carried forward and shall be
made at the time of and together with the next subsequent adjustment which
together with any adjustments so carried forward shall amount to $0.0001
per share or more. Upon each adjustment of the Series C Conversion Price,
the Series C Preferred Stock shall thereafter be convertible, at the Series
C Conversion Price resulting from such adjustment, into the number of
shares of Class A Common Stock obtained by multiplying the Series C
Conversion Price in effect immediately prior to such adjustment by the
number of shares of Class A Common Stock into which the Series C Preferred
Stock was convertible pursuant hereto immediately prior to such adjustment
24
and dividing the product thereof by the Series C Conversion Price resulting
from such adjustment.
(vii) Adjustment of Series D Dilution Factor Upon Issuance of
Additional Shares of Common Stock. In the event the corporation, at any
time after the date of the expiration of the Additional Financing Period,
shall issue Additional Shares of Common Stock (including Additional Shares
of Common Stock deemed to be issued pursuant to paragraph 5D(iv)) without
consideration or for a consideration per share less than the Market Price
of Class A Common Stock determined as of immediately prior to such issue,
then immediately upon such issue the Series D Dilution Factor shall be
increased, concurrently with such issue, to the amount (calculated to the
nearest 0.00001) obtained by multiplying the Series D Dilution Factor in
effect immediately prior to such issue by a fraction, the numerator of
which shall be the product derived by multiplying the Market Price of Class
A Common Stock determined as of immediately prior to such issue by the
number of shares of Common Stock outstanding (or deemed to be outstanding
hereunder) immediately after such issue and the denominator of which shall
be the sum of (1) the number of shares of Common Stock outstanding (or
deemed to be outstanding hereunder) immediately prior to such issue
multiplied by the Market Price of Class A Common Stock determined
immediately prior to such issue, plus (2) the consideration, if any,
received by the corporation upon such issue. Notwithstanding the foregoing,
no adjustment of the Series D Dilution Factor shall be made in an amount
less than 0.00001, but any such lesser adjustment shall be carried forward
and shall be made at the time of and together with the next subsequent
adjustment which together with any adjustments so carried forward shall
amount to 0.00001 or more. Upon each adjustment of the Series D Dilution
Factor, each share of Series D-1 Preferred Stock shall thereafter be
convertible into one share of Series D-2 Preferred Stock and a number of
shares of Class A Common Stock equal to the Series D-1 Conversion Amount
resulting from such adjustment.
(viii) Effect of the Issuance of Series D-1 Preferred Stock and
Changes in the Series D-1 Conversion Amount. The Series A Conversion Price
shall not be adjusted as a result of the issuance of Series D-1 Preferred
Stock by the corporation or any change in the Adjusted Series D Underlying
Common Stock Amount, the Series D Dilution Factor or any component of
either of them. For purposes of adjusting the Series C Conversion Price
only, (a) on the Series D-1 Original Issue Date, the corporation will be
deemed to have issued 2,033,381 Additional Shares of Common Stock, which
amount is equal to the Initial Series D Underlying Common Stock Amount on
the Series D-1 Original Issue Date, at the price of $0.01 per share and,
concurrently with such deemed issuance, the Series C Conversion Price shall
be reduced to $15.989766 in accordance with the provisions of paragraphs
5D(iv) (as if the Series D-1 Preferred Stock was a Convertible Security)
and 5D(vi); (b) in the event the corporation, after the Series D-1 Original
Issue Date, shall issue Option Shares, then the corporation will be deemed
to have issued a number of Additional Shares of Common Stock equal to the
amount by which the Initial Series D Underlying Common Stock Amount, as
calculated on the date of such issuance immediately following the issuance
of such Option Shares and after giving effect to the resulting reduction of
the Series C Conversion Price, exceeds the Initial Series D Underlying
Common Stock Amount, as calculated on the date of such issuance immediately
prior to such issuance of Option Shares and without giving effect to such
25
reduction in the Series C Conversion Price, at the price of $0.01 per share
and, concurrently with such issuance, the Series C Conversion Price shall
be reduced in accordance with the provisions of paragraphs 5D(iv) (as if
the Series D-1 Preferred Stock was a Convertible Security) and 5D(vi); and
(c) in the event, after the Series D-1 Original Issue Date, the Additional
Financing Amount increases (other than by reason of the issuance of Option
Shares), then a number of Additional Shares of Common Stock equal to the
amount by which the Initial Series D Underlying Common Stock Amount, as
calculated on the date of such increase immediately prior to such increase
in the Additional Financing Amount and without giving effect to the
resulting increase of the Series C Conversion Price, exceeds the Initial
Series D Underlying Common Stock Amount, as calculated on the date of such
increase immediately after such increase in the Additional Financing Amount
and giving effect to such increase in the Series C Conversion Price, shall
be Additional Shares of Common Stock which were never deemed to have been
issued as described in clause (a) above and, concurrently with such
increase in the Additional Financing Amount, the Series C Conversion Price
shall be increased to reflect such decrease in the Initial Series D
Underlying Common Stock Amount in accordance with the provisions of
paragraphs 5D(iv) (as if the Series D-1 Preferred Stock was a Convertible
Security) and 5D(vi). Except as specifically provided by this paragraph
5D(viii), the Series C Conversion Price shall not be adjusted as a result
of the issuance of Series D-1 Preferred Stock by the corporation or any
change in the Adjusted Series D Underlying Common Stock Amount, the Series
D Dilution Factor or any component of either of them.
(ix) Determination of Consideration. For purposes of this paragraph
5D, the consideration received by the corporation for the issuance of any
Additional Shares of Common Stock shall be computed as follows:
(a) Cash and Property. Such consideration shall:
(1) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the corporation excluding
amounts paid or payable for accrued interest or accrued dividends
after deducting all commissions and expenses paid and concessions
and discounts allowed to underwriters, dealers or others
performing similar services in connection with such issue;
(2) insofar as it consists of property other than cash, be
computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets
of the corporation for consideration that covers both, be the
proportion of such consideration so received, computed as
provided in clauses (1) and (2) above, as determined in good
faith by the Board of Directors.
26
(b) Options and Convertible Securities. The consideration per
share received by the corporation for Additional Shares of Common
Stock deemed to have been issued pursuant to paragraph 5D(iv),
relating to Options and Convertible Securities, shall be determined by
dividing:
(1) the total amount, if any, received or receivable by the
corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments
relating thereto, without regard to any provision contained
therein designed to protect against dilution) payable to the
corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Option
for Convertible Securities and the conversion or exchange of such
Convertible Securities; by
(2) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any
provision contained therein designed to protect against dilution)
issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
5.E. Adjustments for Dividends, Combinations or Subdivisions of Common
Stock. In the event that the corporation at any time or from time to time after
the Series D-1 Original Issue Date shall declare or pay any dividend on the
Common Stock payable in Common Stock or in any right to acquire Common Stock, or
shall effect a subdivision of the outstanding shares of Common Stock into a
greater number of shares of Common Stock (by stock split, reclassification or
otherwise), or in the event the outstanding shares of Common Stock shall be
combined or consolidated, by reclassification or otherwise, into a lesser number
of shares of Common Stock, then, concurrently with the effectiveness of such
event, the Series A Conversion Price and Series C Conversion Price in effect
immediately prior to such event shall be proportionately decreased or increased,
as appropriate, and the Series D Dilution Factor shall be proportionately
increased or decreased, as appropriate.
5.F. Other Adjustments. In case of any reorganization or any
reclassification of the capital stock of the corporation, any consolidation,
merger or share exchange of the corporation with or into another Person or
Persons (other than a consolidation or merger deemed to be a liquidation,
dissolution or winding up of the corporation as provided in paragraph 2B above),
each share of Series A Preferred Stock, Series C Preferred Stock and Series D-1
Preferred Stock shall thereafter be convertible into the number of shares of
stock or other securities or property (including cash) to which a holder of the
number of shares of Common Stock deliverable upon conversion of such share of
Series A Preferred Stock, Series C Preferred Stock and Series D-1 Preferred
Stock would have been entitled upon the record date of (or date of, if no record
date is fixed) such reorganization, reclassification, consolidation, merger or
share exchange; and, in any case appropriate adjustment (as determined by the
Board of Directors in good faith) shall be made in the application of the
provisions herein set forth with respect to the rights and interests thereafter
of the holders of Series A Preferred Stock, Series B Preferred Stock, Series C
27
Preferred Stock or Series D-1 Preferred Stock to the end that the provisions set
forth herein shall thereafter be applicable, as nearly equivalent as is
practicable, in relation to any shares of stock or the securities or property
(including cash) thereafter deliverable upon the conversion of the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock or
Series D-1 Preferred Stock.
5.G. No Impairment. The corporation will not, by amendment of these
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
part 5 and in the taking of all such action as may be necessary or appropriate
in order to protect the conversion right of the holders of the Series A
Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and
the Series D-1 Preferred Stock against impairment.
5.H. Certificates as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Series A Conversion Price, Series C Conversion Price or
Series D Dilution Factor pursuant to this part 5, the corporation at its expense
shall promptly compute such adjustment and prepare and furnish to each holder of
Series A Preferred Stock, Series C Preferred Stock or Series D-1 Preferred
Stock, as the case may be, a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The corporation shall, upon the written request at any
time of any holder of the Series A Preferred Stock or Series C Preferred Stock
or Series D-1 Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Series A Conversion Price, Series C Conversion Price or Series D Dilution
Factor, as the case may be, at the time in effect, and 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 A Preferred Stock, Series C
Preferred Stock or Series D-1 Preferred Stock.
5.I. Issue Taxes. The corporation shall pay any and all issue and other
taxes that may be payable in respect of any issue or delivery of shares of Class
A Common Stock on conversion of shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D-1 Preferred Stock pursuant
hereto; provided, however, that the corporation shall not be obligated to pay
any transfer taxes resulting from any transfer requested by any holder in
connection with any such conversion.
5.J. Reservation of Stock Issuable Upon Conversion. The corporation shall
at all times reserve and keep available out of its authorized but unissued
shares of Class A Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, Series B Preferred
Stock, Series C Preferred Stock and Series D-1 Preferred Stock, such number of
its shares of Class A Common Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D-1 Preferred
Stock and if at any time the number of authorized but unissued shares of Class A
Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series A Preferred Stock, Series B Preferred Stock,
Series C Preferred Stock and Series D-1 Preferred Stock, the corporation will
take such
28
corporate action as in the opinion of its counsel may be necessary to increase
its authorized but unissued shares of Class A Common Stock to such number of
shares as shall be sufficient for such purpose, including, without limitation,
engaging in best efforts to obtain the requisite shareholder approval of any
necessary amendment to these Articles of Incorporation. The corporation shall at
all times reserve and keep available out of its authorized but unissued shares
of Series D-2 Preferred Stock, solely for the purpose of effecting the
conversion of the shares of the Series D-1 Preferred Stock, such number of its
shares of Series D-2 Preferred Stock as shall from time to time be sufficient to
effect the conversion of all outstanding shares of the Series D-1 Preferred
Stock and if at any time the number of authorized but unissued shares of Series
D-2 Preferred Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series D-1 Preferred Stock, the corporation will take
such corporate action as in the opinion of its counsel may be necessary to
increase its authorized but unissued shares of Series D-2 Preferred Stock to
such number of shares as shall be sufficient for such purpose, including,
without limitation, engaging in best efforts to obtain the requisite shareholder
approval of any necessary amendment to these Articles of Incorporation.
5.K. Fractional Shares. No fractional share shall be issued upon the
conversion of any share or shares of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D-1 Preferred Stock. All
shares of Class A Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred Stock, Series B
Preferred Stock, Series C Preferred Stock or Series D-1 Preferred Stock by a
holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after such
aggregation, the conversion would result in the issuance of a fraction of a
share of Class A Common Stock, the corporation shall, in lieu of issuing any
fractional share, pay the holder otherwise entitled to such fraction a sum in
cash equal to the fair market value of such fraction on the date of conversion
(as determined in good faith by the Board of Directors of the corporation).
5.L. Payment of Accrued Dividends. Subject to paragraph 1E, (i) as soon as
possible after shares of Series A Preferred Stock have been converted into
shares of Class A Common Stock, the corporation shall deliver to the holder of
the shares of Series A Preferred Stock converted payment in cash in an amount
equal to all accrued and unpaid dividends with respect to each share of Series A
Preferred Stock converted, or if the conversion occurs in connection with a
Qualified Public Offering or following the Initial Public Offering, and the
corporation's securities are then listed on a national securities exchange or
the Nasdaq National Market, at the option of the corporation, (a) in connection
with a Qualified Public Offering, a number of shares of Class A Common Stock as
is determined by dividing the amount of accrued and unpaid dividends on the
shares of Series A Preferred Stock converted concurrently with the closing of
the Qualified Public Offering in question by the Qualified Public Offering Price
Per Share or (b) following the Initial Public Offering, a number of shares of
Class A Common Stock as is determined by dividing the amount of accrued and
unpaid dividends on the shares of Series A Preferred Stock converted at the time
of conversion by the Market Price of a share of Class A Common Stock and (ii) as
soon as possible after shares of Series C Preferred Stock have been converted
into shares of Class A Common Stock, including if the conversion occurs in
connection with a Qualified Public Offering with respect to the Series C
Preferred Stock or following the Initial Public Offering, the corporation shall
deliver to the holder of the shares of Series C Preferred Stock converted
payment in cash in an amount equal to all accrued and unpaid
29
dividends with respect to each share of Series C Preferred Stock converted.
Shares of Class A Common Stock issued by the corporation in payment of accrued
and unpaid dividends in lieu of cash shall, upon issuance, be fully paid and
nonassessable shares.
5.M. Notices. The corporation shall give each holder of record of Series A
Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D
Preferred Stock written notice of each proposed underwritten public offering of
Class A Common Stock that could reasonably be anticipated to be a Qualified
Public Offering not later than 20 days prior to the anticipated date of closing
of such public offering. Such notice shall set forth a summary of the proposed
terms of such public offering, including the anticipated Initial Public Offering
Price Per Share (which may be expressed as a range of anticipated prices) for
the Class A Common Stock. Thereafter, the corporation shall give such holders
prompt written notice of any material changes in the proposed terms of such
public offering, including any change in the anticipated Initial Public Offering
Price Per Share. If the public offering is a Qualified Public Offering, the
corporation shall also give each holder of record of Series A Preferred Stock,
Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock
written notice to such effect, specifying the Qualified Public Offering Price
Per Share, not later than the date of the closing of such Qualified Public
Offering.
Part 6. Registration of Transfers. The corporation will keep at its
principal office a register for the registration of shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Stock, Series D Preferred Stock and
Common Stock. Upon the surrender of any certificate representing shares of
Series A Preferred Stock, Series B preferred Stock, Series C Stock, Series D
Preferred Stock or Common Stock at such place, the corporation will, at the
request of the record holder of such certificate, execute and deliver (at the
corporation's expense) a new certificate or certificates in exchange therefor
representing in the aggregate the number of shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Stock, Series D Preferred Stock or Common
Stock represented by the surrendered certificate. Each such new certificate will
be registered in such name and will represent such number of shares of Series A
Preferred Stock, Series B Preferred Stock, Series C Stock, Series D Preferred
Stock or Common Stock as is requested by the holder of the surrendered
certificate and will be substantially identical in form to the surrendered
certificate, and dividends will accrue on the shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Stock, Series D Preferred Stock or
Common Stock represented by such new certificate from the date to which
dividends have been fully paid on such shares of Series A Preferred Stock,
Series B Preferred Stock, Series C Stock, Series D Preferred Stock represented
by the surrendered certificate.
Part 7. Replacement.
Upon receipt of evidence reasonably satisfactory to the corporation (an
affidavit of the registered holder will be satisfactory) of the ownership and
the loss, theft, destruction or mutilation of any certificate evidencing shares
of Series A Preferred Stock, Series B Preferred Stock, Series C Stock, Series D
Preferred Stock or Common Stock, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
corporation or, in the case of any mutilation, upon surrender of such
certificate the corporation will (at its expense) execute and deliver in lieu of
such certificate a new certificate of like kind representing the number of
shares of Series A Preferred Stock, Series B Preferred Stock, Series C Stock,
30
Series D Preferred Stock or Common Stock represented by such lost, stolen,
destroyed or mutilated certificate, and dividends will accrue on the shares of
Series A Preferred Stock, Series B Preferred Stock, Series C Stock, Series D
Preferred Stock or Common Stock represented by such new certificate from the
date to which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
Part 8. Definitions.
"1999 Stock Plan" means the corporation's 1999 Stock Option Plan, dated
November 3, 1999, which provides for issuance of up to 150,000 shares of Class A
Common Stock.
"2001 Stock Plan" means the corporation's 2001 Stock Option Plan, dated
April 27, 2001, which provides for issuance of up to 250,000 shares of Class A
Common Stock.
"Additional Financing Amount" means, as of any date, the amount of gross
proceeds (net of any amount (other than reimbursement of reasonable and
customary expenses) paid to any provider of financing or any Affiliate thereof)
received by the corporation through the issuance of Option Shares or other debt
or equity securities during the Additional Financing Period (provided that the
Additional Financing Amount will not include any such gross proceeds (net of any
amount (other than reimbursement of reasonable and customary expenses) paid to
any provider of financing or any Affiliate thereof) that the corporation has
used or is permitted to use to repay indebtedness of the corporation, other than
indebtedness that the corporation may reborrow under revolving debt commitments
in effect at the end of the Additional Financing Period).
"Additional Financing Ownership Reduction Amount" means an amount equal to
(i) 0.00, if the Additional Financing Amount is less than or equal to
$20,000,000.00, (ii) the product of (a) 0.03 and (b) a fraction, the numerator
of which is the Additional Financing Amount minus $20,000,000.00 and the
denominator of which is $30,000,000.00, if the Additional Financing Amount is
greater than $20,000,000.00 but less than $50,000,000.00, and (iii) 0.03, if the
Additional Financing Amount is greater than or equal to $50,000,000.00.
"Additional Financing Period" means the period beginning on the Series D-1
Original Issue Date and ending on the earlier to occur of (a) October 27, 2002
and (b) the first date after the Series D-1 Original Issue Date when the
Additional Financing Amount is at least $50,000,000.
"Adjusted Series D Underlying Common Stock Amount" means, as of any date,
the Series D Dilution Factor in effect as of such date multiplied by the Initial
Series D Underlying Common Stock Amount.
"Applicable Series C Dividend Rate Per Share" means, with respect to each
share of Series C Stock, the annual dividend rate per share (as adjusted for any
combinations or splits with respect to such shares) as determined according to
the following table:
31
- ---------------------------------
Applicable Series C
Year Dividend Rate Per Share
- ---------------------------------
Year 1 $ 3.38137
- ---------------------------------
Year 2 $ 3.88857
- ---------------------------------
Year 3 $ 4.47186
- ---------------------------------
Year 4 $ 5.14264
- ---------------------------------
Year 5 $ 5.91403
- ---------------------------------
Year 6 $ 6.80114
- ---------------------------------
Year 7 $ 7.82131
- ---------------------------------
Year 8 $ 8.99450
- ---------------------------------
Year 9 $10.34368
- ---------------------------------
Year 10 $11.89523
- ---------------------------------
Year 11 $13.67951
- ---------------------------------
Year 12 $15.73144
- ---------------------------------
Year 13 $18.09116
- ---------------------------------
Year 14 $20.80483
- ---------------------------------
Year 15 $23.92556
- ---------------------------------
For purposes of this definition, (i) "Year 1" shall begin on the Series D-1
Original Issue Date and shall end on the date immediately preceding the first
anniversary of the Series D-1 Original Issue Date and (ii) each subsequent
"Year" shall begin on the date of the anniversary of the first day of the "Year"
immediately preceding such subsequent "Year" and shall end on the date
immediately preceding the anniversary of the first day of such subsequent
"Year".
"Applicable Revised Series C Dividend Rate Per Share" means, with respect
to each share of Series C Stock, the annual dividend rate per share (as adjusted
for any combinations or splits with respect to such shares) as determined
according to the following table:
- ---------------------------------------------------
Applicable Revised Series C Dividend Rate
Year Per Share
- ---------------------------------------------------
Year 1 $2.95344
- ---------------------------------------------------
Year 2 $3.39645
- ---------------------------------------------------
Year 3 $3.90592
- ---------------------------------------------------
32
Year 4 $ 4.49181
- ---------------------------------------------------
Year 5 $ 5.16558
- ---------------------------------------------------
Year 6 $ 5.94042
- ---------------------------------------------------
Year 7 $ 6.83148
- ---------------------------------------------------
Year 8 $ 7.85620
- ---------------------------------------------------
Year 9 $ 9.03463
- ---------------------------------------------------
Year 10 $10.38983
- ---------------------------------------------------
Year 11 $11.94830
- ---------------------------------------------------
Year 12 $13.74054
- ---------------------------------------------------
Year 13 $15.80163
- ---------------------------------------------------
Year 14 $18.17187
- ---------------------------------------------------
Year 15 $20.89765
- ---------------------------------------------------
For purposes of this definition, (i) "Year 1" shall begin on the day immediately
following the date (the "Series C Dividend Payment Date") on which (a) all
accrued but unpaid dividends in respect of the Series C Preferred Stock are paid
in accordance with paragraphs 1L or 5L of these Articles of Incorporation and
(b) the Series C-1 Preferred Stock is redeemed in accordance with paragraph 3E
of these Articles of Incorporation and shall end on the date immediately
preceding the first anniversary of the Series C Dividend Payment Date and (ii)
each subsequent "Year" shall begin on the date of the anniversary of the first
day of the "Year" immediately preceding such subsequent "Year" and shall end on
the date immediately preceding the anniversary of the first day of such
subsequent "Year".
"Appraisal Firm" shall mean a nationally recognized investment banking or
appraisal firm that, at the time in question, is not engaged, and during the
preceding three years has not been engaged, by the corporation or any affiliate
thereof.
"Approved Plan" means the 1999 Stock Plan, the 2001 Stock Plan and any
other written stock option, stock purchase or similar incentive plan (or options
to purchase up to 400,000 shares of Class A Common Stock) approved by the Board
of Directors (with a majority of the Purchaser Directors concurring).
"Board of Directors" means the board of directors of the corporation.
"Bundled Securities" shall mean (i) shares of Common Stock, Options or
Convertible Securities of the corporation issued or sold together with any other
securities (either debt or equity) of the corporation which are not shares of
Common Stock, Options or Convertible Securities, together comprising one
integral transaction or (ii) any Convertible Security of the
33
corporation that is convertible into (a) shares of Common Stock, Options or
Convertible Securities of the corporation and (b) other securities (debt or
equity) of the corporation that are not shares of Common Stock, Options or
Convertible Securities.
"Common Stock" means, collectively, the corporation's Class A Common Stock
and Class B Common Stock, par value $.01 per share, and any capital stock of any
class of the corporation hereafter authorized that is not limited to a fixed sum
or percentage of par or stated value in respect to the rights of the holders
thereof to participate in dividends or in the distribution of assets upon any
liquidation, dissolution or winding up of the corporation.
"Co-Sale Agreement" means the Third Amended and Restated Co-Sale Agreement,
dated as of January 18, 2002, among the corporation and certain investors, as
such agreement may from time to time be amended, modified or supplemented in
accordance with its terms.
"Credit Agreement" means the Fourth Amended and Restated Revolving Credit
and Term Loan Agreement dated February 4, 2000 by and between the corporation
and certain lenders, as such agreement may be amended, modified, supplemented,
extended or replaced from time to time.
"Eligible Employee" means an officer or employee of the corporation or any
Subsidiary of the corporation (i) to whom the corporation previously issued
Options exercisable for shares of Common Stock or (ii) who is not promoted to a
management position which entails a material increase in such officer's or
employee's duties and responsibilities in connection with an issuance of Options
exercisable for shares of Common Stock to such officer or employee.
"fair market value" means the price at which an asset would change hands
between a willing buyer and a willing seller when the former is not under any
compulsion to buy and the latter is not under any compulsion to sell, and both
parties are able, as well as willing, to trade and are well-informed about the
asset and the market for the asset.
"Fully Diluted Shares of Common Stock" means, as of any date, an amount
equal to the sum of (i) 3,372,947 (subject to adjustment for all combinations
and splits), (ii) the number of shares of Common Stock issued or issuable upon
conversion of the Series A Preferred Stock and Series C Preferred Stock, (iii)
the number of Additional Shares of Common Stock issued, or deemed pursuant to
paragraph 5D to be issued, as of such date, after the Series D-1 Original Issue
Date and on or prior to the date of the expiration of the Additional Financing
Period, other than Additional Shares of Common Stock deemed to be issued as a
result of the issuance by the corporation of the Initial Shares and Option
Shares and (iv) the number of Additional Shares of Common Stock issued, or
deemed pursuant to paragraph 5D to be issued, on or prior to the date of the
expiration of the Additional Financing Period to an Eligible Employee.
"Governmental Authority" means any agency, arbitrator, authority,
commission, court, official tribunal or other instrumentality of the United
States of America, any foreign country or any state, county, city or other
political subdivision of the United States of America or any foreign country.
"Initial Public Offering" means the initial sale of the corporation's Class
A Common Stock in a firm commitment, underwritten public offering registered
under the Securities Act
34
(other than a registration relating solely to a transaction under Rule 145 under
the Securities Act or to an employee benefit plan of the corporation).
"Initial Public Offering Price Per Share" means the price (prior to
underwriters commissions and expenses) at which each share of Class A Common
Stock is offered to the public in the Initial Public Offering.
"Initial Series D Underlying Common Stock Amount" means an amount equal to
the product of (i) the Fully Diluted Shares of Common Stock and (ii) a fraction,
the numerator of which is the Initial Series D Underlying Common Stock Ownership
Percentage and the denominator of which is 1.00 minus the Initial Series D
Underlying Common Stock Ownership Percentage.
"Initial Series D Underlying Common Stock Ownership Percentage" means an
amount equal to the result of (i) 0.1825 plus (ii) the product of (1) the Option
Shares Financing Amount and (2) the Option Shares Ownership Increase Amount
minus (iii) the Additional Financing Ownership Reduction Amount.
"Initial Shares" has the meaning set forth in the Series D-1 Preferred
Stock Purchase Agreement.
"Market Price" means as to any security the average of the closing prices
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading. If
a security has been issued in a Third Party Financing the "Market Price" shall
be the price at which such security was issued in such Third Party Financing. If
at any time such security is not listed on any domestic securities exchange or
quoted in the NASDAQ System or the domestic over-the-counter market or such
security has not been issued in a Third Party Financing, subject to the right of
the holders of the Series D-1 Preferred Stock set forth below, the "Market
Price" shall be the fair market value thereof determined in good faith by the
Board of Directors. Promptly following any such good faith determination of
Market Price by the Board of Directors (other than any such determination that
is made solely for purposes of paragraph 5L), the corporation shall deliver
written notice of such determination to the holders of the Series D-1 Preferred
Stock. Notwithstanding the foregoing, if the holders of a majority of the Series
D-1 Preferred Stock in good faith disagree with the Market Price determined by
the Board of Directors, such holders may deliver written notice (the
"Disagreement Notice") of such disagreement to the corporation. During the
30-day period following the delivery of a Disagreement Notice, the corporation
and
35
such holders shall negotiate in good faith to reach an agreement as to the
Market Price. If the corporation and such holders are unable to reach an
agreement as to the Market Price during such 30-day period, the corporation
shall submit, by giving written notice to such holders within 10 days of the
expiration of such 30-day period, the names of five Appraisal Firms to such
holders. Promptly after the receipt of the corporation's notice, such holders
shall select, by giving written notice (the "Appraisal Firm Selection Notice")
to the corporation of such selection, one of the Appraisal Firms submitted by
the corporation. Within 10 days of the receipt of Appraisal Firm Selection
Notice, the corporation shall engage, at its expense, the selected Appraisal
Firm to determine the Market Price. The appraisal required to be prepared by the
selected Appraisal Firm shall be delivered to the corporation and each holder of
Series D-1 Preferred Stock no later than 30 days after the engagement of the
selected Appraisal Firm. The determination of such Appraisal Firm shall be final
and binding on the corporation and the holders of the Series D-1 Preferred
Stock, and the fees and expenses of such Appraisal Firm shall be paid by the
corporation.
"Note Agreement" means the Senior Subordinated Note and Warrant Purchase
Agreement dated as of May 10, 1996, by and among the corporation and certain
investors, as supplemented and modified by (i) the Senior Subordinated Note and
Warrant Purchase Agreement, dated as of November 22, 1996, (ii) the Senior
Subordinated Note and Warrant Purchase Agreement, dated as of May 19, 1997, as
amended by that certain Amendment, dated as of March 13, 1998, that certain
Second Amendment, dated as of January 13, 1999, that certain Termination of Put
Rights, dated as of June 15, 1998, that certain Third Amendment, dated as of
March 9, 1999, that certain Fourth Amendment, dated as of February 4, 2000,
(iii) that certain Sixth Amendment Agreement dated April 27, 2001 and (iv) that
certain Seventh Amendment Agreement dated January 18, 2002.
"Notes" means the corporation's (i) 12.0% Senior Subordinated Notes issued
pursuant to the Note Agreement and (ii) 13.5% Subordinated Notes issued pursuant
to the Subordinated Note Agreement.
"Option Shares" has the meaning set forth in the Series D-1 Preferred Stock
Purchase Agreement.
"Option Shares Financing Amount" means, as of any date, the amount of
proceeds received by the corporation through the issuance of Option Shares.
"Option Shares Ownership Increase Amount" means an amount equal to (i)
0.00000000365, if the Additional Financing Amount is less than or equal to
$20,000,000.00, (ii) the difference of (a) 0.00000000365 and (b) the product of
(1) 0.0000000006 and (2) a fraction, the numerator of which is the Additional
Financing Amount minus $20,000,000.00 and the denominator of which is
$30,000,000.00, if the Additional Financing Amount is greater than
$20,000,000.00 but less than $50,000,000.00, and (iii) 0.00000000305, if the
Additional Financing Amount is greater than or equal to $50,000,000.00.
"Person" means an individual, a partnership, a corporation, an association,
a joint stock company, a trust, a joint venture, a limited liability company, an
unincorporated organization or other similar entity organization or a
Governmental Authority.
36
"Purchaser Director" has the meaning set forth in the Shareholders
Agreement.
"Qualified Public Offering" means the sale of the corporation's Class A
Common Stock in a firm commitment, underwritten public offering registered under
the Securities Act (other than a registration relating solely to a transaction
under Rule 145 under the Securities Act or to an employee benefit plan of the
corporation) and (i) in the case of the Series A Preferred Stock and the Series
B Preferred Stock, at a Qualified Public Offering Price Per Share (appropriately
adjusted for subdivisions and combinations of shares of Common Stock and
dividends on Class A Common Stock payable in shares of Class A Common Stock)
equal to or exceeding $3.00 per share and (ii) in the case of the Series C
Preferred Stock and Series D Preferred Stock, at a Qualified Public Offering
Price Per Share (appropriately adjusted for subdivisions and combinations of
shares of Common Stock and dividends on Class A Common Stock payable in shares
of Class A Common Stock) equal to or exceeding $28.00 per share.
"Qualified Public Offering Price Per Share" means the price (prior to
underwriters commissions and expenses) at which each share of Class A Common
Stock is offered to the public in a Qualified Public Offering.
"Sale of the Company" has the meaning set forth in the Shareholders
Agreement.
"Securities Act" means the Securities Act of 1933, as amended, or any
similar federal law then in force and the rules promulgated thereunder.
"Series A Purchase Agreement" means the Stock Purchase Agreement, dated as
of October 21, 1994, by and among the corporation and certain investors, as
amended by that certain Amendment No. 1 to Stock Purchase Agreement, dated as of
November 10, 1994, that certain Amendment No. 2 to Stock Purchase Agreement,
dated as of May 10, 1996, the First Amendment Agreement, the Second Amendment
Agreement, the Third Amendment Agreement, that certain Consent to Various
Actions under Various Documents, dated as of May 13, 1998, that certain Consent
to Various Actions under Various Documents and Amendment to Stock Purchase
Agreement, dated as of January 6, 1999, that certain Sixth Amendment Agreement
dated as of April 27, 2001, and that certain Seventh Amendment Agreement dated
January 18, 2002.
"Series B Purchase Agreement" means the Series B Preferred Stock Purchase
Agreement, dated as of May 19, 1997, as amended by that certain Transfer,
Assignment and Assumption Agreement and Third Amendment Agreement, dated as of
January 1, 1998, that certain Termination of Put Rights, dated as of June 15,
1998, that certain Sixth Amendment Agreement dated as of April 27, 2001 and that
certain Seventh Amendment Agreement dated as of January 18, 2002.
"Series C Purchase Agreement" means the Series C Preferred Stock Purchase
Agreement, dated as of February 22, 1999, among the corporation and certain
investors.
"Series D-1 Conversion Amount" means, as of any date, the Adjusted Series D
Underlying Common Stock Amount divided by the aggregate number of shares of
Series D-1 Preferred Stock issued pursuant to the Series D-1 Purchase Agreement
as of such date.
37
"Series D-1 Original Issue Date" means April 27, 2001.
"Series D-1 Purchase Agreement" means the Series D-1 Preferred Stock
Purchase Agreement, dated as of April 27, 2001, by and among the corporation and
certain investors, as amended by that certain First Amendment to Series D-1
Preferred Stock Purchase Agreement, dated January 18, 2002.
"Series D Dilution Factor" initially shall be 1.00, as adjusted from time
to time after the Series D-1 Original Date as provided in part 5.
"Series D Initial Investment Amount" has the meaning set forth in the
Shareholders Agreement.
"Series D Stock" means Series D Preferred Stock or Series D Underlying
Common Stock.
"Series D Underlying Common Stock" means the shares of Class A Common Stock
issued or issuable upon the conversion of the Series D-1 Preferred Stock and for
purposes of applying this definition only, any Person who holds any Series D-1
Preferred Stock shall be deemed to be the holder of the Series D Underlying
Common Stock obtainable upon conversion of such Series D-1 Preferred Stock
regardless of any restriction or limitation on the conversion of such Series D-1
Preferred Stock, such Series D Underlying Common Stock shall be deemed to be in
existence, and such Person shall be entitled to exercise the rights of a holder
of such Series D Underlying Common Stock hereunder.
"Shareholders Agreement" means the Fourth Amended and Restated Shareholders
Agreement, dated as of January 18, 2002, among the corporation and certain
investors, as such agreement may from time to time be amended, modified or
supplemented in accordance with its terms.
"Subordinated Note Agreement" means the Subordinated Note and Warrant
Purchase Agreement, dated as of January 18, 2002, between the corporation and
certain investors.
"Subsidiary" means (i) any corporation where more than 50% of the
outstanding voting securities or ordinary voting power to elect a majority of
the board of directors is owned by the corporation or any Subsidiary, directly
or indirectly, or (ii) a partnership or limited liability company in which the
corporation or any Subsidiary is a general partner or manager or holds interests
entitling it to receive more than 50% of the profits or losses of the
partnership or limited liability company.
"Third Party Financing" means a sale or issuance by the corporation of its
securities (whether sold or issued individually or together with other
securities of the corporation) which meets each of the following conditions: (i)
such sale or issuance is to a Person(s) who is not a shareholder of the
corporation or an affiliate of any of its shareholders at the time of such sale
or issuance; provided, however, the sale or issuance of additional shares of
such securities to one or more shareholders of the corporation upon the exercise
of each such shareholder's preemptive rights pursuant to Paragraph 2C of the
Shareholders Agreement in connection with a sale or issuance of securities to a
Person(s) who is not a shareholder of the corporation or an affiliate of
38
any of its shareholders shall not be deemed a sale or issuance to a shareholder
of the corporation or an affiliate of any of its shareholders so long as the
aggregate proceeds received by the corporation from the sale or issuance of such
additional securities to such shareholders or affiliates is not greater than the
amount of the proceeds received by the corporation from the sale or issuance of
securities to such other Person(s), (ii) the consideration received by the
corporation for such sale or issuance consists solely of cash and (iii) at the
time of, or in connection with, such sale or issuance, the corporation has not
entered into or consummated any agreement, arrangement, transaction or
understanding with such Person other than such sale or issuance, other than any
agreement of a type customarily entered into by an investor in connection with
such a sale or issuance, including, without limitation, an agreement (a)
granting such Person registration, co-sale, drag-along, informational or board
observation rights or (b) relating to the voting of securities.
"2001 Warrants" means the Common Stock Purchase Warrants issued pursuant to
the Subordinated Note Agreement.
"Warrants" means, collectively, (i) (A) the Preferred Warrants, (B) the
Mezzanine Warrants and (C) the Heller Warrant, as those terms are defined in the
Series C Purchase Agreement and (ii) the 2001 Warrants.
"Warrant Agreement" means the Warrant Agreement, dated November 10, 1994,
by and between the corporation and Heller Financial, Inc., a Delaware
corporation, as amended by that certain First Amendment to Warrant Agreement,
dated as of June 15, 1998.
"Warrant Shares" means, collectively, the shares of Common Stock issued or
issuable upon the exercise of the Warrants issued by the corporation pursuant to
the Warrant Agreement, the Note Agreement, the Subordinated Note Agreement and
the Series B Purchase Agreement and for purposes of applying this definition
only, any Person who holds Warrants issued by the corporation pursuant to the
Warrant Agreement, the Note Agreement, the Subordinated Note Agreement and the
Series B Purchase Agreement shall be deemed to be the holder of the Warrant
Shares obtainable upon the exercise of such Warrants regardless of any
restriction or limitation on the exercise of such Warrants, such Warrant Shares
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of such Warrant Shares hereunder.
Part 9. Amendment and Waiver. No amendment, modification or waiver of this
Article Four of these Articles of Incorporation will be binding or effective
with respect to any provision of these terms without the prior written consent
or vote at a duly constituted meeting of the holders of at least 66-2/3% of the
outstanding shares of Series A Preferred Stock, Series B Preferred Stock, Series
C Preferred Stock and Series D Preferred Stock, each voting as a separate series
and not as a single class. No amendment, modification or waiver of this Article
Four of these Articles of Incorporation may be accomplished by merger or
consolidation of the corporation with another Person unless the corporation has
obtained the prior written consent or vote at a duly constituted meeting of the
holders of at least 66-2/3% of the outstanding shares of Series A Preferred
Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred
Stock, each voting as a separate series and not as a single class.
39
Part 10. Notices.
(i) Except as otherwise expressly provided, all notices referred to
herein will be in writing and will be delivered by registered or certified
mail, return receipt requested, postage prepaid and will be deemed to have
been given when so mailed (i) to the corporation, at its principal
executive offices and (ii) to any shareholder, at such holder's address as
it appears in the stock records of the corporation (unless otherwise
indicated by any such holder).
(ii) In the event of any taking by the corporation of a record of the
holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any security or right convertible into or
entitling the holder thereof to receive Additional Shares of Common Stock,
or any right to subscribe for, purchase or otherwise acquire any shares of
stock of any class or any other securities or property, or to receive any
other right, the corporation shall mail to each holder of Series A
Preferred Stock, Series B Preferred Stock, Series C Stock or Series D
Preferred Stock at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken, and the
amount and character of such dividend, distribution, security or right.
Class A Common Stock and Class B Common Stock
Part 11. Rights of Common Stock.
11.A. Except as otherwise provided herein, all shares of Class A Common
Stock and Class B Common Stock will be identical and will entitle the holders
thereof to the same rights and privileges.
Part 12. Conversion of Class B Common Stock.
12.A. At any time and from time to time, each holder of Class B Common
Stock will be entitled to convert any and all of the shares of such holder's
Class B Common Stock into the same number of shares of Class A Common Stock at
such holder's election; provided, that each holder of Class B Common Stock shall
only be entitled to convert any share or shares of Class B Common Stock to the
extent that after giving effect to such conversion such holder or its affiliates
shall not directly or indirectly own, control or have power to vote a greater
quantity of securities of any kind issued by the corporation than such holder
and its affiliates are permitted to own, control or have power to vote under any
law or under any regulation, rule or other requirement of any governmental
authority at any time applicable to such holder and its affiliates.
12.B. Each conversion of shares of Class B Common Stock into shares of
Class A Common Stock will be effected by the surrender of the certificate or
certificates representing the shares to be converted at the principal office of
the corporation (or such other office or agency of the corporation as the
corporation may designate by notice in writing to the holder or holders of the
Class B Common Stock) at any time during normal business hours, together with a
written notice by the holder of such Class B Common Stock stating that such
holder desires to convert the shares, or a stated number of the shares, of Class
B Common Stock represented by such
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certificate or certificates into Class A Common Stock and a written undertaking
that upon such conversion such holder and its affiliates will not directly or
indirectly own, control or have the power to vote a greater quantity of
securities of any kind issued by the corporation than such holders and its
affiliates are permitted to own, control or have the power to vote under any
applicable law, regulation, rule or other governmental requirement (and such
statement will obligate the corporation to issue such Class A Common Stock).
Such conversion will be deemed to have been effected as of the close of business
on the date on which such certificate or certificates have been surrendered and
such notice has been received, and at such time the rights of the holder of the
converted Class B Common Stock as such holder will cease and the Person or
Persons in whose name or names the certificate or certificates for shares of
Class A Common Stock are to be issued upon such conversion will be deemed to
have become the holder or holders of record of the shares of Class A Common
Stock represented thereby.
12.C. Promptly after such surrender and the receipt of such written notice,
the corporation will issue and deliver in accordance with the surrendering
holder's instructions (i) the certificate or certificates for the Class A Common
Stock issuable upon such conversion and (ii) a certificate representing any
Class B Common Stock which was represented by the certificate or certificates
delivered to the corporation in connection with such conversion but which was
not converted.
12.D. If the corporation in any manner subdivides or combines the
outstanding shares of one class of either Class A Common Stock or Class B Common
Stock, the outstanding shares of the other class will be proportionately
subdivided or combined.
12.E. In the case of, and as a condition to, any capital reorganization of,
or any reclassification of the capital stock of, the corporation (other than a
subdivision or combination of shares of Class A Common Stock or Class B Common
Stock into a greater or lesser number of shares (whether with or without par
value) or a change in the par value of Class A Common Stock or Class B Common
Stock or from par value to no par value, or from no par value to par value) or
in the case of, and as condition to, the consolidation or merger of the
corporation with or into another corporation (other than a merger in which the
corporation is the continuing corporation and which does not result in any
reclassification of outstanding shares of Class A Common Stock or Class B Common
Stock), each share of Class B Common Stock shall be convertible into the number
of shares of stock or other securities or property receivable upon such
reorganization, reclassification, consolidation or merger by a holder of the
number of shares of Class A Common Stock of the corporation into which such
share of Class B Common Stock was convertible immediately prior to such
reorganization, reclassification, consolidation or merger; and, in any such
case, appropriate adjustment shall be made in the application of the provisions
set forth in this paragraph 12E with respect to the rights and interests
thereafter of the holders of Class B Common stock to the end that the provisions
set forth in this paragraph 12E (including provisions with respect to the
conversion rate) shall thereafter be applicable, as nearly as they reasonably
may be, in relation to any shares of stock or other securities or property
thereafter deliverable upon the conversion of the shares of Class B Common
Stock.
12.F. Shares of Class B Common Stock which are converted into shares of
Class A Common Stock as provided herein shall not be reissued.
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12.G. The corporation will at all times reserve and keep available out of
its authorized but unissued shares of Class A Common Stock or its treasury
shares, solely for the purpose of issue upon the conversion of the Class B
Common Stock as provided in this part 12, such number of shares of Class A
Common Stock as shall then be issuable upon the conversion of all then
outstanding shares of Class B Common Stock (assuming that all such shares of
Class B Common Stock are held by Persons entitled to convert such shares into
Class A Common Stock).
12.H. The issuance of certificates for Class A Common Stock upon the
conversion of Class B Common Stock will be made without charge to the holders of
such shares for any issuance tax in respect thereof or other cost incurred by
the corporation in connection with such conversion and the related issuance of
Class A Common Stock. The corporation will not close its books against the
transfer of Class B Common Stock or of Class A Common Stock issued or issuable
upon the conversion of Class B Common Stock in any manner which would interfere
with the timely conversion of Class B Common Stock.
ARTICLE FIVE
The corporation will not commence business until it has received
consideration of the value of $1,000.00, consisting of money, labor done or
property actually received, for the issuance of its shares.
ARTICLE SIX
The power to cumulate votes (cumulative voting) in the election of
directors is hereby expressly prohibited.
The shareholders of the corporation shall not have a preemptive right to
purchase, acquire or subscribe for any unissued, additional or treasury shares
of stock of any class or bonds, notes, debentures or other securities
convertible into stock of the corporation or carrying any right to purchase,
acquire or subscribe for stock of any class.
ARTICLE SEVEN
The street address of its registered office is 350 North Saint Paul, Suite
2900, Dallas, Texas 75201, and the name of its registered agent at that address
is CT Corporation System.
ARTICLE EIGHT
The number of directors is seven. The names of the directors are:
Name Address
---- -------
James R. Hull 12801 Stemmons Freeway, Suite 821
Dallas, Texas 75234-5879
Kenneth P. DeAngelis 300 West Sixth Street, Suite 2300
Austin, Texas 78701
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Name Address
---- -------
John Dirvin 300 West Sixth Street, Suite 2300
Austin, Texas 78701
Jay M. Grossman ABRY Partners, LLC
111 Huntington Avenue, 30th Floor
Boston, Massachusetts 02199
Stephen M. Jenks 85 Merrimac Street
Boston, Massachusetts 02144
Peter S. Macdonald Windward Capital
1177 Avenue of the Americas, 42nd Floor
New York, New York 10036
Blaine F. Wesner 300 West Sixth Street, Suite 2300
Austin, Texas 78701
ARTICLE NINE
A director of this Corporation shall not be liable to the Corporation or
its shareholders for monetary damages for an act or omission in the director's
capacity as a director, except that this provision does not eliminate or limit
the liability of a director to the extent the director is found liable for:
(i) a breach of the director's duty of loyalty to the Corporation or its
shareholders;
(ii) an act or omission not in good faith that constitutes a breach of duty
of the director to the corporation or an act or omission that involves
intentional misconduct or a knowing violation of the law;
(iii) a transaction from which the director received an improper benefit,
whether or not the benefit resulted from an action taken within the scope of the
director's office; or
(iv) an act or omission for which the liability of the director is
explicitly provided by an applicable statute.
Any amendment, repeal or modification of the foregoing provision by the
shareholders of the Corporation shall not adversely affect any limitation on the
liability of any director of the Corporation existing at or prior to the time of
such amendment, repeal or modification.
ARTICLE TEN
Any action required by law to be taken at any annual or special meeting of
shareholders, or any action that may be taken at any annual or special meeting
of shareholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holder or holders of shares having not less
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than the minimum number of votes that would be necessary to take such action at
a meeting at which the holders of all shares entitled to vote on the action were
present and voted.
Dated as of the day and year first above set forth.
MONITRONICS INTERNATIONAL, INC.
By: /s/ Stephen M. Hedrick
-----------------------------------------
Name: Stephen M. Hedrick
Title: Vice President - Finance and Treasurer
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