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EXHIBIT 3.2
CERTIFICATE OF
DESIGNATIONS OF RIGHTS AND PREFERENCES
OF
CLASS A1 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE
PREFERRED STOCK,
CLASS A2 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE
PREFERRED STOCK,
CLASS B1 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE
PREFERRED STOCK,
CLASS C1 CUMULATIVE, REDEEMABLE AND EXCHANGEABLE
PREFERRED STOCK,
CLASS D CUMULATIVE, REDEEMABLE AND EXCHANGEABLE
PREFERRED STOCK,
CLASS E CUMULATIVE, REDEEMABLE AND EXCHANGEABLE
PREFERRED STOCK
AND
VOTING PREFERRED STOCK
OF
NQL INC., a Delaware corporation
PURSUANT TO THE PROVISIONS OF SECTION 151(g)
OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Douglas J. Tullio hereby certifies that:
FIRST: He is the President and Chief Executive Officer of NQL Inc., a
Delaware corporation formerly known as AlphaServ.com, Inc. (the "Company").
SECOND: That the Board of Directors of the Company, pursuant to the
authority so vested in it by the Certificate of Incorporation of the Company, as
amended, and in accordance with the provisions of Section 151(g) of the General
Corporation Law of the State of Delaware (the "Delaware Corporation Law"), duly
adopted the following resolutions creating the following series of Preferred
Stock designated as (i) Class A1 Cumulative, Redeemable and Exchangeable
Preferred Stock (the "Class A1 Preferred Stock"), (ii) Class A2 Cumulative,
Redeemable and Exchangeable Preferred Stock (the "Class A2 Preferred Stock"),
(iii) Class B1 Cumulative, Redeemable and Exchangeable Preferred Stock (the
"Class B1 Preferred Stock"), (iv) Class C1 Cumulative, Redeemable and
Exchangeable Preferred Stock (the "Class C1 Preferred Stock"), (v) Class D
Cumulative Redeemable and Exchangeable Preferred Stock (the "Class D Preferred
Stock"), (vi) Class E Cumulative, Redeemable and Exchangeable Preferred Stock
(the "Class E Preferred Stock") and (vii) the Voting Preferred Stock (the
"Voting Preferred Stock").
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THIRD: That the following resolutions designate (i) 2,500 shares of
Class A1 Preferred Stock, (ii) 5,500 shares of Class A2 Preferred Stock, (iii)
7,000 shares of Class B1 Preferred Stock, (iv) 5,000 shares of Class C1
Preferred Stock, (v) 17,500 shares of Class D Preferred Stock, (vi) 12,000
shares of Class E Preferred Stock, and (vii) 100 shares of Voting Preferred
Stock and that, as of the date hereof, no shares of Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock or Voting Preferred Stock are
issued and outstanding. As of the date hereof, the Company has no authorized
series or class of Preferred Stock other than those stated in the preceding
sentence.
FOURTH: The resolutions duly adopted by the Board of Directors of the
Company are as follows:
WHEREAS the Certificate of Incorporation of the Company, as amended,
authorizes Preferred Stock consisting of 5,000,000 shares, $.001 par value per
share, issuable from time to time in one or more series; and
WHEREAS the Board of Directors of the Company is authorized, subject to
limitations prescribed by law and by the provisions of the Fourth Article of the
Company's Certificate of Incorporation, as amended, to establish and fix the
number of shares to be included in any series of Preferred Stock and the
designation of rights, preferences, privileges and restrictions of the shares of
such series; and
WHEREAS it is the desire of the Board of Directors to establish and fix
the number of shares to be included in new series of Preferred Stock and the
designation of rights, preferences, privileges and restrictions of the shares of
such new series;
NOW, THEREFORE, BE IT RESOLVED that pursuant to the Fourth Article of
the Company's Certificate of Incorporation, as amended, there is hereby
established the following new series of Preferred Stock with such designations
and authorized number of shares as set forth herein: (i) 2,500 shares of Class
A1 Preferred Stock, (ii) 5,500 shares of Class A2 Preferred Stock, (iii) 7,000
shares of Class B1 Preferred Stock, (iv) 5,000 shares of Class C1 Preferred
Stock, (v) 17,500 shares of Class D Preferred Stock, (vi) 12,000 shares of Class
E Preferred Stock and (vii) 100 shares of Voting Preferred Stock. Each share of
such Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred
Stock, Class C1 Preferred Stock, Class D Preferred Stock, Class E Preferred
Stock and Voting Preferred Stock shall have the rights, preferences, privileges
and restrictions set forth in the following Designations of Rights and
Preferences, Privileges and Restrictions of Class A1 Preferred Stock, Class A2
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D
Preferred Stock, Class E Preferred Stock and Voting Preferred Stock (the
"Designations of Preferred Stock"):
A1. Class A1 Preferred Stock.
1. Definitions. As used in this subsection A1 of this Designations
of Preferred Stock, capitalized terms not otherwise defined herein shall have
the meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as amended and restated and in effect at the time in question.
"Common Stock" means, collectively, all of the Common Stock, $.001 par
value, of the Company of any class, and any other class of capital stock of the
Company 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 Company.
"Dividend Reference Date" has the meaning ascribed to it in Section
A1.2(c).
"Exchange Triggering Date" means December 31, 1999.
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"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection A1, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection A1.
"Maturity Date" means, with respect to any Class A1 Preferred Stock or
Notes issued in exchange for Class A1 Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005 (the
"Calendar Maturity Date").
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection A1.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class A1 Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred A1/A2 Holders" means, collectively, Preferred A1 Holders and
Preferred A2 Holders.
"Preferred A1 Holders" means holders of Class A1 Preferred Stock.
"Preferred A2 Holders" means holders of Class A2 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between Alpha Microsystems, a
California corporation, predecessor to the Company, and the Holder (as defined
therein).
"Preferred Stock" means, collectively, the Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Voting Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section A1.5(a) of
this Designations of Preferred Stock.
"Requisite Preferred A1/A2 Holders" means the holders representing a
majority of the then outstanding shares of Class A1 Preferred Stock and Class A2
Preferred Stock voting together as a group.
"Requisite Preferred A1 Holders" means the holders representing a
majority of the then outstanding shares of Class A1 Preferred Stock.
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"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D Preferred
Stock and Class E Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred A1 Holders shall be entitled to receive, out
of funds legally available therefor, cumulative dividends on the
Liquidation Value at the Rate per Annum and for the periods set forth
below:
<TABLE>
<CAPTION>
Rate Per
Period Annum
------ -----
<S> <C>
Until June 30, 2000 9.0%
July 1, 2000 to June 30, 2001 11.0%
July 1, 2001 to June 30, 2002 12.0%
July 1, 2002 to June 30, 2003 13.0%
July 1, 2003 to June 30, 2004 14.0%
July 1, 2004 to June 30, 2005 15.0%
</TABLE>
(subject to appropriate adjustments in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in preference and
priority to any payment of any cash dividend on Common Stock or any
other shares of capital stock of the Company other than the Class A2
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Class E Preferred Stock (which shall rank on
a par with the Class A1 Preferred Stock) or other class or series of
stock ranking on a par with, or senior to the Class A1 Preferred Stock
in respect of dividends (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"), when and as declared
by the Board.
(b) Such dividends shall accrue with respect to each share of
Class A1 Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists
profits, surplus or other funds legally available for the payment of
dividends, and shall be cumulative so that if such dividends on the
Class A1 Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or
set apart for any Junior Stock and before any purchase or acquisition of
any Junior Stock is made by the Company, except the repurchase of Junior
Stock from employees of the Company upon termination of employment or as
otherwise approved by the Requisite Preferred A1 Holders.
(c) Dividends shall be payable in cash, quarterly in arrears.
To the extent dividends are not paid on each September 30, December 31,
March 31 and June 30 (each a "Dividend Reference Date"), all dividends
which have accrued on each share of Class A1 Preferred Stock during the
three-month period (or shorter period in the case of the first or last
period) ending on each Dividend Reference Date will be added to the
Liquidation Value of such share and will remain a part thereof until
such dividends are paid in full in cash. Each dividend paid in cash
shall be mailed to the holders of record of the Class A1 Preferred Stock
as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
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(a) In the event of any Liquidation of the Company, the
Preferred A1 Holders shall be entitled to be paid out of the assets of
the Company legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of Voting Preferred Stock and any other class
or series of stock of the Company ranking on liquidation prior and in
preference to the Class A1 Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an amount
equal to the Liquidation Value per share of Class A1 Preferred Stock. If
upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Class A1 Preferred Stock
the full amount to which they shall be entitled, the holders of shares
of Class A1 Preferred Stock and the holders of shares of Class A2
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and any other class or
series of stock ranking on liquidation on a parity with the Class A1
Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 50 percent of the voting securities of the
Company), or the sale of all or substantially all the assets of the
Company, shall be deemed to be a Liquidation of the Company for purposes
of this Section 3 of this subsection A1, unless the Requisite Preferred
A1 Holders vote otherwise. The amount deemed distributed to the holders
of Class A1 Preferred Stock upon any such merger or consolidation shall
be the cash or the value of the property, rights and/or securities
distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b),
(c) and (d) below, the Preferred A1 Holders shall not be entitled to
vote.
(b) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred A1 Holders:
(i) in any manner authorize, issue or sell any shares
of Class A1 Preferred Stock other than as contemplated by the
Purchase Agreement, the Preferred Shareholder Agreement or this
Designations of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change
the designations, preferences, privileges or relative, optional
or other special rights, or the qualifications, limitations or
restrictions thereof, of the Class A1 Preferred Stock;
(iii) amend, repeal or modify any provision of this
subsection A1 of this Designations of Preferred Stock; or
(iv) amend, repeal or modify any provision of the
Certificate of Incorporation or By-laws in a manner that would
adversely affect the preferences, privileges or rights of the
Preferred A1 Holders.
(c)
(i) The Company hereby covenants that the Requisite
Preferred A1/A2 Holders shall have the right to have that number
of representatives (each such representative, an "Observer")
determined as hereinafter provided present at all meetings of the
Board. Such right
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shall from time to time be exercisable by delivery to the Company
of written notice from the Requisite Preferred A1/A2 Holders
specifying the names of such Observers. The number of Observers
shall at all times and from time to time be equal to that number
of nominees to the Board that the Preferred A1/A2 Holders are
then entitled to designate less the number of such nominees as
are then members of the Board.
(ii) The Company will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to
the Board shall be deemed reasonable prior notice) in any manner
permitted in the Company's By-laws for notices to directors of
the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all
documents furnished to any director in connection with such
meeting. Each such Observer will be entitled to be present in
person as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of
all papers which may be distributed from time to time to the
directors of the Company at such time as such papers are so
distributed to them, including copies of any written consent.
(d) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any
material agreement or material transaction, other than in the
ordinary course of business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or
otherwise agree to any joint venture, licensing arrangement with,
any other person;
(iii) enter into any arrangement which would reasonably
be expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose
of any of its material assets or properties, or spinoff or
splitoff any material assets, properties or Securities except
sales of inventory and used, obsolete, worn out or unnecessary
equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or
otherwise dispose of any significant portion of its Intellectual
Property Rights;
(vi) except in the ordinary course of business and
consistent with past practice, waive, release or cancel any
material claims against third parties or material debts owing to
it, or any material rights which have any material value;
(vii) make any material changes in its accounting
systems, policies, principles or practices except in the ordinary
course of business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction
with Affiliates, or modify in any material respect the
employment, compensation or other arrangements with the executive
officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants or exchangeable
Securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any
such capital stock or other Securities;
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(x) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend (other than
dividends on the Preferred Stock) or other distribution (whether
in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any capital
stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and
consistent with past practice, make any borrowings, incur any
Indebtedness, or assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the
obligations of any other Person; and
(xii) except in the ordinary course of business and
consistent with past practice, make any loans, advances or
capital contributions to, or investments in, any other Person.
5. Redemption.
(a) Subject to the Company having funds legally available for such
purpose, the Company shall redeem all of the shares of the Class A1 Preferred
Stock then outstanding, on the Maturity Date. The per share redemption price at
which shares of Class A1 Preferred Stock are to be redeemed pursuant to this
Section 5(a) of this subsection A1 shall be equal to the Liquidation Value (the
"Redemption Price").
(b) In the event the Company or any of its Subsidiaries consummates a
public or private offering for cash of capital stock or other equity interests,
the Company shall be required to apply 50% of the Net Proceeds of such offering
toward the redemption of shares of Preferred Stock (other than Voting Preferred
Stock), on a pro rata basis (determined on the basis of the number of shares of
Preferred Stock (other than Voting Preferred Stock), held by such holder over
the total number of shares of Preferred Stock (other than Voting Preferred
Stock) outstanding) from the Holders of Preferred Stock at the Redemption Price.
(c) In addition to the Company's mandatory redemption obligations as
set forth in Sections 5(a) and (b) of this subsection A1, the Company shall have
the option to redeem a minimum of $1 million of Original Cost of Class A1
Preferred Stock and integral multiples of $100,000 thereafter at the Liquidation
Value thereof. Any shares to be redeemed pursuant to this Section 5(c) of this
subsection A1 shall be selected for redemption at the discretion of, or in a
manner approved by, the Board. Notwithstanding any of the other provisions of
this Section 5 of this subsection A1, so long as any Preferred A1/A2 Holder
remains a Significant Holder, the Company shall not be permitted to redeem or
retire all outstanding shares of Class A1 Preferred Stock, but shall instead
allow such Significant Holder to remain the holder of one (1) share of Class A1
Preferred Stock.
(d) On and after any date set for redemption (the "Redemption Date")
pursuant to this Section 5 of this subsection A1 (unless default shall be made
by the Company in the payment of the Redemption Price, in which event such
rights shall be exercisable until such default is cured), all rights in respect
of the shares of the Class A1 Preferred Stock to be redeemed, except the right
to receive the Redemption Price, shall cease and terminate, and such shares
shall no longer be deemed to be outstanding, whether or not the certificates
representing such shares have been received by the Company.
(e) Any communication or notice relating to redemption given pursuant
to this Section 5 of this subsection A1 shall be sent by first-class certified
mail, return receipt requested, postage prepaid, to the Preferred A1 Holders at
their respective addresses as the same shall appear on the books of the Company,
or to the Company at the address of its principal, or registered office, as the
case may be.
(f) At any time on or after the Redemption Date, the Preferred A1
Holders shall be entitled to receive the Redemption Price upon actual delivery
to the Company or its agents of the certificates representing the shares of the
Class A1 Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this Section 5
of this subsection A1 shall be paid in cash.
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(h) Any shares of Class A1 Preferred Stock which are redeemed or
otherwise acquired by the Company shall be canceled and shall not be reissued,
sold or transferred as Class A1 Preferred Stock and the Board shall reduce the
number of authorized shares of Class A1 Preferred Stock by the number of shares
so redeemed or otherwise acquired.
6. Maturity Default.
(a) The occurrence of any of the following events of default shall,
at the option of the Requisite Preferred Holders, constitute a Maturity Default:
(i) the Company fails to comply in any material respect with
any of its obligations under any of the Transaction Documents or the
Fundamental Documents;
(ii) a material default occurs under any mortgage, indenture or
other instrument under which there may be secured or evidenced any
indebtedness for money borrowed by the Company if the principal amount
of such indebtedness aggregates $1,000,000 or more; or
(iii) the Company fails to comply with the provisions of Section
7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a Maturity
Default until the Company does not cure the default within 30 days of the
Company having Knowledge of such default. When a default is cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company may
waive an existing default or Maturity Default and its consequences. When a
default or Maturity Default is waived, it ceases.
7. Exchange.
(a) The Requisite Preferred A1 Holders and the Company may agree at
any time and from time to time following the Exchange Triggering Date to
exchange all or any portion of the shares of Class A1 Preferred Stock
outstanding into the Company's Subordinated Debentures (the "Notes") to be
issued substantially in the form attached as Exhibit D to the Purchase Agreement
in the amount of $1,000 principal amount of Notes for each $1,000 of Liquidation
Value of Class A1 Preferred Stock; provided, however, that no such exchange may
be consummated unless full cumulative dividends (including, without duplication,
full cumulative dividends pro rata for the elapsed portion of the current
dividend period) on the Class A1 Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of $1,000 at
the time of exchange. If any additional amounts ("Fractional Principal Amounts")
would otherwise be issuable to any holders of Preferred Stock, then the Company
shall, in lieu of issuing a Fractional Principal Amount therefor, pay in full
payment of the Company's obligation with respect to such Fractional Principal
Amount, to each Preferred A1 Holder an amount in cash equal to such Fractional
Principal Amount. Any and all exchange rights set forth in this subsection A1
shall be deemed to be a right of redemption. In the event that the Company
exercises its option to exchange any portion of the outstanding shares of Class
A1 Preferred Stock into Notes pursuant to this Section 7 of this subsection A1,
such shares to be exchanged shall be selected for exchange at the discretion of,
or in a manner approved by, the Board. Notwithstanding any of the other
provisions of this Section 7 of this subsection A1, so long as any Preferred A1
Holder remains a Significant Holder, the Company shall not be permitted to
exchange all outstanding shares of Class A1 Preferred Stock, but shall instead
allow such Significant Holder to remain the holder of one (1) share of Class A1
Preferred Stock.
(b) Any exchange pursuant to this Section 7 of this Subsection A1
shall be made upon not less than 30 days' notice prior to the date fixed for
exchange (the "Exchange Date"). The notice given shall state that, upon
surrender of their certificate or certificates to the Company, the holders of
Class A1 Preferred Stock will receive Notes in the amount set forth in Section
7(a) of this subsection A1 above and that, at the close of business on the
Exchange Date, all rights of the holders with respect to such shares so
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called for exchange shall cease, except the right to receive the Notes in the
amount set forth in Section 7(a) of this subsection A1. Except as may be
otherwise required by applicable law, the form of the Notes may only be amended
or supplemented before the first Exchange Date which occurs with the affirmative
vote or consent of the Requisite Preferred A1 Holders. On or after such first
Exchange Date, the Notes may only be amended or supplemented as provided in the
Notes. The Company will cause the Notes to be authenticated on the Exchange
Date, and the Company will pay interest on the Notes at the rate and on the
dates specified in the Notes from and after the relevant Exchange Date.
A2 Class A2 Preferred Stock.
1. Definitions. As used in this subsection A2 of this Designations
of Preferred Stock, capitalized terms not otherwise defined herein shall have
the meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as amended and restated and in effect at the time in question.
"Common Stock" means, collectively, all of the Common Stock, $.001 par
value, of the Company of any class, and any other class of capital stock of the
Company 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 Company.
"Dividend Reference Date" has the meaning ascribed to it in Section
A2.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection A2, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection A2.
"Maturity Date" means, with respect to any Class A2 Preferred Stock or
Notes issued in exchange for Class A2 Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005 (the
"Calendar Maturity Date").
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection A2.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class A2 Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred A1/A2 Holders" means, collectively, Preferred A1 Holders and
Preferred A2 Holders.
"Preferred A1 Holders" means holders of Class A1 Preferred Stock.
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"Preferred A2 Holders" means holders of Class A2 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between Alpha Microsystems, a
California corporation, predecessor to the Company, and the Holder (as defined
therein).
"Preferred Stock" means, collectively, the Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Voting Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section A2.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred A1/A2 Holders" means the holders representing a
majority of the then outstanding shares of Class A1 Preferred Stock and Class A2
Preferred Stock voting together as a group.
"Requisite Preferred A2 Holders" means the holders representing a
majority of the then outstanding shares of Class A2 Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D Preferred
Stock and Class E Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred A2 Holders shall be entitled to receive, out
of funds legally available therefor, cumulative dividends on the
Liquidation Value at the Rate per Annum and for the periods set forth
below:
<TABLE>
<CAPTION>
Rate Per
Period Annum
------ -----
<S> <C>
Until June 30, 2000 9.0%
July 1, 2000 to June 30, 2001 11.0%
July 1, 2001 to June 30, 2002 12.0%
July 1, 2002 to June 30, 2003 13.0%
July 1, 2003 to June 30, 2004 14.0%
July 1, 2004 to June 30, 2005 15.0%
</TABLE>
-10-
<PAGE> 11
(subject to appropriate adjustments in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in preference and
priority to any payment of any cash dividend on Common Stock or any
other shares of capital stock of the Company other than the Class A1
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Class E Preferred Stock (which shall rank on
a par with the Class A2 Preferred Stock) or other class or series of
stock ranking on a par with, or senior to the Class A2 Preferred Stock
in respect of dividends (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"), when and as declared
by the Board.
(b) Such dividends shall accrue with respect to each share of
Class A2 Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists
profits, surplus or other funds legally available for the payment of
dividends, and shall be cumulative so that if such dividends on the
Class A2 Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or
set apart for any Junior Stock and before any purchase or acquisition of
any Junior Stock is made by the Company, except the repurchase of Junior
Stock from employees of the Company upon termination of employment or as
otherwise approved by the Requisite Preferred A2 Holders.
(c) Dividends shall be payable in cash, quarterly in arrears.
To the extent dividends are not paid on each September 30, December 31,
March 31 and June 30 (each a "Dividend Reference Date"), all dividends
which have accrued on each share of Class A2 Preferred Stock during the
three-month period (or shorter period in the case of the first or last
period) ending on each Dividend Reference Date will be added to the
Liquidation Value of such share and will remain a part thereof until
such dividends are paid in full in cash. Each dividend paid in cash
shall be mailed to the holders of record of the Class A2 Preferred Stock
as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the
Preferred A2 Holders shall be entitled to be paid out of the assets of
the Company legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of Voting Preferred Stock and any other class
or series of stock of the Company ranking on liquidation prior and in
preference to the Class A2 Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an amount
equal to the Liquidation Value per share of Class A2 Preferred Stock. If
upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Class A2 Preferred Stock
the full amount to which they shall be entitled, the holders of shares
of Class A2 Preferred Stock and the holders of shares of Class A1
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and any other class or
series of stock ranking on liquidation on a parity with the Class A2
Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 50 percent of the voting securities of the
Company), or the sale of all or substantially all the assets of the
Company, shall be deemed to be a Liquidation of the Company for purposes
of this Section 3 of this subsection A2, unless the Requisite Preferred
A2 Holders vote otherwise. The amount deemed distributed to the holders
of Class A2 Preferred Stock upon any such merger or consolidation shall
be the cash or the value of the property, rights and/or securities
distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board.
-11-
<PAGE> 12
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b),
(c) and (d) below, the Preferred A2 Holders shall not be entitled to
vote.
(b) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred A2 Holders:
(i) in any manner authorize, issue or sell any shares
of Class A2 Preferred Stock other than as contemplated by the
Purchase Agreement, the Preferred Shareholder Agreement or this
Designations of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change
the designations, preferences, privileges or relative, optional
or other special rights, or the qualifications, limitations or
restrictions thereof, of the Class A2 Preferred Stock;
(iii) amend, repeal or modify any provision of this
subsection A2 of this Designations of Preferred Stock; or
(iv) amend, repeal or modify any provision of the
Certificate of Incorporation or By-laws in a manner that would
adversely affect the preferences, privileges or rights of the
Preferred A2 Holders.
(c)
(i) The Company hereby covenants that the Requisite
Preferred A1/A2 Holders shall have the right to have that number
of representatives (each such representative, an "Observer")
determined as hereinafter provided present at all meetings of the
Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite
Preferred A1/A2 Holders specifying the names of such Observers.
The number of Observers shall at all times and from time to time
be equal to that number of nominees to the Board that the
Preferred A1/A2 Holders are then entitled to designate less the
number of such nominees as are then members of the Board.
(ii) The Company will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to
the Board shall be deemed reasonable prior notice) in any manner
permitted in the Company's By-laws for notices to directors of
the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all
documents furnished to any director in connection with such
meeting. Each such Observer will be entitled to be present in
person as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of
all papers which may be distributed from time to time to the
directors of the Company at such time as such papers are so
distributed to them, including copies of any written consent.
(d) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any
material agreement or material transaction, other than in the
ordinary course of business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or
otherwise agree to any joint venture, licensing arrangement with,
any other person.
-12-
<PAGE> 13
(iii) enter into any arrangement which would reasonably
be expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose
of any of its material assets or properties, or spinoff or
splitoff any material assets, properties or Securities except
sales of inventory and used, obsolete, worn out or unnecessary
equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or
otherwise dispose of any significant portion of its Intellectual
Property Rights;
(vi) except in the ordinary course of business and
consistent with past practice, waive, release or cancel any
material claims against third parties or material debts owing to
it, or any material rights which have any material value;
(vii) make any material changes in its accounting
systems, policies, principles or practices except in the ordinary
course of business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction
with Affiliates, or modify in any material respect the
employment, compensation or other arrangements with the executive
officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants or exchangeable
Securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any
such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend (other than
dividends on the Preferred Stock) or other distribution (whether
in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any capital
stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and
consistent with past practice, make any borrowings, incur any
Indebtedness, or assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the
obligations of any other Person; and
(xii) except in the ordinary course of business and
consistent with past practice, make any loans, advances or
capital contributions to, or investments in, any other Person.
5. Redemption.
(a) Subject to the Company having funds legally available for
such purpose, the Company, on the Maturity Date, shall have the option
of redeeming all the shares of outstanding Class A2 Preferred Stock for
cash as described in Sections 5(d) - (h) below. If the Company does not
redeem such shares on the Maturity Date, the Company shall pay full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class A2 Preferred Stock to the Maturity Date and,
immediately thereafter, each share of Class A2 Preferred Stock shall
automatically be converted into one share of Class D Preferred Stock.
The per share redemption price at which shares of Class A2 Preferred
Stock are to be redeemed pursuant to this Section 5(a) of this
subsection A2 shall be equal to the Liquidation Value (the "Redemption
Price").
(b) In the event the Company or any of its Subsidiaries
consummates a public or private offering for cash of capital stock or
other equity interests, the Company shall be required to apply 50% of
the Net Proceeds of such offering toward the redemption of shares of
Preferred Stock (other than Voting
-13-
<PAGE> 14
Preferred Stock), on a pro rata basis (determined on the basis of the
number of shares of Preferred Stock (other than Voting Preferred Stock),
held by such holder over the total number of shares of Preferred Stock
(other than Voting Preferred Stock) outstanding) from the Holders of
Preferred Stock at the Redemption Price.
(c) In addition to the Company's obligations as set forth in
Sections 5(a) and (b) of this subsection A2, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class A2
Preferred Stock and integral multiples of $100,000 thereafter at the
Liquidation Value thereof. Any shares to be redeemed pursuant to this
Section 5(c) of this subsection A2 shall be selected for redemption at
the discretion of, or in a manner approved by, the Board.
Notwithstanding any of the other provisions of this Section 5 of this
subsection A2, so long as any Preferred A1/A2 Holder remains a
Significant Holder, the Company shall not be permitted to redeem or
retire all outstanding shares of Class A2 Preferred Stock, but shall
instead allow such Significant Holder to remain the holder of one (1)
share of Class A2 Preferred Stock.
(d) On and after any date set for redemption (the "Redemption
Date") pursuant to this Section 5 of this subsection A2 (unless default
shall be made by the Company in the payment of the Redemption Price, in
which event such rights shall be exercisable until such default is
cured), all rights in respect of the shares of the Class A2 Preferred
Stock to be redeemed, except the right to receive the Redemption Price,
shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares
have been received by the Company.
(e) Any communication or notice relating to redemption given
pursuant to this Section 5 of this subsection A2 shall be sent by
first-class certified mail, return receipt requested, postage prepaid,
to the Preferred A2 Holders at their respective addresses as the same
shall appear on the books of the Company, or to the Company at the
address of its principal, or registered office, as the case may be.
(f) At any time on or after the Redemption Date, the Preferred
A2 Holders shall be entitled to receive the Redemption Price upon actual
delivery to the Company or its agents of the certificates representing
the shares of the Class A2 Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this
Section 5 of this subsection A2 shall be paid in cash.
(h) Any shares of Class A2 Preferred Stock which are redeemed
or otherwise acquired by the Company shall be canceled and shall not be
reissued, sold or transferred as Class A2 Preferred Stock and the Board
shall reduce the number of authorized shares of Class A2 Preferred Stock
by the number of shares so redeemed or otherwise acquired.
6. Maturity Default.
(a) The occurrence of any of the following events of default
shall, at the option of the Requisite Preferred Holders, constitute a
Maturity Default:
(i) the Company fails to comply in any material respect
with any of its obligations under any of the Transaction
Documents or the Fundamental Documents;
(ii) a material default occurs under any mortgage,
indenture or other instrument under which there may be secured
or evidenced any indebtedness for money borrowed by the Company
if the principal amount of such indebtedness aggregates
$1,000,000 or more; or
(iii) the Company fails to comply with the provisions of
Section 7.2(g)(iv) of the Purchase Agreement.
-14-
<PAGE> 15
(b) A default under clauses (a)(i) or (a)(ii) is not a
Maturity Default until the Company does not cure the default within 30
days of the Company having Knowledge of such default. When a default is
cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company
may waive an existing default or Maturity Default and its consequences.
When a default or Maturity Default is waived, it ceases.
7. Exchange.
(a) The Requisite Preferred A2 Holders and the Company may
agree at any time and from time to time following the Exchange
Triggering Date to exchange all or any portion of the shares of Class A2
Preferred Stock outstanding into the Company's Subordinated Debentures
(the "Notes") to be issued substantially in the form attached as Exhibit
D to the Purchase Agreement in the amount of $1,000 principal amount of
Notes for each $1,000 of Liquidation Value of Class A2 Preferred Stock;
provided, however, that no such exchange may be consummated unless full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class A2 Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of
$1,000 at the time of exchange. If any additional amounts ("Fractional
Principal Amounts") would otherwise be issuable to any holders of
Preferred Stock, then the Company shall, in lieu of issuing a Fractional
Principal Amount therefor, pay in full payment of the Company's
obligation with respect to such Fractional Principal Amount, to each
Preferred A2 Holder an amount in cash equal to such Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
subsection A2 shall be deemed to be a right of redemption. In the event
that the Company exercises its option to exchange any portion of the
outstanding shares of Class A2 Preferred Stock into Notes pursuant to
this Section 7 of this subsection A2, such shares to be exchanged shall
be selected for exchange at the discretion of, or in a manner approved
by, the Board. Notwithstanding any of the other provisions of this
Section 7 of this subsection A2, so long as any Preferred A2 Holder
remains a Significant Holder, the Company shall not be permitted to
exchange all outstanding shares of Class A2 Preferred Stock, but shall
instead allow such Significant Holder to remain the holder of one (1)
share of Class A2 Preferred Stock.
(b) Any exchange pursuant to this Section 7 of this Subsection
A2 shall be made upon not less than 30 days' notice prior to the date
fixed for exchange (the "Exchange Date"). The notice given shall state
that, upon surrender of their certificate or certificates to the
Company, the holders of Class A2 Preferred Stock will receive Notes in
the amount set forth in Section 7(a) of this subsection A2 above and
that, at the close of business on the Exchange Date, all rights of the
holders with respect to such shares so called for exchange shall cease,
except the right to receive the Notes in the amount set forth in Section
7(a) of this subsection A2. Except as may be otherwise required by
applicable law, the form of the Notes may only be amended or
supplemented before the first Exchange Date which occurs with the
affirmative vote or consent of the Requisite Preferred A2 Holders. On or
after such first Exchange Date, the Notes may only be amended or
supplemented as provided in the Notes. The Company will cause the Notes
to be authenticated on the Exchange Date, and the Company will pay
interest on the Notes at the rate and on the dates specified in the
Notes from and after the relevant Exchange Date.
B. Class B1 Preferred Stock.
1. Definitions. As used in subsection B of this Determination of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as amended and restated and in effect at the time in question.
-15-
<PAGE> 16
"Common Stock" means, collectively, all of the Common Stock, $.001 par
value, of the Company of any class, and any other class of capital stock of the
Company 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 Company.
"Dividend Reference Date" has the meaning ascribed to it in Section
B.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection B, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection B.
"Maturity Date" means, with respect to any Class B1 Preferred Stock or
Notes issued in exchange for Class B1 Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005;
provided, that the Maturity Date shall be December 31, 2000 with respect to
Class B1 Preferred Stock which is issued in connection with a Spinoff
Transaction.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection B.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class B1 Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred B1 Holders" means holders of Class B1 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between Alpha Microsystems, a
California corporation, predecessor to the Company, and the Holder (as defined
therein).
"Preferred Stock" means, collectively, the Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Voting Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section B.5(a) of
this Designations of Preferred Stock.
"Requisite Preferred B1 Holders" means the holders representing a
majority of the then outstanding shares of Class B1 Preferred Stock.
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<PAGE> 17
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D Preferred
Stock and Class E Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred B1 Holders shall be entitled to receive, out
of funds legally available therefor, cumulative dividends on the
Liquidation Value at the Rate per Annum and for the periods set forth
below:
<TABLE>
<CAPTION>
Rate Per
Period Annum
------ -----
<S> <C>
Until June 30, 2000 9.0%
July 1, 2000 to June 30, 2001 11.0%
July 1, 2001 to June 30, 2002 12.0%
July 1, 2002 to June 30, 2003 13.0%
July 1, 2003 to June 30, 2004 14.0%
July 1, 2004 to June 30, 2005 15.0%
</TABLE>
(subject to appropriate adjustments in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in preference and
priority to any payment of any cash dividend on Common Stock or any
other shares of capital stock of the Company other than the Class A1
Preferred Stock, Class A2 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock and Class E Preferred Stock (which shall rank on
a par with the Class B1 Preferred Stock) or other class or series of
stock ranking on a par with, or senior to the Class B1 Preferred Stock
in respect of dividends (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"), when and as declared
by the Board.
(b) Such dividends shall accrue with respect to each share of
Class B1 Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists
profits, surplus or other funds legally available for the payment of
dividends, and shall be cumulative so that if such dividends on the
Class B1 Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or
set apart for any Junior Stock and before any purchase or acquisition of
any Junior Stock is made by the Company, except the repurchase of Junior
Stock from employees of the Company upon termination of employment or as
otherwise approved by the Requisite Preferred B1 Holders.
(c) Dividends shall be payable in cash, quarterly in arrears.
To the extent dividends are not paid on each September 30, December 31,
March 31 and June 30 (each a "Dividend Reference Date"), all dividends
which have accrued on each share of Class B1 Preferred Stock during the
three-month period (or shorter period in the case of the first or last
period) ending on each Dividend Reference Date will be added to the
Liquidation Value of such share and will remain a part thereof until
such dividends are paid in full in cash. Each dividend paid in cash
shall be mailed to the holders of record of the Class B1 Preferred Stock
as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
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<PAGE> 18
(a) In the event of any Liquidation of the Company, the
Preferred B1 Holders shall be entitled to be paid out of the assets of
the Company legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of Voting Preferred Stock and any other class
or series of stock of the Company ranking on liquidation prior and in
preference to the Class B1 Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an amount
equal to the Liquidation Value per share of Class B1 Preferred Stock. If
upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Class B1 Preferred Stock
the full amount to which they shall be entitled, the holders of shares
of Class B1 Preferred Stock and the holders of shares of Class A1
Preferred Stock, Class A2 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and any other class or
series of stock ranking on liquidation on a parity with the Class B1
Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 50 percent of the voting securities of the
Company), or the sale of all or substantially all the assets of the
Company, shall be deemed to be a Liquidation of the Company for purposes
of this Section 3 of this subsection B, unless the Requisite Preferred
B1 Holders vote otherwise. The amount deemed distributed to the holders
of Class B1 Preferred Stock upon any such merger or consolidation shall
be the cash or the value of the property, rights and/or securities
distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b),
(c) and (d) below, the Preferred B1 Holders shall not be entitled to
vote.
(b) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred B1 Holders:
(i) in any manner authorize, issue or sell any shares
of Class B1 Preferred Stock other than as contemplated by the
Purchase Agreement, the Preferred Shareholder Agreement or this
Designations of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change
the designations, preferences, privileges or relative, optional
or other special rights, or the qualifications, limitations or
restrictions thereof, of the Class B1 Preferred Stock;
(iii) amend, repeal or modify any provision of this
subsection B of this Designations of Preferred Stock; or
(iv) amend, repeal or modify any provision of the
Certificate of Incorporation or By-laws in a manner that would
adversely affect the preferences, privileges or rights of the
Preferred B1 Holders.
(c)
(i) The Company hereby covenants that the Requisite
Preferred B1 Holders shall have the right to have that number of
representatives (each such representative, an "Observer")
determined as hereinafter provided present at all meetings of the
Board. Such right shall from
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<PAGE> 19
time to time be exercisable by delivery to the Company of written
notice from the Requisite Preferred B1 Holders specifying the
names of such Observers. The number of Observers shall at all
times and from time to time be equal to that number of nominees
to the Board that the Preferred B1 Holders are then entitled to
designate less the number of such nominees as are then members of
the Board.
(ii) The Company will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to
the Board shall be deemed reasonable prior notice) in any manner
permitted in the Company's By-laws for notices to directors of
the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all
documents furnished to any director in connection with such
meeting. Each such Observer will be entitled to be present in
person as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of
all papers which may be distributed from time to time to the
directors of the Company at such time as such papers are so
distributed to them, including copies of any written consent.
(d) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any
material agreement or material transaction, other than in the
ordinary course of business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or
otherwise agree to any joint venture, licensing arrangement with,
any other person;
(iii) enter into any arrangement which would reasonably
be expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose
of any of its material assets or properties, or spinoff or
splitoff any material assets, properties or Securities except
sales of inventory and used, obsolete, worn out or unnecessary
equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or
otherwise dispose of any significant portion of its Intellectual
Property Rights;
(vi) except in the ordinary course of business and
consistent with past practice, waive, release or cancel any
material claims against third parties or material debts owing to
it, or any material rights which have any material value;
(vii) make any material changes in its accounting
systems, policies, principles or practices except in the ordinary
course of business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction
with Affiliates, or modify in any material respect the
employment, compensation or other arrangements with the executive
officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants or exchangeable
Securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any
such capital stock or other Securities;
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<PAGE> 20
(x) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend (other than
dividends on the Preferred Stock) or other distribution (whether
in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any capital
stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and
consistent with past practice, make any borrowings, incur any
Indebtedness, or assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the
obligations of any other Person; and
(xii) except in the ordinary course of business and
consistent with past practice, make any loans, advances or
capital contributions to, or investments in, any other Person.
5. Redemption.
(a) Subject to the Company having funds legally available for
such purpose, the Company, on the Maturity Date, shall have the option
of redeeming all the shares of outstanding Class B1 Preferred Stock for
cash as described in Sections 5(d) - (h) below. If the Company does not
redeem such shares on the Maturity Date, the Company shall pay full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class B1 Preferred Stock to the Maturity Date and,
immediately thereafter, each share of Class B1 Preferred Stock shall
automatically be converted into one share of Class D Preferred Stock.
The per share redemption price at which shares of Class B1 Preferred
Stock are to be redeemed pursuant to this Section 5(a) of this
subsection B1 shall be equal to the Liquidation Value (the "Redemption
Price").
(b) In the event the Company or any of its Subsidiaries
consummates a public or private offering for cash of capital stock or
other equity interests, the Company shall be required to apply 50% of
the Net Proceeds of such offering toward the redemption of shares of
Preferred Stock (other than Voting Preferred Stock), on a pro rata basis
(determined on the basis of the number of shares of Preferred Stock
(other than Voting Preferred Stock), held by such holder over the total
number of shares of Preferred Stock (other than Voting Preferred Stock)
outstanding) from the Holders of Preferred Stock at the Redemption
Price.
(c) In addition to the Company's obligations as set forth in
Sections 5(a) and (b) of this subsection B, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class B1
Preferred Stock and integral multiples of $100,000 thereafter at the
Liquidation Value thereof. Any shares to be redeemed pursuant to this
Section 5(c) of this subsection B shall be selected for redemption at
the discretion of, or in a manner approved by, the Board.
Notwithstanding any of the other provisions of this Section 5 of this
subsection B, so long as any Preferred B1 Holder remains a Significant
Holder, the Company shall not be permitted to redeem or retire all
outstanding shares of Class B1 Preferred Stock, but shall instead allow
such Significant Holder to remain the holder of one (1) share of Class
B1 Preferred Stock.
(d) On and after any date set for redemption (the "Redemption
Date") pursuant to this Section 5 of this subsection B (unless default
shall be made by the Company in the payment of the Redemption Price, in
which event such rights shall be exercisable until such default is
cured), all rights in respect of the shares of the Class B1 Preferred
Stock to be redeemed, except the right to receive the Redemption Price,
shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares
have been received by the Company.
(e) Any communication or notice relating to redemption given
pursuant to this Section 5 of this subsection B shall be sent by
first-class certified mail, return receipt requested, postage prepaid,
to the Preferred B1 Holders, at their respective addresses as the same
shall appear on the books of the Company, or to the Company at the
address of its principal, or registered office, as the case may be.
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<PAGE> 21
(f) At any time on or after the Redemption Date, the Preferred
B1 Holders shall be entitled to receive the Redemption Price upon actual
delivery to the Company or its agents of the certificates representing
the shares of the Class B1 Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this
Section 5 of this subsection B shall be paid in cash.
(h) Any shares of Class B1 Preferred Stock which are redeemed
or otherwise acquired by the Company shall be canceled and shall not be
reissued, sold or transferred as Class B1 Preferred Stock and the Board
shall reduce the number of authorized shares of Class B1 Preferred stock
by the number of shares so redeemed or otherwise acquired.
6. Maturity Default.
(a) The occurrence of any of the following events of default
shall, at the option of the Requisite Preferred Holders, constitute a
Maturity Default:
(i) the Company fails to comply in any material respect
with any of its obligations under any of the Transaction
Documents or the Fundamental Documents;
(ii) a material default occurs under any mortgage,
indenture or other instrument under which there may be secured
or evidenced any indebtedness for money borrowed by the Company
if the principal amount of such indebtedness aggregates
$1,000,000 or more; or
(iii) the Company fails to comply with the provisions of
Section 7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a
Maturity Default until the Company does not cure the default within 30
days of the Company having Knowledge of such default. When a default is
cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company
may waive an existing default or Maturity Default and its consequences.
When a default or Maturity Default is waived, it ceases.
7. Exchange.
(a) The Requisite Preferred B1 Holders and the Company may
agree at any time and from time to time following the Exchange
Triggering Date to exchange all or any portion of the shares of Class B1
Preferred Stock outstanding into the Company's Subordinated Debentures
(the "Notes") to be issued substantially in the form attached as Exhibit
D to the Purchase Agreement in the amount of $1,000 principal amount of
Notes for each $1,000 of Liquidation Value of Class B1 Preferred Stock;
provided, however, that no such exchange may be consummated unless full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class B1 Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of
$1,000 at the time of exchange. If any additional amounts ("Fractional
Principal Amounts") would otherwise be issuable to any holders of
Preferred Stock, then the Company shall, in lieu of issuing a Fractional
Principal Amount therefor, pay in full payment of the Company's
obligation with respect to such Fractional Principal Amount, to each
Preferred B1 Holder an amount in cash equal to such Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
subsection shall be deemed to be a right of redemption. In the event
that the Company exercises its option to exchange any portion of the
outstanding shares of Class B1 Preferred Stock into Notes pursuant to
this Section 7 of this subsection B, such shares to be exchanged shall
be selected for exchange at the discretion of, or in a manner approved
by, the Board. Notwithstanding any of the other provisions of this
Section 7 of this subsection B, so long as any Preferred B1 Holder
remains a Significant Holder, the Company shall not be
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<PAGE> 22
permitted to exchange all outstanding shares of Class B1 Preferred
Stock, but shall instead allow such Significant Holder to remain the
holder of one (1) share of Class B1 Preferred Stock.
(b) Any exchange pursuant to this Section 7 of this Subsection
B shall be made upon not less than 30 days' notice prior to the date
fixed for exchange (the "Exchange Date"). The notice given shall state
that, upon surrender of their certificate or certificates to the
Company, the holders of Class B1 Preferred Stock will receive Notes in
the amount set forth in Section 7(a) of this subsection B and that, at
the close of business on the Exchange Date, all rights of the holders
with respect to such shares so called for exchange shall cease, except
the right to receive the Notes in the amount set forth in Section 7(a)
of this subsection B. Except as may be otherwise required by applicable
law, the form of the Notes may only be amended or supplemented before
the first Exchange Date which occurs with the affirmative vote or
consent of the Requisite Preferred B1 Holders. On or after such first
Exchange Date, the Notes may only be amended or supplemented as provided
in the Notes. The Company will cause the Notes to be authenticated on
the Exchange Date, and the Company will pay interest on the Notes at the
rate and on the dates specified in the Notes from and after the relevant
Exchange Date.
C. Class C1 Preferred Stock.
1. Definitions. As used in this subsection C of this Designations of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as amended and restated and in effect at the time in question.
"Common Stock" means, collectively, all of the Common Stock, $.001 par
value, of the Company of any class, and any other class of capital stock of the
Company 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 Company.
"Dividend Reference Date" has the meaning ascribed to it in Section
C.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection C, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection C.
"Maturity Date" means, with respect to any Class C1 Preferred Stock or
Notes issued in exchange for Class C1 Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection C.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class C1 Preferred
Stock, $1,000.
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<PAGE> 23
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred C1 Holders" means holders of Class C1 Preferred Stock.
"Preferred Shareholder Agreement" shall mean the Preferred Shareholder
Agreement, dated as of February 17, 1999, between Alpha Microsystems, a
California corporation, predecessor to the Company, and the Holder (as defined
therein).
"Preferred Stock" means, collectively, the Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Voting Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement dated as of
August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section C.5(a) of
this Determination of Preferred Stock.
"Requisite Preferred C1 Holders" means the holders of a majority of the
then outstanding shares of Class C1 Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D Preferred
Stock and Class E Preferred Stock voting together as a group.
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred C1 Holders shall be entitled to receive, out of
funds legally available therefor, cumulative dividends on the Liquidation Value
at the Rate per Annum and for the periods set forth below:
<TABLE>
<CAPTION>
Rate Per
Period Annum
------ -----
<S> <C>
Until June 30, 2000 9.0%
July 1, 2000 to June 30, 2001 11.0%
July 1, 2001 to June 30, 2002 12.0%
July 1, 2002 to June 30, 2003 13.0%
July 1, 2003 to June 30, 2004 14.0%
July 1, 2004 to June 30, 2005 15.0%
</TABLE>
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<PAGE> 24
(subject to appropriate adjustments in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in preference and
priority to any payment of any cash dividend on Common Stock or any
other shares of capital stock of the Company other than the Class A1
Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred Stock,
Class D Preferred Stock and Class E Preferred Stock (which shall rank on
a par with the Class C1 Preferred Stock) or other class or series of
stock ranking on a par with, or senior to the Class C1 Preferred Stock
in respect of dividends (such Common Stock and other inferior stock
being collectively referred to as "Junior Stock"), when and as declared
by the Board.
(b) Such dividends shall accrue with respect to each share of
Class C1 Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists
profits, surplus or other funds legally available for the payment of
dividends, and shall be cumulative so that if such dividends on the
Class C1 Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or
set apart for any Junior Stock and before any purchase or acquisition of
any Junior Stock is made by the Company, except the repurchase of Junior
Stock from employees of the Company upon termination of employment or as
otherwise approved by the Requisite Preferred C1 Holders.
(c) Dividends shall be payable in cash, quarterly in arrears.
To the extent dividends are not paid on each September 30, December 31,
March 31 and June 30 (each a "Dividend Reference Date"), all dividends
which have accrued on each share of Class C1 Preferred Stock during the
three-month period (or shorter period in the case of the first or last
period) ending on each Dividend Reference Date will be added to the
Liquidation Value of such share and will remain a part thereof until
such dividends are paid in full in cash. Each dividend paid in cash
shall be mailed to the holders of record of the Class C1 Preferred Stock
as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the
Preferred C1 Holders shall be entitled to be paid out of the assets of
the Company legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of Voting Preferred Stock and any other class
or series of stock of the Company ranking on liquidation prior and in
preference to the Class C1 Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an amount
equal to the Liquidation Value per share of Class C1 Preferred Stock. If
upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Class C1 Preferred Stock
the full amount to which they shall be entitled, the holders of shares
of Class C1 Preferred Stock and the holders of shares of Class A1
Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and any other class or
series of stock ranking on liquidation on a parity with the Class C1
Preferred Stock shall share ratably in any distribution of the remaining
assets and funds of the Company in proportion to the respective amounts
which would otherwise be payable in respect of the shares held by them
upon such distribution if all amounts payable on or with respect to such
shares were paid in full.
(b) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 50 percent of the voting securities of the
Company), or the sale of all or substantially all the assets of the
Company, shall be deemed to be a Liquidation of the Company for purposes
of this Section 3 of this subsection C, unless the Requisite Preferred
C1 Holders vote otherwise. The amount deemed distributed to the holders
of Class C1 Preferred Stock upon any such merger or consolidation shall
be the cash or the value of the property, rights and/or securities
distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board.
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<PAGE> 25
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b),
(c) and (d) below, the Preferred C1 Holders shall not be entitled to
vote.
(b) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred C1 Holders:
(i) in any manner authorize, issue or sell any shares
of Class C1 Preferred Stock other than as contemplated by the
Purchase Agreement or this Designations of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change
the designations, preferences privileges or relative, optional or
other special rights, or the qualifications, limitations or
restrictions thereof, of the Class C1 Preferred Stock;
(iii) amend, repeal or modify any provision of this
subsection C of this Designations of Preferred Stock; or
(iv) amend, repeal or modify any provision of the
Certificate of Incorporation or By-laws in a manner that would
adversely affect the preferences, privileges or rights of the
Preferred C1 Holders.
(c)
(i) The Company hereby covenants that the Requisite
Preferred C1 Holders shall have the right to have that number of
representatives (each such representative, an "Observer")
determined as hereinafter provided present at all meetings of the
Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite
Preferred C1 Holders specifying the names of such Observers. The
number of Observers shall at all times and from time to time be
equal to that number of nominees to the Board that the Preferred
C1 Holders are then entitled to designate less the number of such
nominees as are then members of the Board.
(ii) The Company will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to
the Board shall be deemed reasonable prior notice) in any manner
permitted in the Company's By-laws for notices to directors of
the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all
documents furnished to any director in connection with such
meeting. Each such Observer will be entitled to be present in
person as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of
all papers which may be distributed from time to time to the
directors of the Company at such time as such papers are so
distributed to them, including copies of any written consent.
(d) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any
material agreement or material transaction, other than in the
ordinary course of business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or
otherwise agree to any joint venture, licensing arrangement with,
any other person;
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<PAGE> 26
(iii) enter into any arrangement which would reasonably
be expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose
of any of its material assets or properties, or spinoff or
splitoff any material assets, properties or Securities except
sales of inventory and used, obsolete, worn out or unnecessary
equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or
otherwise dispose of any significant portion of its Intellectual
Property Rights;
(vi) except in the ordinary course of business and
consistent with past practice, waive, release or cancel any
material claims against third parties or material debts owing to
it, or any material rights which have any material value;
(vii) make any material changes in its accounting
systems, policies, principles or practices except in the ordinary
course of business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction
with Affiliates, or modify in any material respect the
employment, compensation or other arrangements with the executive
officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants or exchangeable
Securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any
such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend (other than
dividends on the Preferred Stock) or other distribution (whether
in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any capital
stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and
consistent with past practice, make any borrowings, incur any
Indebtedness, or assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the
obligations of any other Person; and
(xii) except in the ordinary course of business and
consistent with past practice, make any loans, advances or
capital contributions to, or investments in, any other Person.
5. Redemption.
(a) Subject to the Company having funds legally available for
such purpose, the Company, on the Maturity Date shall have the option of
redeeming all the shares of outstanding Class C1 Preferred Stock for
cash as described in Sections 5(d) - (h) below. If the Company does not
redeem such shares on the Maturity Date, the Company shall pay full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class C1 Preferred Stock to the Maturity Date and,
immediately thereafter, each share of Class C1 Preferred Stock shall
automatically be converted into one share of Class D Preferred Stock.
The per share redemption price at which shares of Class C1 Preferred
Stock are to be redeemed pursuant to this Section 5(a) of this
subsection C1 shall be equal to the Liquidation Value (the "Redemption
Price").
(b) In the event the Company or any of its Subsidiaries
consummates a public or private offering for cash of capital stock or
other equity interests, the Company shall be required to apply 50% of
the Net Proceeds of such offering toward the redemption of shares of
Preferred Stock (other than Voting
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<PAGE> 27
Preferred Stock), on a pro rata basis (determined on the basis of the
number of shares of Preferred Stock (other than Voting Preferred Stock),
held by such holder over the total number of shares of Preferred Stock
(other than Voting Preferred Stock) outstanding) from the Holders of
Preferred Stock at the Redemption Price.
(c) In addition to the Company's obligations as set forth in
Sections 5(a) and (b), of this subsection C, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class C1
Preferred Stock and integral multiples of $100,000 thereafter at the
Liquidation Value thereof. Any shares to be redeemed pursuant to this
Section 5(c) of this subsection C shall be selected for redemption at
the discretion of, or in a manner approved by, the Board.
Notwithstanding any of the other provisions of this Section 5 of this
subsection C, so long as any Preferred C1 Holder remains a Significant
Holder, the Company shall not be permitted to redeem or retire all
outstanding shares of Class C1 Preferred Stock, but shall instead allow
such Significant Holder to remain the holder of one (1) share of Class
C1 Preferred Stock.
(d) On and after any date set for redemption (the "Redemption
Date") pursuant to this Section 5 of this subsection C (unless default
shall be made by the Company in the payment of the Redemption Price, in
which event such rights shall be exercisable until such default is
cured), all rights in respect of the shares of the Class C1 Preferred
Stock to be redeemed, except the right to receive the Redemption Price,
shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares
have been received by the Company.
(e) Any communication or notice relating to redemption given
pursuant to this Section 5 of this subsection C shall be sent by
first-class certified mail, return receipt requested, postage prepaid,
to the Preferred C1 Holders, at their respective addresses as the same
shall appear on the books of the Company, or to the Company at the
address of its principal, or registered office, as the case may be.
(f) At any time on or after the Redemption Date, the Preferred
C1 Holders shall be entitled to receive the Redemption Price upon actual
delivery to the Company or its agents of the certificates representing
the shares of the Class C1 Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this
Section 5 of this subsection C shall be paid in cash.
(h) Any shares of Class C1 Preferred Stock which are redeemed
or otherwise acquired by the Company shall be canceled and shall not be
reissued, sold or transferred as Class C1 Preferred Stock and the Board
shall reduce the number of authorized shares of Class C1 Preferred Stock
by the number of shares so redeemed or otherwise acquired.
6. Maturity Default.
(a) The occurrence of any of the following events of default
shall, at the option of the Requisite Preferred Holders, constitute a
Maturity Default:
(i) the Company fails to comply in any material respect
with any of its obligations under any of the Transaction
Documents or the Fundamental Documents;
(ii) a material default occurs under any mortgage,
indenture or other instrument under which there may be secured
or evidenced any indebtedness for money borrowed by the Company
if the principal amount of such indebtedness aggregates
$1,000,000 or more; or
(iii) the Company fails to comply with the provisions of
Section 7.2(g)(iv) of the Purchase Agreement.
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(b) A default under clauses (a)(i) or (a)(ii) is not a
Maturity Default until the Company does not cure the default within 30
days of the Company having Knowledge of such default. When a default is
cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company
may waive an existing default or Maturity Default and its consequences.
When a default or Maturity Default is waived, it ceases.
7. Exchange.
(a) The Requisite Preferred C1 Holders and the Company may
agree at any time and from time to time following the Exchange
Triggering Date to exchange all or any portion of the shares of Class C1
Preferred Stock outstanding into the Company's Subordinated Debentures
(the "Notes") to be issued substantially in the form attached as Exhibit
D to the Purchase Agreement, in the amount of $1,000 principal amount of
Notes for each $1,000 of Liquidation Value of Class C1 Preferred Stock;
provided, however, that no such exchange may be consummated unless full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class C1 Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of
$1,000 at the time of exchange. If any additional amounts ("Fractional
Principal Amounts") would otherwise be issuable to any holders of
Preferred Stock, then the Company shall, in lieu of issuing a Fractional
Principal Amount therefor, pay in full payment of the Company's
obligation with respect to such Fractional Principal Amount, to each
Preferred C1 Holder an amount in cash equal to such Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
subsection C shall be deemed to be a right of redemption. In the event
that the Company exercises its option to exchange any portion of the
outstanding shares of Class C1 Preferred Stock into Notes pursuant to
this Section 7 of this subsection C, such shares to be exchanged shall
be selected for exchange at the discretion of, or in a manner approved
by, the Board. Notwithstanding any of the other provisions of this
Section 7 of this subsection C, so long as any Preferred C1 Holder
remains a Significant Holder, the Company shall not be permitted to
exchange all outstanding shares of Class C1 Preferred Stock, but shall
instead allow such Significant Holder to remain the holder of one (1)
share of Class C1 Preferred Stock.
(b) Any exchange pursuant to this Section 7 of this Subsection
C shall be made upon not less than 30 days' notice prior to the date
fixed for exchange (the "Exchange Date"). The notice given shall state
that, upon surrender of their certificate or certificates to the
Company, the holders of Class C1 Preferred Stock will receive Notes in
the amount set forth in Section 7(a) of this subsection C above and
that, at the close of business on the Exchange Date, all rights of the
holders with respect to such shares so called for exchange shall cease,
except the right to receive the Notes in the amount set forth in Section
7(a) of this subsection C. Except as may be otherwise required by
applicable law, the form of the Notes may only be amended or
supplemented before the first Exchange Date which occurs with the
affirmative vote or consent of the Requisite Preferred C1 Holders. On or
after such first Exchange Date, the Notes may only be amended or
supplemented as provided in the Notes. The Company will cause the Notes
to be authenticated on the Exchange Date, and the Company will pay
interest on the Notes at the rate and on the dates specified in the
Notes from and after the relevant Exchange Date.
D. Class D Preferred Stock.
1. Definitions. As used in this subsection D of this Determination
of Preferred Stock, capitalized terms not otherwise defined herein shall have
the meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as amended and restated and in effect at the time in question.
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"Common Stock" means, collectively, all of the Common Stock, $.001 par
value, of the Company of any class, and any other class of capital stock of the
Company 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 Company.
"Dividend Reference Date" has the meaning ascribed to it in Section
D.2(c).
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
subsection D, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this subsection D.
"Maturity Date" means, with respect to any Class D Preferred Stock or
Notes issued in exchange for Class D Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005 (the
"Calendar Maturity Date").
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this subsection D.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class D Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred D Holders" means holders of Class D Preferred Stock.
"Preferred Stock" means, collectively, the Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Voting Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Rate per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date, the Rate per Annum for
the applicable period shall be increased by 500 basis points (e.g., a 40.0% Rate
per Annum would be increased to a 45.0% Rate per Annum) until such dividends are
paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section D.5(b) of
this Determination of Preferred Stock.
"Requisite Preferred D Holders" means the holders representing a
majority of the then outstanding shares of Class D Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D Preferred
Stock and Class E Preferred Stock voting together as a group.
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<PAGE> 30
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred D Holders shall be entitled to receive, out
of funds legally available therefor, cumulative dividends on the
Liquidation Value at the Rate per Annum of 40.0% (subject to appropriate
adjustments in the event of any stock dividend, stock split, combination
or other similar recapitalization affecting such shares) per share per
annum, and no more, payable in preference and priority to any payment of
any cash dividend on Common Stock or any other shares of capital stock
of the Company other than the Class A1 Preferred Stock, Class A2
Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock and
Class E Preferred Stock (which shall rank on a par with the Class D
Preferred Stock) or other class or series of stock ranking on a par
with, or senior to the Class D Preferred Stock in respect of dividends
(such Common Stock and other inferior stock being collectively referred
to as "Junior Stock"), when and as declared by the Board.
(b) Such dividends shall accrue with respect to each share of
Class D Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists
profits, surplus or other funds legally available for the payment of
dividends, and shall be cumulative so that if such dividends on the
Class D Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or
set apart for any Junior Stock and before any purchase or acquisition of
any Junior Stock is made by the Company, except the repurchase of Junior
Stock from employees of the Company upon termination of employment or as
otherwise approved by the Requisite Preferred D Holders.
(c) Dividends shall be payable in cash, quarterly in arrears.
To the extent dividends are not paid on each September 30, December 31,
March 31 and June 30 (each a "Dividend Reference Date"), all dividends
which have accrued on each share of Class D Preferred Stock during the
three-month period (or shorter period in the case of the first or last
period) ending on each Dividend Reference Date will be added to the
Liquidation Value of such share and will remain a part thereof until
such dividends are paid in full in cash. Each dividend paid in cash
shall be mailed to the holders of record of the Class D Preferred Stock
as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the
Preferred D Holders shall be entitled to be paid out of the assets of
the Company legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of Voting Preferred Stock and any other class
or series of stock of the Company ranking on liquidation prior and in
preference to the Class D Preferred Stock (collectively referred to as
"Senior Preferred Stock"), but before any payment shall be made to the
holders of Junior Stock by reason of their ownership thereof, an amount
equal to the Liquidation Value per share of Class D Preferred Stock. If
upon any such Liquidation of the Company the remaining assets of the
Company available for distribution to its stockholders shall be
insufficient to pay the holders of shares of Class D Preferred Stock the
full amount to which they shall be entitled, the holders of shares of
Class D Preferred Stock and the holders of shares of Class A1 Preferred
Stock, Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1
Preferred Stock, Class E Preferred Stock and any other class or series
of stock ranking on liquidation on a parity with the Class D Preferred
Stock shall share ratably in any distribution of the remaining assets
and funds of the Company in proportion to the respective amounts which
would otherwise be payable in respect of the shares held by them upon
such distribution if all amounts payable on or with respect to such
shares were paid in full.
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(b) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 50 percent of the voting securities of the
Company), or the sale of all or substantially all the assets of the
Company, shall be deemed to be a Liquidation of the Company for purposes
of this Section 3 of this subsection D, unless the Requisite Preferred D
Holders vote otherwise. The amount deemed distributed to the holders of
Class D Preferred Stock upon any such merger or consolidation shall be
the cash or the value of the property, rights and/or securities
distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b),
(c) and (d) below, the Preferred D Holders shall not be entitled to
vote.
(b) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred D Holders:
(i) in any manner authorize, issue or sell any shares
of Class D Preferred Stock other than as contemplated by the
Purchase Agreement or this Designations of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change
the designations, preferences, privileges or relative, optional
or other special rights, or the qualifications, limitations or
restrictions thereof, of the Class D Preferred Stock;
(iii) amend, repeal or modify any provision of this
subsection D of this Designations of Preferred Stock; or
(iv) amend, repeal or modify any provision of the
Certificate of Incorporation or By-laws in a manner that would
adversely affect the preferences, privileges or rights of the
Preferred D Holders.
(c)
(i) The Company hereby covenants that the Requisite
Preferred D Holders shall have the right to have that number of
representatives (each such representative, an "Observer")
determined as hereinafter provided present at all meetings of the
Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite
Preferred D Holders specifying the names of such Observers. The
number of Observers shall at all times and from time to time be
equal to that number of nominees to the Board that the Preferred
D Holders are then entitled to designate less the number of such
nominees as are then members of the Board.
(ii) The Company will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to
the Board shall be deemed reasonable prior notice) in any manner
permitted in the Company's By-laws for notices to directors of
the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all
documents furnished to any director in connection with such
meeting. Each such Observer will be entitled to be present in
person as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein for the
purpose of listening thereto.
(iii) The Company will deliver to each Observer copies of
all papers which may be distributed from time to time to the
directors of the Company at such time as such papers are so
distributed to them, including copies of any written consent.
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<PAGE> 32
(d) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred Holders:
(i) take any action, or enter into or authorize any
material agreement or material transaction, other than in the
ordinary course of business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or
otherwise agree to any joint venture, licensing arrangement with,
any other person;
(iii) enter into any arrangement which would reasonably
be expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose
of any of its material assets or properties, or spinoff or
splitoff any material assets, properties or Securities except
sales of inventory and used, obsolete, worn out or unnecessary
equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or
otherwise dispose of any significant portion of its Intellectual
Property Rights;
(vi) except in the ordinary course of business and
consistent with past practice, waive, release or cancel any
material claims against third parties or material debts owing to
it, or any material rights which have any material value;
(vii) make any material changes in its accounting
systems, policies, principles or practices except in the ordinary
course of business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction
with Affiliates, or modify in any material respect the
employment, compensation or other arrangements with the executive
officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants or exchangeable
Securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any
such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend (other than
dividends on the Preferred Stock) or other distribution (whether
in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any capital
stock or other Securities of the Company or any Subsidiary;
(xi) except in the ordinary course of business and
consistent with past practice, make any borrowings, incur any
Indebtedness, or assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the
obligations of any other Person; and
(xii) except in the ordinary course of business and
consistent with past practice, make any loans, advances or
capital contributions to, or investments in, any other Person.
5. Redemption.
(a) [Intentionally Deleted.]
(b) In the event the Company or any of its Subsidiaries
consummates a public or private offering for cash of capital stock or
other equity interests, the Company shall be required to apply 50% of
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the Net Proceeds of such offering toward the redemption of shares of
Preferred Stock (other than Voting Preferred Stock), on a pro rata basis
(determined on the basis of the number of shares of Preferred Stock
(other than Voting Preferred Stock), held by such holder over the total
number of shares of Preferred Stock (other than Voting Preferred Stock)
outstanding) from the Holders of Preferred Stock at the Redemption
Price. The per share redemption price at which shares of Class D
Preferred Stock are to be redeemed pursuant to this Section 5(b) of this
subsection D shall be equal to the Liquidation Value (the "Redemption
Price").
(c) In addition to the Company's mandatory redemption
obligations as set forth in Section 5(b) of this subsection D, the
Company shall have the option to redeem a minimum of $1 million of
Original Cost of Class D Preferred Stock and integral multiples of
$100,000 thereafter at the Liquidation Value thereof. Any shares to be
redeemed pursuant to this Section 5(c) of this subsection D shall be
selected for redemption at the discretion of, or in a manner approved
by, the Board. Notwithstanding any of the other provisions of this
Section 5 of this subsection D, so long as any Preferred D Holder
remains a Significant Holder, the Company shall not be permitted to
redeem or retire all outstanding shares of Class D Preferred Stock, but
shall instead allow such Significant Holder to remain the holder of one
(1) share of Class D Preferred Stock.
(d) On and after any date set for redemption (the "Redemption
Date") pursuant to this Section 5 of this subsection D (unless default
shall be made by the Company in the payment of the Redemption Price, in
which event such rights shall be exercisable until such default is
cured), all rights in respect of the shares of the Class D Preferred
Stock to be redeemed, except the right to receive the Redemption Price,
shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares
have been received by the Company.
(e) Any communication or notice relating to redemption given
pursuant to this Section 5 of this subsection D shall be sent by
first-class certified mail, return receipt requested, postage prepaid,
to the Preferred D Holders, at their respective addresses as the same
shall appear on the books of the Company, or to the Company at the
address of its principal, or registered office, as the case may be.
(f) At any time on or after the Redemption Date, the Preferred
D Holders shall be entitled to receive the Redemption Price upon actual
delivery to the Company or its agents of the certificates representing
the shares of the Class D Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this
Section 5 of this subsection D shall be paid in cash.
(h) Any shares of Class D Preferred Stock which are redeemed
or otherwise acquired by the Company shall be canceled and shall not be
reissued, sold or transferred as Class D Preferred Stock and the Board
shall reduce the number of authorized shares of Class D Preferred Stock
by the number of shares so redeemed or otherwise acquired.
6. Maturity Default.
(a) The occurrence of any of the following events of default
shall, at the option of the Requisite Preferred Holders, constitute a
Maturity Default:
(i) the Company fails to comply in any material respect
with any of its obligations under any of the Transaction
Documents or the Fundamental Documents;
(ii) a material default occurs under any mortgage,
indenture or other instrument under which there may be secured
or evidenced any indebtedness for money borrowed by the Company
if the principal amount of such indebtedness aggregates
$1,000,000 or more; or
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<PAGE> 34
(iii) the Company fails to comply with the provisions of
Section 7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a
Maturity Default until the Company does not cure the default within 30
days of the Company having Knowledge of such default. When a default is
cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company
may waive an existing default or Maturity Default and its consequences.
When a default or Maturity Default is waived, it ceases.
7. Exchange.
(a) The Requisite Preferred D Holders and the Company may
agree at any time and from time to time following the Exchange
Triggering Date to exchange all or any portion of the shares of Class D
Preferred Stock outstanding into the Company's Subordinated Debentures
(the "Notes") to be issued substantially in the form attached as Exhibit
D to the Purchase Agreement in the amount of $1,000 principal amount of
Notes for each $1,000 of Liquidation Value of Class D Preferred Stock;
provided, however, that no such exchange may be consummated unless full
cumulative dividends (including, without duplication, full cumulative
dividends pro rata for the elapsed portion of the current dividend
period) on the Class D Preferred Stock to the date of exchange shall
have been paid. Notes shall be issued only in integral multiples of
$1,000 at the time of exchange. If any additional amounts ("Fractional
Principal Amounts") would otherwise be issuable to any holders of
Preferred Stock, then the Company shall, in lieu of issuing a Fractional
Principal Amount therefor, pay in full payment of the Company's
obligation with respect to such Fractional Principal Amount, to each
Preferred D Holder an amount in cash equal to such Fractional Principal
Amount. Any and all exchange rights set forth in this Section 7 of this
subsection D shall be deemed to be a right of redemption. In the event
that the Company exercises its option to exchange any portion of the
outstanding shares of Class D Preferred Stock into Notes pursuant to
this Section 7 of this subsection D, such shares to be exchanged shall
be selected for exchange at the discretion of, or in a manner approved
by, the Board. Notwithstanding any of the other provisions of this
Section 7 of this subsection D, so long as any Preferred D Holder
remains a Significant Holder, the Company shall not be permitted to
exchange all outstanding shares of Class D Preferred Stock, but shall
instead allow such Significant Holder to remain the holder of one (1)
share of Class D Preferred Stock.
(b) Any exchange pursuant to this Section 7 of this Subsection
D shall be made upon not less than 30 days' notice prior to the date
fixed for exchange (the "Exchange Date"). The notice given shall state
that, upon surrender of their certificate or certificates to the
Company, the holders of Class D Preferred Stock will receive Notes in
the amount set forth in Section 7(a) of this subsection D above and
that, at the close of business on the Exchange Date, all rights of the
holders with respect to such shares so called for exchange shall cease,
except the right to receive the Notes in the amount set forth in Section
7(a) of this subsection D. Except as may be otherwise required by
applicable law, the form of the Notes may only be amended or
supplemented before the first Exchange Date which occurs with the
affirmative vote or consent of the Requisite Preferred D Holders. On or
after such first Exchange Date, the Notes may only be amended or
supplemented as provided in the Notes. The Company will cause the Notes
to be authenticated on the Exchange Date, and the Company will pay
interest on the Notes at the rate and on the dates specified in Notes
from and after the relevant Exchange Date.
E. Class E Preferred Stock.
1. Definitions. As used in this Subsection E of this Determination
of Preferred Stock, capitalized terms not otherwise defined herein shall have
the meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"By-laws" means the By-laws of the Company, as amended and in effect
from time to time.
"Board" means the Board of Directors of the Company.
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"Certificate of Incorporation" means the Certificate of Incorporation of
the Company as amended and restated and in effect at the time in question.
"Common Stock" means, collectively, all of the Common Stock, $.001 par
value, of the Company of any class, and any other class of capital stock of the
Company 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 Company.
"Dividend Reference Date" has the meaning ascribed to it in Section 2(c)
of this Subsection E.
"Exchange Triggering Date" means December 31, 1999.
"Liquidation" means, subject to the provisions of Section 3(b) of this
Subsection E, any voluntary or involuntary liquidation, dissolution or winding
up of the affairs of the Company.
"Liquidation Value" shall mean Original Cost plus any accrued and unpaid
dividends as determined pursuant to Section 2(c) of this Determination of
Preferred Stock.
"Maturity Date" means, with respect to any Class E Preferred Stock or
Notes issued in exchange for Class E Preferred Stock, the earliest to occur of
(i) a Maturity Default, (ii) a Change of Control or (iii) June 30, 2005.
"Maturity Default" shall have the meaning set forth in Section 6(a) of
this Subsection E.
"Net Proceeds" of any transaction shall mean the gross proceeds of such
transaction net of any commissions or transaction fees and expenses paid by the
Company in connection with such transaction.
"Original Cost" means, with respect to any share of Class E Preferred
Stock, $1,000.
"Person" shall be construed broadly and shall include without limitation
an individual, a partnership, a corporation, an association, a joint stock
company, a limited liability company, a trust, a joint venture, an
unincorporated organization and a Governmental Authority.
"Preferred E Holders" means holders of Class E Preferred Stock.
"Preferred Stock" means, collectively, the Class A1 Preferred Stock,
Class A2 Preferred Stock, Class B1 Preferred Stock, Class C1 Preferred Stock,
Class D Preferred Stock, Class E Preferred Stock and Voting Preferred Stock.
"Purchase Agreement" means the Securities Purchase Agreement dated as of
August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Rate Per Annum" means the specified rate per annum computed on the
basis of a 360-day year; provided, that in the event dividends are not paid in
full in cash on any applicable Dividend Reference Date or upon any Redemption
Date, the Rate Per Annum for the applicable period shall be increased by 500
basis points (e.g., a 9.0% Rate per Annum would be increased to a 14.0% Rate per
Annum) until such dividends are paid in full in cash.
"Redemption Price" has the meaning ascribed to it in Section 5(a) of
this Subsection E.
"Requisite Preferred E Holders" means the holders of a majority of the
then outstanding shares of Class E Preferred Stock.
"Requisite Preferred Holders" means the holders representing a majority
of the then outstanding shares of Class A1 Preferred Stock, Class A2 Preferred
Stock, Class B1 Preferred Stock, Class C1 Preferred Stock, Class D Preferred
Stock and Class E Preferred Stock voting together as a group.
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<PAGE> 36
"Transaction Documents" means the Purchase Agreement, the Exhibits and
Schedules attached thereto in their final and executed form, as applicable, and
each of the agreements contemplated thereby.
"Voting Preferred Stock" means the Voting Preferred Stock of the
Company.
"Warrant" has the meaning given to such term in the Purchase Agreement.
2. Dividends.
(a) The Preferred E Holders shall be entitled to receive, out
of funds legally available therefor, cumulative dividends on the
Liquidation Value at the Rate per Annum and for the periods set forth
below:
<TABLE>
<CAPTION>
Period Rate Per Annum
------ --------------
<S> <C>
Until June 30, 2000 9.0%
July 1, 2000 to June 30, 2001 11.0%
July 1, 2001 to June 30, 2002 12.0%
July 1, 2002 to June 30, 2003 13.0%
July 1, 2003 to June 30, 2004 14.0%
July 1, 2004 to June 30, 2005 15.0%
</TABLE>
(subject to appropriate adjustments in the event of any stock dividend,
stock split, combination or other similar recapitalization affecting
such shares) per share per annum, and no more, payable in preference and
priority to any payment of any cash dividend on Common Stock or any
other shares of capital stock of the Company other than the Class A1
Preferred Stock, Class A2 Preferred Stock, Class B1 Preferred Stock,
Class C1 Preferred Stock and Class D Preferred Stock (which shall rank
on a par with the Class E Preferred Stock) or other classes or series of
stock ranking on a par with, or senior to the Class E Preferred Stock in
respect of dividends (such Common Stock and other inferior stock being
collectively referred to as "Junior Stock"), when and as declared by the
Board.
(b) Such dividends shall accrue with respect to each share of
Class E Preferred Stock from the date on which such share is issued and
outstanding and thereafter shall be deemed to accrue from day to day
whether or not earned or declared and whether or not there exists
profits, surplus or other funds legally available for the payment of
dividends, and shall be cumulative so that if such dividends on the
Class E Preferred Stock shall not have been paid, or declared and set
apart for payment, the deficiency shall be fully paid or declared and
set apart for payment before any dividend shall be paid or declared or
set apart for any Junior Stock and before any purchase or acquisition of
any Junior Stock is made by the Company, except the repurchase of Junior
Stock from employees of the Company upon termination of employment,
except as otherwise approved by the Requisite Preferred E Holders.
(c) Dividends shall be payable in cash, quarterly in arrears.
To the extent dividends are not paid on each September 30, December 31,
March 31 and June 30 (each a "Dividend Reference Date") all dividends
which have accrued on each share of Class E Preferred Stock during the
three-month period (or shorter period in the case of the first or last
period) ending on each Dividend Reference Date will be added to the
Liquidation Value of such share and will remain a part thereof until
such dividends are paid in full in cash. Each dividend paid in cash
shall be mailed to the holders of record of the Class E Preferred Stock
as their names and addresses appear on the share register of the Company
or at the office of the transfer agent on the corresponding dividend
payment date.
3. Liquidation.
(a) In the event of any Liquidation of the Company, the
Preferred E Holders shall be entitled to be paid out of the assets of
the Company legally available for distribution to its stockholders,
after and subject to the payment in full of all amounts required to be
distributed to the holders of Voting Preferred
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Stock and any other class or series of stock of the Company ranking on
liquidation prior and in preference to the Class E Preferred Stock
(collectively referred to as "Senior Preferred Stock"), but before any
payment shall be made to the holders of Junior Stock by reason of their
ownership thereof, an amount equal to the Liquidation Value per share of
Class E Preferred Stock. If upon any such Liquidation of the Company the
remaining assets of the Company available for distribution to its
stockholders shall be insufficient to pay the holders of shares of Class
E Preferred Stock the full amount to which they shall be entitled, the
holders of shares of Class E Preferred Stock and the holders of shares
of Class A1 Preferred Stock, Class A2 Preferred Stock, Class B1
Preferred Stock, Class C1 Preferred Stock, Class D Preferred Stock and
any other class or series of stock ranking on liquidation on a parity
with the Class E Preferred Stock shall share ratably in any distribution
of the remaining assets and funds of the Company in proportion to the
respective amounts which would otherwise be payable in respect of the
shares held by them upon such distribution if all amounts payable on or
with respect to such shares were paid in full.
(b) The merger or consolidation of the Company into or with
another corporation which results in the exchange of outstanding shares
of the Company for securities or other consideration issued or paid or
caused to be issued or paid by such other corporation or an affiliate
thereof (except if such merger or consolidation does not result in the
transfer of more than 50 percent of the voting securities of the
Company), or the sale of all or substantially all of the assets of the
Company, shall be deemed to be a Liquidation of the Company for purposes
of this Section 3 of this Subsection E, unless the Requisite Preferred E
Holders vote otherwise. The amount deemed distributed to the holders of
Class E Preferred Stock upon any such merger or consolidation shall be
the cash or the value of the property, rights and/or securities
distributed to such holders by the acquiring person, firm or other
entity. The value of such property, rights or other securities shall be
determined in good faith by the Board.
4. Voting Rights.
(a) Except as required by law and pursuant to paragraphs (b),
(c) and (d) below, the Preferred E Holders shall not be entitled to
vote.
(b) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred E Holders:
(i) in any manner authorize, issue or sell any shares
of Class E Preferred Stock other than as contemplated by the
Purchase Agreement or this Determination of Preferred Stock;
(ii) reclassify, cancel or in any manner alter or change
the designations, privileges or relative, optional or other
special rights, or the qualifications, limitations or
restrictions thereof, of the Class E Preferred Stock;
(iii) amend, repeal or modify any provision of this
Determination of Preferred Stock; or
(iv) amend, repeal or modify any provision of the
Certificate of Incorporation or By-laws in a manner that would
adversely affect the preferences, privileges or rights of the
Preferred E Holders.
(c) (i) The Company hereby covenants that the Requisite
Preferred E Holders shall have the right to have that number of
representatives (each such representative, an "Observer")
determined as hereinafter provided present at all meetings of the
Board. Such right shall from time to time be exercisable by
delivery to the Company of written notice from the Requisite
Preferred E Holders specifying the names of such Observers. The
number of Observers shall at all times and from time to time be
equal to that number of nominees to the Board that the Preferred
E Holders are then entitled to designate less the number of such
nominees as are then members of the Board.
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(ii) The Company will give each Observer reasonable
prior notice (it being agreed that the same prior notice given to
the Board shall be deemed reasonable prior notice) in any manner
permitted in the Company's By-laws for notices to directors of
the time and place of any proposed meeting of the Board, such
notice in all cases to include true and complete copies of all
documents furnished to any director in connection with such
meeting. Each such Observer will be entitled to be present in
person as an observer at any such meeting or, if a meeting is
held by telephone conference, to participate therein for the
purpose of listening thereto.
(i) The Company will deliver to each Observer copies of
all papers which may be distributed from time to time to the
directors of the Company at such time as such papers are so
distributed to them, including copies of any written consent.
(d) The Company shall not, without the affirmative consent or
approval of the Requisite Preferred Holders;
(i) take any action, or enter into or authorize any
material agreement or material transaction, other than in the
ordinary course of business and consistent with past practice;
(ii) agree to acquire the stock or assets of, or
otherwise agree to any joint venture, licensing arrangement with,
any other person.
(iii) enter into any arrangement which would reasonably
be expected to result in a Change of Control;
(iv) sell, transfer, convey, assign or otherwise dispose
of any of its material assets or properties, or spinoff or
splitoff any material assets, properties or Securities except
sales of inventory and used, obsolete, worn out or unnecessary
equipment or fixtures in the ordinary course of business and
consistent with past practice;
(v) sell, transfer, convey, assign, license or
otherwise dispose of any significant portion of its Intellectual
Property Rights;
(vi) except in the ordinary course of business and
consistent with past practice, waive, release or cancel any
material claims against third parties or material debts owing to
it, or any material rights which have any material value;
(vii) make any material changes in its accounting
systems, policies, principles or practices except in the ordinary
course of business and consistent with past practice;
(viii) enter into, authorize, or permit any transaction
with Affiliates, or modify in any material respect the
employment, compensation or other arrangements with the executive
officers of the Company or any Subsidiary;
(ix) authorize for issuance, issue, sell, deliver or
agree or commit to issue, sell or deliver (whether through the
issuance or granting of options, warrants or exchangeable
Securities, commitments, subscriptions, rights to purchase or
otherwise) any shares of capital stock or any other Securities of
the Company or any Subsidiary, or amend any of the terms of any
such capital stock or other Securities;
(x) split, combine, or reclassify any shares of its
capital stock, declare, set aside or pay any dividend (other than
dividends on the Preferred Stock) or other distribution (whether
in cash, stock or property or any combination thereof) in respect
of its capital stock, or redeem or otherwise acquire any capital
stock or other Securities of the Company of any Subsidiary;
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(xi) except in the ordinary course of business and
consistent with past practice, make any borrowings, incur any
Indebtedness, or assume, guarantee, endorse or otherwise become
liable (whether directly, contingently or otherwise) for the
obligations of any other Person;
(xii) except in the ordinary course of business and
consistent with past practice, make any loans, advances or
capital contributions to, or investments in, any other Person.
5. Redemption.
(a) Subject to the Company having funds legally available for
such purpose, (i) on the Maturity Date the Company shall redeem all
shares of Class E Preferred Stock then outstanding and (ii) upon the
Company's receipt of a written redemption request from any Preferred E
Holder, the Company shall redeem all of the shares of Class E Preferred
Stock with respect to which such redemption request was made. The per
share redemption price at which shares of Class E Preferred Stock are to
be redeemed pursuant to this Section 5(a) of this Subsection E shall be
equal to the Liquidation Value (the "Redemption Price").
(b) In the event the Company or any of its Subsidiaries
consummates a public or private offering for cash of capital stock or
other equity interests, the Company shall be required to apply 50% of
the Net Proceeds of such offering toward the redemption of shares of
Preferred Stock (other than Voting Preferred Stock), on a pro rata basis
(determined on the basis of the number of shares of Preferred Stock
(other than Voting Preferred Stock), held by such holder over the total
number of shares of Preferred Stock (other than Voting Preferred Stock)
outstanding) from the Holders of Preferred Stock at the Redemption
Price.
(c) In addition to the Company's obligations as set forth in
Sections 5(a) and 5(b) of this Subsection E, the Company shall have the
option to redeem a minimum of $1 million of Original Cost of Class E
Preferred Stock and integral multiples of $100,000 thereafter at the
Liquidation Value thereof. Any shares to be redeemed pursuant to this
Section 5(c) of this Subsection E shall be selected for redemption at
the discretion of, or in a manner approved by, the Board.
(d) On and after any date set for redemption (the "Redemption
Date") pursuant to this Section 5 of this Subsection E (unless default
shall be made by the Company in the payment of the Redemption Price, in
which event such rights shall be exercisable until such default is
cured), all rights in respect of the shares of the Class E Preferred
Stock to be redeemed, except the right to receive the Redemption Price,
shall cease and terminate, and such shares shall no longer be deemed to
be outstanding, whether or not the certificates representing such shares
have been received by the Company.
(e) Any communication or notice relating to redemption given
pursuant to this Section 5 of this Subsection E shall be sent by
first-class certified mail, return receipt requested, postage prepaid,
to the Preferred E Holders at their respective addresses as the same
shall appear on the books of the Company, or to the Company at the
address of its principal, or registered office, as the case may be.
(f) At any time on or after the Redemption Date, the Preferred
E Holders shall be entitled to receive the Redemption Price upon actual
delivery to the Company or its agents of the certificates representing
the shares of the Class E Preferred Stock to be redeemed.
(g) Any redemption payments by the Company pursuant to this
Section 5 of this Subsection E shall be paid in cash.
(h) Any shares of Class E Preferred Stock which are redeemed
or otherwise acquired by the Company shall be canceled and shall not be
reissued, sold or transferred as Class E Preferred Stock and the Board
shall reduce the number of authorized shares of Class E Preferred Stock
by the number of shares so redeemed or otherwise acquired.
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6. Maturity Default.
(a) The occurrence of any of the following events of default
shall, at the option of the Requisite Preferred Holders, constitute a
Maturity Default:
(i) the Company fails to comply in any material respect
with any of its obligations under any of the Transaction
Documents or the Fundamental Documents;
(ii) a material default occurs under any mortgage,
indenture or other instrument under which there may be secured
or evidenced any indebtedness for money borrowed by the Company
if the principal amount of such indebtedness aggregates
$1,000,000 or more; or
(iii) the Company fails to comply with the provisions of
Section 7.2(g)(iv) of the Purchase Agreement.
(b) A default under clauses (a)(i) or (a)(ii) is not a
Maturity Default until the Company does not cure the default within 30
days of the Company having Knowledge of such default. When a default is
cured, it ceases.
(c) The Requisite Preferred Holders by notice to the Company
may waive an existing default or Maturity Default and its consequences.
When a default or Maturity Default is waived, it ceases.
7. Exchange.
(a) The Requisite Preferred E Holders and the Company may
agree at any time and from time to time following the Exchange
Triggering Date to exchange all or any portion of the shares of Class E
Preferred Stock outstanding into the Company's Subordinated Debentures
(the "Notes") to be issued substantially in the form attached to the
Purchase Agreement as Exhibit D, in the amount of $1,000 principal
amount of Notes for each $1,000 of Liquidation Value of Class E
Preferred Stock; provided, however, that no such exchange may be
consummated unless full cumulative dividends (including, without
duplication, full cumulative dividends pro rata for the elapsed portion
of the current dividend period) on the Class E Preferred Stock to the
date of exchange shall have been paid. Notes shall be issued only in
integral multiples of $1,000 at the time of exchange. If any additional
amounts ("Fractional Principal Amounts") would otherwise be issuable to
any holders of Preferred Stock, then the Company shall, in lieu of
issuing a Fractional Principal Amount therefor, pay in full payment of
the Company's obligation with respect to such Fractional Principal
Amount therefor, pay in full payment of the Company's obligation with
respect to such Fractional Principal Amount, to each Preferred E Holder
an amount in cash equal to the Fractional Principal Amount. Any and all
exchange rights set forth in this Section 7 of this Subsection E shall
be deemed to be a right of redemption. In the event that the Company
exercises its option to exchange any portion of the outstanding shares
of Class E Preferred Stock into Notes pursuant to this Section 7 of this
Subsection E, such shares to be exchanged shall be selected for exchange
at the discretion of, or in a manner approved by, the Board.
(b) Any exchange pursuant to this Section 7 of this Subsection
E shall be made upon not less than 30 days' notice prior to the date
fixed for exchange (the "Exchange Date"). The notice given shall state
that, upon surrender of their certificate or certificates to the
Company, the holders of Class E Preferred Stock will receive Notes in
the amount set forth in Section 7(a) of this Subsection E above and
that, at the close of business on the Exchange Date, all rights of the
holders with respect to such shares so called for exchange shall cease,
except the right to receive the Notes in the amount set forth in Section
7(a) of this Subsection E. Except as may be otherwise required by
applicable law, the form of the Notes may only be amended or
supplemented before the first Exchange Date which occurs with the
affirmative vote or consent of the Requisite Preferred E Holders. On or
after such first Exchange Date, the Notes may only be amended or
supplemented as provided in the Notes. The Company will cause the Notes
to be authenticated on the Exchange Date, and the Company will pay
interest on the Notes at the rate and on the dates specified in the
Notes from and after the relevant Exchange Date.
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F. Voting Preferred Stock.
1. Definitions. As used in this subsection F of this Designations of
Preferred Stock, capitalized terms not otherwise defined herein shall have the
meanings given to such terms in the Purchase Agreement. In addition, the
following capitalized terms have the following meanings:
"Purchase Agreement" means the Securities Purchase Agreement, dated as
of August 7, 1998, between Alpha Microsystems, a California corporation,
predecessor to the Company, and the Investor (as defined therein), as amended,
restated or otherwise modified from time to time.
"Requisite Voting Preferred Holders" means the holders of a majority of
the Common Stock issuable upon the exercise of any then outstanding Warrants.
"Senior Preferred Stock" shall mean the Class A1 Preferred Stock, the
Class A2 Preferred Stock, the Class B1 Preferred Stock, the Class C1 Preferred
Stock, the Class D Preferred Stock and the Class E Preferred Stock.
"Warrantholder" means a holder of Warrants.
2. Voting Rights.
(a) Standard Voting Rights. In addition to the voting rights
expressly required by law or with regard to any amendment to the
Company's Certificate of Incorporation or this Designations of Preferred
Stock to alter or change, directly or indirectly, the powers,
designations, preferences or special rights relating to shares of the
Voting Preferred Stock, the holder of a share of Voting Preferred Stock
shall be entitled to vote together with the Common Stock and any other
voting stock of the Company on all matters submitted to the Company's
stockholders for consideration, vote or approval and to cast an
aggregate number of votes equal to the number of votes that the shares
of Common Stock issuable upon exercise of the then unexercised portion
of the Warrants held by such holder are entitled to as of the record
date designated for any stockholders' meeting or the date of any written
consent of stockholders.
3. Dividends. The holder of the Voting Preferred Stock shall not be
entitled to receive dividend payments at any time.
4. Liquidation. Upon any liquidation, dissolution or winding up of
the Company, before any distribution or payment is made upon any shares of any
other class of capital stock of the Company other than the Senior Preferred
Stock, each holder of Voting Preferred Stock will be entitled to be paid an
amount equal to $100 per share, and shall not be entitled to receive any further
distribution or payment. Neither the consolidation nor merger of the Company
into or with any other corporation or corporations, nor the sale or transfer by
the Company of all or any part of its assets, nor the reduction of the capital
stock of the Company, shall be deemed to be a liquidation, dissolution or
winding-up of the Company within the meaning of any of the provisions of this
subsection F.
5. Mandatory Redemption.
(a) Triggering Event. In the event that all of the outstanding
Senior Preferred Stock is redeemed in full in accordance with its terms,
then simultaneously with such redemption, the Company shall redeem the
outstanding shares of Voting Preferred Stock; provided, that the Voting
Preferred Stock shall not be redeemable so long as any Warrantholder is
a Significant Holder.
(b) Redemption Price. On the date of redemption, upon
surrender by the holder at the Company's principal office of the
certificate representing the share of the Voting Preferred Stock, the
Company will pay to the holder an amount in cash equal to $100 per
share.
(c) Cancellation of Redeemed Stock. Shares of Voting Preferred
Stock redeemed pursuant to this Section 5 of this Subsection F shall be
canceled and shall not under any circumstances be reissued.
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6. Replacement. Upon receipt of evidence reasonably satisfactory to
the Company (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 Voting Preferred Stock, and in the case of any such loss,
theft or destruction, upon receipt of indemnity reasonably satisfactory to the
Company (provided that if the holder is an institutional investor, its own
agreement will be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company will (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the shares of Voting Preferred Stock, dated the date of such lost, stolen,
destroyed or mutilated certificate.
7. Amendment and Waiver. No amendment, modification or any other
change, direct or indirect, in any manner with respect to any term or provision
of this Designations of Preferred Stock or the Voting Preferred Stock will be
valid without the prior written consent of the Requisite Voting Preferred
Holders.
8. Notices. All notices 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 Company, at its principal
executive offices, and (ii) to the holder of the Voting Preferred Stock, at such
holder's address as it appears in the stock records of the Company (unless
otherwise indicated by any such holder).
/s/ DOUGLAS J. TULLIO
----------------------------------------
Douglas J. Tullio,
President and Chief Executive Officer
The undersigned further hereby affirms and acknowledges under penalty of
perjury that the foregoing Determination of Preferred Stock is the act and deed
of the corporation, and the facts stated herein are true.
Signed as of August 15, 2000.
/s/ DOUGLAS J. TULLIO
---------------------------------------
Douglas J. Tullio,
President and Chief Executive Officer
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