<PAGE> 1
EXHIBIT 4.2
--------------------------------------------------------------------------------
Description of capital stock
The following information describes our common stock and preferred stock, and
provisions of our amended and restated articles of incorporation and our bylaws,
all as will be in effect upon the closing of this offering. This description is
only a summary. You should also refer to the amended and restated articles and
bylaws which have been filed with the SEC as exhibits to our registration
statement, of which this prospectus forms a part. The descriptions of our common
stock and preferred stock reflect changes to our capital structure that will
occur upon the closing of this offering in accordance with the terms of the
amended and restated articles.
Upon completion of this offering, our authorized capital stock will consist of
100,000,000 shares of common stock, no par value, and 5,000,000 shares of
preferred stock, no par value.
COMMON STOCK
As of March 31, 2000, there were 7,188,794 shares of our common stock
outstanding and held of record by 96 shareholders. There will be 25,515,430
shares of our common stock outstanding upon the closing of this offering, which
gives effect to the issuance of 5,000,000 shares of common stock offered by us
under this prospectus and the conversion of preferred stock discussed below.
Each share of our common stock has identical rights and privileges in every
respect. The holders of our common stock are entitled to vote upon all matters
submitted to a vote of our shareholders and are entitled to one vote for each
share of common stock held. The holders of our common stock will not have
cumulative voting rights.
Subject to the prior rights and preferences, if any, applicable to shares of our
preferred stock or any series of preferred stock, the holders of our common
stock are entitled to receive such dividends, payable in cash, stock or
otherwise, as may be declared by our board of directors out of any funds legally
available for the payment of dividends.
If we voluntarily or involuntarily liquidate, dissolve or wind-up, the holders
of our common stock will be entitled to receive after distribution in full of
the preferential amounts, if any, to be distributed to the holders of our
preferred stock or any series of preferred stock, all of the remaining assets
available for distribution ratably in proportion to the number of shares of
common stock held by them. Holders of our common stock have no preferences or
any preemptive conversion or exchange rights and there will be no redemption or
sinking fund provisions applicable to our common stock.
PREFERRED STOCK
As of March 31, 2000, there were 13,326,636 shares of preferred stock
outstanding. Upon the closing of this offering, all outstanding shares of
preferred stock will be converted into 13,326,636 shares of our common stock and
will be held of record by 163 shareholders. These shares of preferred stock will
no longer be authorized, issued or outstanding.
Our board of directors is authorized to provide for the issuance of shares of
preferred stock in one or more series, and to fix for each series such rights
and preferences, including voting rights, dividend rights, conversion rights,
redemption privileges and liquidation preferences, as shall be provided in a
resolution or resolutions adopted by the board. The rights of the holders of our
common stock will be subject to, and may be adversely affected by, the rights of
holders of any preferred stock that we may issue in the future. Our board of
directors may authorize the issuance of shares of preferred stock with terms and
conditions that could discourage a takeover or other transaction that holders of
some or a
--------------------------------------------------------------------------------
<PAGE> 2
DESCRIPTION OF CAPITAL STOCK
--------------------------------------------------------------------------------
majority of shares of our common stock might believe to be in their best
interests or in which holders of common stock might receive a premium for their
shares over the then market price.
REGISTRATION RIGHTS
Pursuant to a registration rights agreement entered into between us and holders
of shares of common stock issuable upon conversion of our Series
A, Series B and Series C preferred stock, we are obligated, under limited
circumstances and subject to specified conditions and limitations, to use our
reasonable best efforts to register the registrable shares.
We must use our best efforts to register the registrable shares:
+ if we receive written notice from holders of 50% or more of the registrable
shares requesting that we effect a registration with respect to at least 20%
of the registrable shares then held by the holders requesting registration;
+ if we decide to register our own securities; or
+ if we receive written notice from any holder or holders of the registrable
shares requesting that we effect a registration on Form S-3 (a shortened form
of registration statement) with respect to the registrable shares and we are
then eligible to use Form S-3 (which at the earliest could occur twelve
calendar months after the closing of this offering).
However, in addition to certain other conditions and limitations, if requested
by the underwriters to decrease the number of shares registered, we can limit
the number of registrable shares included in the registration. The underwriters
have requested that no registrable shares be registered in this offering. In
addition, the holders of these registration rights have entered into lock-up
agreements and waived their registration rights for a period of 180 days
following this offering.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
Our amended and restated articles of incorporation limit the personal liability
of our directors for monetary damages to the fullest extent permitted by the
California General Corporation Law. Under California law, a director's liability
to a company or its shareholders may not be limited:
+ for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law;
+ for acts or omissions that a director believes to be contrary to the best
interests of the company or its shareholders or that involve the absence of
good faith on the part of the director;
+ for any transaction from which a director derived an improper personal
benefit;
+ for acts or omissions that show a reckless disregard for the director's duty
to the company or its shareholders in circumstances in which the director was
aware, or should have been aware, in the ordinary course of performing the
director's duties, of a risk of serious injury to the company or its
shareholders;
+ for acts or omissions that constitute an unexcused pattern of inattention
that amounts to an abdication of the director's duty to the company or its
shareholders;
+ under Section 310 of the California General Corporation Law concerning
contracts or transactions between the company and a director; or
+ under Section 316 of the California General Corporation Law concerning
directors' liability for improper dividends, loans and guarantees.
--------------------------------------------------------------------------------
