CLARY CORPORATION
1960 South Walker Avenue
Monrovia, California 91016
April 6, 1999
Dear Stockholder:
You are cordially invited to attend the 1999 Annual Meeting of Shareholders of
Clary Corporation. The meeting will be held on Thursday May 20, 1999 at 3:00
o' clock P.M., local time at the office of Clary Corporation, 1960 South Walker
Avenue, Monrovia, California 91016. I hope you will be able to attend.
Enclosed you will find a notice setting forth the business expected to come
before the meeting, the Proxy Statement, a form of proxy and a copy of the
Company's 1998 Annual Report.
Whether or not you plan to attend the meeting in person, your shares should be
represented and voted at the meeting. After reading the enclosed information,
kindly complete, sign, date and promptly return the proxy in the enclosed
envelope. No postage is required if it is mailed in the United States.
Submitting the proxy will not preclude you from voting in person at the meeting
should you later decide to do so.
Your cooperation in promptly submitting yours proxy is greatly appreciated.
Very Truly yours,
John G. Clary
Chairman and Chief Executive
<PAGE>
CLARY CORPORATION
1960 South Walker Avenue
Monrovia, California 91016
NOTICE OF 1999 ANNUAL MEETING OF STOCKHOLDERS
April 6, 1999
The 1999 Annual Meeting of Stockholders of Clary Corporation will be held at
the Company's offices at 1960 South Walker Avenue, Monrovia, California, on
May 20, 1999 at 3:00 o' clock P.M., for the following purposes:
(1) To elect a Board of Directors for the ensuing year.
(2) To approve an amendment to the Company's Articles of Incorporation
increasing the authorized number of Common and Preferred shares.
(3) To approve a proposal authorizing conversion of debt owed to an Affiliate
Company for shares of a new issue of Convertible Preferred Stock.
(4) To transact such other business as may properly come before the meeting.
Only Stockholders of record at the close of business on April 1, 1999 will be
entitled to vote, either in person or by proxy. Additional information regarding
the matters to be acted on at the Annual Meeting can be found in the
accompanying Proxy Statement.
By Order of the Board of Directors,
John J. Guerin
Secretary
<PAGE>
CLARY CORPORATION
1960 South Walker Avenue
Monrovia, California 91016
PROXY STATEMENT
This Proxy Statement is furnished in connection with the solicitation of proxies
by the Board of Directors of Clary Corporation (the "Company") to be voted at
the 1999 Annual Meeting of Stockholders to be held on May 20, 1999.
Only holders of Common Stock of record, at the close of business on April 1,1999
are entitled to vote at the meeting or any adjournment thereof. The approximate
date on which this Proxy Statement and the accompanying form of proxy are first
being sent to stockholders is April 6, 19
Votes cast by proxy or in person at the meeting will be counted by the Treasurer
of the Company. Shares represented by proxies that reflect abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Abstentions, however, do not constitute
a vote "for" or "against" any matter and thus will be disregarded in the
calculation of a plurality or of votes cast on any matter submitted to the
shareholders for a vote.
Shares referred to as 'broker non-votes" (i.e., shares held by brokers or
nominees as to which instructions have not been received from the beneficial
owners or persons entitled to vote that the broker or nominee does not have
discretionary power to vote on a particular matter) will be treated as shares
that are present and entitled to vote for purposes of determining the presence
of a quorum. However, for purposes of determining the outcome of any matter as
to which the broker or nominee has physically indicated on the proxy that it
does not have discretionany authority to vote, those shares will be trated as
not present and not antitled to vote with respect to that matter(eventhough
those shares mnay be considered entitled to vote for quorum purposes and may be
entitled to vote on other matters). Any unmarked proxies, including those
submitted by brokers or nominees will be voted as indicated in the
accompanying proxy card.
In the election of directors, the candidates for election receiving the highest
number of affirmative votes of the shares entitled to be voted for them up to
the number of directors to be elected by those shares will be elected. Votes
cast against a candidate or votes withheld will have no legal effect.
No shareholder shall be entitled to cumulate votes in the election of directors
(i.e., cast for any candidate a number of votes greater than the number of the
shareholder's shares) unless such candidate's name have been placed in
nomination prior to the voting and the shareholder has given notice at the
meeting, prior to the voting, of the shareholder's intention to cumulate votes.
If any shareholder has given such notice, all shareholders may cumulate their
votes for candidates who have been nominated. If voting for directors is
conducted by cumulative voting, each share will be entitled to a number of votes
equal to the number of directors to be elected, which vites may be cast for a
single candidate or may be distributed among two or more candidates in such
proportions as the shareholder may determine. In the event that the conditions
precedent to cumulative voting are satisfied, the Board of Directors intends to
distribute ratably(or as closely thereto as is reasonably practicable so as not
to require fractional votes) among the nominees for office named in this Proxy
Statement any votes for which it holds a Proxy. If voting is not conducted by
cumulative voting, each share will be entitled to one, and the holders of a
majority of shares voting at the meeting will be elect all of the directors.
In such event, the others shareholders will be unable to elect any director or
directors.
On all matters other than the election of directors, each share of Common Stock
is entitled to one vote, and the affirmative vote of the majority of the shares
represented and voting at the meeting (which shares voting affirmatively also
constitute at least a majority of the quorum) is required for the shareholders
to take action. Assuming the presence of a quorum, the shareholders present at
the meeting may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum, if any action
taken (other than adjournment) is approved by at least a majority of the shares
required to constitute a quorum. On April 1,1999, a total of 1,807,419 shares of
Common Stock was outstanding.
<PAGE>
ITEM 1
ELECTION OF DIRECTORS
Action will be taken at the meeting for the election of seven directors of the
Company. It is the intention of the persons named in the enclosed proxy to
distribute the votes represented by the proxies which they hold among the seven
candidates named in such proportions as they see fit. If any candidate should be
unable to serve or should otherwise be unavailable (which the Board of Directors
now has no reason to foresee), the proxy grants discretionary authority to vote
for other candidates. The directors elected at the meeting will serve until
the next Meeting of Shareholders and the election of their successors.
The following schedule sets forth certain information concerning the nominees
for election as directors including their principal occupation and business
experience during the past five years.
Nominees for Election to the Board of Directors
- -----------------------------------------------
DONALD G ASH
Mr. Ash, age 63, has been a director since 1972. He was President, Treasurer
and Chief Executive Officer of Clary Corporation from June 1973 to December 31,
1995. Mr. Ash is currently semi-retired and part-time Treasurer and Assistant
Secretary of Clary Corporation.
JOHN G. CLARY
Mr. Clary, age 72, has been a director since 1972 and the Chairmen of the Board
of Clary Corporation since 1976. He is also the President and Chief Executive
Officer of Addmaster Corporation, a manufacturer of business machines. Mr. Clary
is also a stockholder and Director of Addmaster Corporation. Mr. Clary is the
father of John P. Clary and Hugh L. Clary.
JOHN P. CLARY
Mr. Clary, age 41, has been a director since 1987. Mr. Clary is the Director of
Engineering of Addmaster Corporation and has been a Director of that Corporation
since November 1984. He holds a Ph.D. in Electrical Engineering from Standford
University.
HUGH L. CLARY
Mr. Clary, age 38, has been a director since 1992. Mr. Clary has been a
Vice-President and Secretary of Addmaster Corporation since 1989. He holds a
Masters in Business Administration from Duke University.
RUSSELL T. GILBERT
Mr. Gilbert, age 69, has been a director since 1996. Mr. Gilbert served since
1959 as Founder, President and Chief Executive of CIMCO, Inc., a plastic
products company. Mr. Gilbert also served on Clary Corporation's Board from 1972
to 1983.
JOHN J. GUERIN
Mr. Guerin, age 73, has been a director and Secretary since 1971. Mr. Guerin is
a practicing attorney.
RICHARD W. HENSON
Mr. Henson, age 47, has been a director since December 1998. Mr. Henson has
been the Executive Vice President and Chief Operating Officer of Clary
Corporation since January 1, 1996. From 1992 to 1995 Mr. Henson was a working
partner with Adept Group Inc., a business development firm specializing in
technical consulting.
The Board of Directors Recommends A Vote FOR The Election of All The Nominees to
The Board of Directors.
<PAGE>
BOARD OF DIRECTOR MEETING AND COMMITTEES
The Board of Directors held five (5) meetings during fiscal 1998. During Fiscal
1998, each of the current directors attended at least seventy-five percent (75%)
of the meetings of the Board of Directors and the committees in which they
served (during the period that they served).
The Board of Directors has Audit,Compensation and Executive Committees. The
Company has no standing Nominating
Committee The Audit Committee, which consisted of Mr. Gilbert and Mr. Hugh L.
Clary, met once during fiscal 1998. The Audit committee, among other things,
reviews the scope and results of audit and non-audit functions and budgets the
expenses of the Company.
The Compensation Committee, which consisted of Mr. John G. Clary (Chairman of
the Committee), Mr. Gilbert, and Mr. John P. Clary, met once during fiscal 1998.
The Compensation Committee, among other things, reviews and approves or amends
the recommendations of the President of the Company as to appropriate
compensation for the key employees of the Company, periodically reviews the
general compensation levels for executives in similar industries and makes
recommendations to the full Board with respect to compensation of the President.
The Executive Committee, which consisted of Mr. Ash, Mr. John G. Clary, Mr. John
P. Clary and Mr. Guerin, did not meet during fiscal 1998.
The Executive committee exercises all the powers and authority of the Board of
Directors in the management of business and affairs of the Company which are
permitted by the Bylaws of the Company to be exercised by the Executive
Committee.
DIRECTOR COMPENSATION
---------------------
In 1998, Mr. Guerin received $350 per month for his services as Secretary of the
Company. He was the only director to receive compensation for his services on
the Board.
STOCK OWNERSHIP
---------------
Stock Ownership of nominated Directors and Executive officers:
<TABLE>
Amount of Common Stock Percent
Name of Owner Beneficially owned of Class
- -------------- --------------------- --------
<S> <C> <C>
Donald G. Ash 96,595 (1) 4.9%
John G. Clary 271,359 (2) 13.7%
John P. Clary 144,638 (3) 7.3%
Hugh L. Clary 89,902 4.6%
Russell T. Gilbert 37,000 1.9%
John J. Guerin 2,100 .1%
Richard W. Henson 42,000 (4) 2.1%
All executives officer and director
as a group (7 person) 840,143 (5) 42.5%
(1) Includes 10,000 shares subject to stock options exercisable on or within 60
days after the record date and 733 shares issuable on conversion of 637 shares
of the Company's Preferred Stock.
(2) Includes (i) 20,000 shares issuable on conversion of the Company's 91/2%
notes held by Mr. Clary's Living Trust, and (ii) 6,395 shares issuable on
conversion of the Company's Preferred Stock owned by Mr. Clary's Living Trust.
(3) Includes 50,000 shares issuable on conversion of the Company's 91/2% notes.
(4) Includes 40,000 shares subject to stock options on or within 60 days after
the record date.
(5) Includes 50,000 shares subject to stock options exercisable on or within 60
days after the record date,110,000 shares issuable on conversion of the Company
91/2% notes, 7,128 shares issuable on conversion of the Company's Preferred
stock, and John G. Clary as Trustee with voting power for the Harland W. Gerds
Trust.
<PAGE>
PRINCIPAL STOCKHOLDERS
----------------------
The following table sets forth the only person known by the Company to own
beneficially five percent or more of the Company's Common Stock on April 1, 1999
and the beneficial ownership of the Company's officers and directors as a group
on that date:
</TABLE>
<TABLE>
Amount and Nature of
Beneficial Percent
Name and Address Ownership of Class
- ------------------- ---------- ---------
<S> <C> <C>
John G. Clary, Living Trust and as Trustee
For the J&B Clary Community
Property Trust 271,359(1) 13.7%
2850 Thorndike Rd.
Pasadena, CA 91107
John G. Clary as Trustee for the 156,549(2) 7.9%
Harland W. Gerds Trust
2850 Thorndike Rd.
Pasadena, CA 91107
John P. Clary 144,638(2) 7.3%
2320 Lambert Drive
Pasadena, CA 91107
Addmaster Corporation 481,258(2) 20.3%
2000 S. Myrtle Avenue
Monrovia, CA 91016
(1) Includes (i) 20,000 shares issuable on conversion of the Company's 91/2%
notes held by Mr. Clary's Living Trust, and (ii) 6,395 shares issuable on
conversion of the Company's Preferred Stock owned by Mr. Clary's Living Trust.
(2) Includes 50,000 shares issuable to Mr. John P. Clary, 40,000 shares issuable
to Harland W. Gerds and 400,000 shares issuable to Addmaster Corporation on
conversion of the Company's 91/2% notes.
<PAGE>
EXECUTIVE OFFICER
------------------
Richard W. Henson, 47, President of Clary Corporation since February 28, 1999
has been Executive Vice President and Chief Operating Officer of Clary
Corporation since January 1, 1996. From 1992 to 1995 Mr. Henson was a working
partner with Adept Group Inc., a business development firm specializing in
technical consulting. From 1988 to 1991, Mr. Henson was President and CEO of
White Gloves Executives, Inc.
The following table sets forth for the fiscal year ended December 31, 1998,
certain information concerning compensation paid to Mr. Henson, the highest
paid officer of the Company.
SUMMARY COMPENSATION - TABLE
Annual Compensation (1)
</TABLE>
<TABLE>
Long-Term
Salary Bonus Compensation
Name & Principal Position Year $ $ # Options
- ------------------------- ---- ------ ----- ------------
<S> <C> <C> <C> <C>
Richard W. Henson 1998 84,000 - 40,000
Executive Vice-President
All other executive officers
as a group 1998 51,825 - -
1997 40,200 - -
1996 40,200 - -
1995 93,700 - -
(1) Mr. Henson did not receive any other annual compensation or perquisites or
other personal benefits, securities and property which is the aggregate amount
of such compensation exceeds 10% of the total of annual salary and bonus.
reported for Mr. Henson. Mr. Henson has no long-term employment contracts with
the Company.
<PAGE>
Stock Option Plans
During the year ended December 31, 1998, there were no options granted or
exercised to any officers under the Employee Incentive Stock Option Plan
adopted in 1984 ("1984 Plan")
The following table reflects certain information as to options held by
Mr.Henson as of December 31, 1998:
</TABLE>
<TABLE>
No. of Unexercised Options
Excercisable Unexercisable
----------- ------------
<S> <C> <C>
Richard W. Henson 40,000 -
ITEM 2
INCREASE IN THE NUMBER OF COMMON AND PREFERRED SHARES
At the Annual Meeting the stockholders will be asked to amend Article IV of the
Articles of Incorporation of the company. This Amendment will provide for (1)
the increase of the authorized number of shares of $1.00 par value Common Stock
from 3,000,000 shares to 10,000,000 shares, and (2) the increase of $5.00 par
Preferred Shares from the existing 26,602 shares, (which will be re-designated
as Class A), by allowing for the issuing of a new series of Preferred Shares up
to a limit of 1,000,000 shares. The Article also provides that the Board of
Directors may issue additiional series of Preferred Shares with terms as they
determine, without shareholders approval.The full text of Article IV is attached
as Exhibit A. Other than issuance provided in Item 3 below there are no plans
for any additional issuance of Preferred Shares at the present time.
The Board of Directors believes it is important that additional Preferred and
Common Stock are available for issue to enable the Company to increase its
capital structure, as required, to provide for expansion, and to maintain
certain ratios required by loan convents or listing requirement that arise from
time to time. Because of the losses incurred in 1998 it is imperative that the
capital structure be increased at this time.
The Board of Directors Recommends a Vote FOR the Adoption of the Amendment to
Increase the Authorized Number of Common and Preferred Shares and to Allow the
Board to Issue Preferred Shares Without Shareholder Approval.
ITEM 3
AUTHORIZE CONVERSION OF DEBT OWED TO AFFILIATE COMPANY FOR A NEW ISSUE OF
CONVERTIBLE PREFERRED STOCK
Subject to the approval of Item 2 the Stockholders will be asked to approve the
exchange of 55,000 shares of a new class of Preferred Stock for the cancellation
of a $550,000, 9% note due January 15, 2000 to an affiliate
(Addmaster Corporation). The complete terms of the new class proposed by the
Board are attached as Exhibit B. The terms provide for an annual dividend of
$0.70 per share, 7% of the $10.00 issue price, and a convertibility into Common
Stock at a ratio of 8 to 1. These Preferred Shares,known as the Series B
preferred Shares, will have a $10.00 liquidation preference (plus accrued and
unpaid dividends) and will include provisions concerning the company's optional
redemption, adjustment of the conversion rate and other provisions typical to
preferred stocks.
The approval of this proposal will increase the Stockholders Equity by $550,000.
An increase in equity is necessary at this time to maintain the current ratios
and working capital requirements as specified in the Company's the Receivables
Financing line with our bank.
The Board of Directors Recommends A Vote FOR the Authorization to Convert Debt
Owed to an Affiliated Company for a New Issue of Convertible Preferred Stock.
Affiliated Company
- ------------------
Clary Corporation and Addmaster Corporation are affiliated due to both common
management and ownership. John G. Clary, Chairman and Chief Executive Officer of
Clary Corporation is also the President and Chief Executive officer of Addmaster
Corporation. Mr.Clary is also the major shareholder of both Corporations. His
sons Doctor John P. Clary and Hugh L. Clary are also Directors of Clary
Corporation as well as Officers and Directors of Addmaster Corporation. Both of
these gentlemen are also substantial shareholders in both Clary Corportion and
Addmaster Corporation.
Page 5
The following major transactions have taken place between Clary Corporation and
Addmaster Corporation over the past few years.
(1) During 1996 and 1998 Addmaster loaned Clary $325,000 and $75,000
respectively under 103/4% secured promissory notes. The loans are secured by a
second position to Clarys bank on all assets of the Company and are due on
April 16, 1999.
(2) Clary purchased inventory items from Addmaster accounting to
$603,000 in 1998 and $544,000 in 1997.
(3) During 1996 Addmaster loaned to Clary $400,000 in exchange for a $400,000,
91/2% convertible subordinated debenture due October 17, 2000.
(4) On December 31, 1998 Addmaster exchanged $150,000 in cash and $400,000 in
past due accounts payable from Clary for a $550,000, 9% long-term note due
January 15, 2000. Clary has the option to have Addmaster convert this note for
the new 7% Cumulative Preferred Stock if such issue is approved by Clary
stockholders.
Amounts due from Clary to Addmaster at December 31, 1998 were included in the
following balance sheet accounts:
</TABLE>
<TABLE>
1998
---------
<S> <C>
Short-term notes payable $400,000
Accounts Payable $123.000
Long-term liabilities
91/2% subordinated convertible notes $400,000
9% subordinated convertible notes $550,000
MISCELLANEOUS
On the date of this Proxy Statement, management did not know of any other
business to be acted upon at the meeting, other than these described in this
Proxy Statement. Should other business be properly presented for action, the
proxies solicited hereby will be voted in accordance with the judgment of the
proxy holders.
A representative of Stonefield Josephson, the Company's independent public
accountants, is expected to be present at the meeting to make a statement if he
or she desires to do so and to respond to appropriate questions from sharehol-
ders.
If the enclosed form of proxy is signed and returned, it will be voted. Any
shareholder has the power to revoke such shareholder's proxy before it is voted.
A proxy may be revoked by delivery in writing a note to the Secretary of the
Company stating that the proxy is revoked, by a subsequent proxy executed by the
person executing the prior proxy and delivered to the Secretary of the Company,
or by attendance at the meeting and voting in person by the person executing
the proxy.
The cost of solicitation of proxies will be borne by the Company. In addition to
the use of the mails, proxies may be solicited by personal interview, telephone
or telegraph. It is anticipated that banks,brokerage houses and other custodian,
nominees or fiduciaries will be requested to forward proxy solicitation material
to their principals and to obtain authorization for the execution of proxies and
that they will be reimbursed for their out-of packet expenses incurred in
connection therewith. Director, officers and regular employees of the Company
may also solicit proxies by such methods without additional remuneration.
Shareholder Proposals
At the time of the preparation of this Proxy Statement, the Board of Directors
of the Company had not been informed of any matters which would be presented for
action at the Meeting other than the proposals specifically set forth in the
Notice of Annual Meeting of Stockholders and referred to herein. If any other
matters are properly presented for action at the Meeting, it is intended that
the persons named in the accompanying Proxy will vote or refrain from voting in
accordance with their best judgment on such matters after consultation with the
Board of Directors.
Any proposal which a stockholder intends to present at the next Annual Meeting
of Stockholders, to be held in 2000, must be received in writing at the office
of the Company set forth on the first page of this Proxy Statement by January 4,
2000 if such proposal is to be considered for inclusion in the Company's proxy
statement and form of proxy relating to that meeting.
<PAGE>
EXHIBIT A.
PROPOSED AMENDMENT TO
ARTICLES OF INCORPORATION
FOUR:This corporation is authorized to issue two classes of stock, designated,
respectively, "preferred" and "common", or "preferred shares" and"common
shares." The total number of shares which this corporation has authority to
issue is eleven million (11,000,000), divided into one million (1,000,000)
shares of preferred stock of the par value of five dollars ($5) per share, and
ten million (10,000,000) shares of common stock of the par value of one dollar
($1) per share. The aggregate par value of all shares shall be fifteen million
dollars($15,000.000)
Preferred shares issued prior to the date hereof are designated Series A
Preferred Stock and the preferences, privileges and restrictions granted to or
imposed upon the Series A Preferred Stock shall be as described in Paragraph 5
below (and all references in Paragraph 5 below shall be deemed to be references
to the Series A Preferred Stock). Shares of Preferred Stock, in addition to the
Series A Preferred Stock, may be issued from time to time in one or more series.
The Board of Directors is authorized tO fix the number of shares of any such
additional series of Preferred Stock and to determine the designation of any
such series. Notwithstanding the preferences, privileges and restrictions set
forth in Paragraph below relating to the Series A Preferred Stock, the Board
of Directors is also authorized to determine or alter the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly unissued
series of Preferred Stock and, whitin the limits and restrictions stated in any
resolution or resolutions of the Board of Directors originally fixing the
numbers of shares constituing any series, to increase or decrease (but not below
the number of shares of such series then outstanding) the number of shares of
any such series subsequent to the issue of shares of that series.
<PAGE>
EXHIBIT B.
TERMS OF CERTIFICATE OF DETERMINATION
OF CONVERTIBLE CUMULATIVE PREFERRED STOCK
1.Designation and Number of Shares:
The preferred shares created and authorized hereby shall be designated as the
"Series B Convertible Cumulative Preferred Stock" ("Series B Preferred Stock").
The number of shares of Series B Preferred Stock shall be 55,000. The Series B
Preferred Stock shall be issuable solely in whole shares that shall entitle the
holder thereof to exercise the voting rights, to participate in the distribution
and to have the benefit of all other rights of holders of shares of Series B
Preferred Stock as set forth herein and in the Articles of Incorporation.
2. Definitions:
Capitalized terms used herein have the meanings assigned to them herein. The
following terms, which are not otherwise defined herein, when used herein have
the meanings set forth below:
"Common Stock" means the common stock of the Company.
"Company" means Clary Corporation, a California corporation.
"Conversion Rate" has the meaning specified in Section 7(a).
"Determination Date" means, with respect to any dividend or other
distribution, the date fixed for the determination of the holders of shares
of capital stock of the Company entitled to receive such dividend or
distribution, or if a dividend or distribution is paid or made without fixing
such a date, the date of such dividend or distribution.
"Liquidation" means (i) the date of the final distribution of the assets
of the Company upon any liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, (ii) a sale of all or substantially all of
the assets of the Company in a single transaction or in a series of related
transactions, or (iii) a merger in which the shareholders of the Company
existing immediately prior to the effectiveness of the merger hold less than
50% of the outstanding capital stock of the company surviving the merger
"Junior Securities" means the shares of Common Stock and the shares of any other
class or series of capital stock of the Company which (by the terms of the
Articles of Incorporation or of the instrument by which the Board acting
pursuant to authority granted in the Articles of Incorporation, shall fix the
relative rights, preferences and limitations thereof) shall be subordinated to
the Series B Preferred Stock in respect of the right to receive assets of the
Company in liquidation.
"Parity Securities" means the shares of any class or series of capital stock of
the Company which (by the terms of the Articles of Incorporation or of the
instrument by which the Board, acting pursuant to authority granted in the
Articles of Incorporation, shall fix the relative rights, preferences and
limitations thereof) shall, in the event that the amounts payable thereon in
liquidation are not paid in full, be entitled to share ratably with the Series
B Preferred Stock in any distribution of assets other than by way of dividends
in accordance with the sums which would be payable in such distribution of
assets if all sums payable were discharged in full.
"Redemption Price" means the Liquidation Preference plus all dividends which
have accrued in accordance with Section 4 but have not yet been paid.
3. Voting Rights:
The holders of Series B Preferred Stock shall have the right to vote together
with the holders of Common Stock as a single class in any and all matters with
respect to which holders of Common Stock have voting or consent rights. Each
share of Series B Preferred Stock shall be entitled to cast such number of votes
as are equal to the number of votes which could be cast by the number of shares
of Common Stock into which such share of Series B Preferred Stock is then
convertible; provided,however, than any fractional shares attributable to a
shareholder as a result of computing from the voting conversion calculation
shall be disregarded for voting purposes. The Conversion Rate to be used in
connection with the foregoing shall be the Conversion Rate in effect immediately
prior to the date fixed for the determination of holders of Common Stock
entitled to vote on such matter.The holders of the Series B Preferred Stock and
the holders of Common Stock shell vote as one class except as otherwise
provided by law or this certificate.
4. Dividends:
The holders of outstanding Series B Preferred shares shall be entitled to
receive, when and as declared by the Board of Directors of the Company, out of
any assets at the time legally available, dividends at the annual rate of $0.70
per share of Series B Preferred Stock, and no more, payable in cash annually on
December 31 of each year to holders of record of shares of Series B Preferred
Stock on a date not more than 60 nor fewer than 10 days preceding each
respective payment date as specified by the Board of Directors or, if not so
specified, as provided by law. Dividends shall accrue on each share of Series B
Preferred Stock from the date of its original issuance and shall accrue from
day to day, whether or not earned or declared. Dividends should be cumulative
so that if dividends in respect of any previous annual dividend period at that
annual rate per share shall not have been paid on or declared and set apart for
all shares of Series B Preferred stock at time outstanding, the deficiency
shall be fully paid on or declared and set apart for those shares before the
Company makes any Distribution (as defined below) to holders of Common shares.
"Distribution" in this section 4 means the transfer of cash or property without
consideration, whether by way of dividend or otherwise (except a dividend in
shares of the Company which are juniors to the shares of Series B Preferred
Stock as to dividends or assets) or the purchases or redemtion of shares of the
Company for cash or property (except such junior sahres), including any such
transfer, purchase, or redemtion by a subsidiary of the company. The of any
Distribution by way of dividend shall be the date of declaration and the time
of any Distribution by purchase or redemption of shares or otherwise than by
dividend shall be the day cash of property is transferred by the Company,
whether or not pursuant to a contract of an earlier; provided that when a debt
obligation that is a security is issued n exchange for shares the time of the
Distribution is the date when the Company acquires the shares in exchange.
5. Redemption by the Company.
-------------------------
(a) At any time, or from time to time, after the second anniversary of the date
of issuance of the Series B Preferred Stock, the Series B Preferred Stock shall
be redeemable, in whole or in part, at the option of the Company, upon the
giving of notice as provided in Section 5(b) hereof, at the Redemption Price,
without interest.
(b) At least 30 days, but not more than 60 days, prior to the date fixed for the
redemption of shares of Series B Preferred Stock pursuant to Section 5(a)
hereof (the "Redemption Date"), written notice of such redemption shall be
mailed to each holder of record of shares of Series B Preferred Stock to be
redeemed in a postage prepaid envelope sent by first class mail and addressed
to such holders at their last addresses as they shall appear on the stock
register of the Company; provided, however, that no failure to give such
notice by mail, nor any defect therein or in the mailing thereof, shall affect
the validity of the proceeding for the redemption of the shares of Series
B Preferred Stock to be redeemed.
Each such notice shall state:
(i) the Redemption Date;
(ii) the number of shares of Series B Preferred Stock to be redeemed and, if
less than all of the shares of Series B Preferred Stock held by such holder
are to be redeemed from such holder, the number of shares of Series B
Preferred Stock to be redeemed from such holder and the method used to
calculate such number;
(iii) the Redemption Price; and
(iv) the place or places where certificates for such shares of Series B
Preferred Stock are to be surrendered for payment of the Redemption Price.
On or after the Redemption Date, each holder of shares of Series B Preferred
Stock to be redeemed shall present and surrender its certificate or certificates
for such shares of Series B Preferred Stock to the Company at the place
designated in such notice, and thereupon, the Redemption Price for such shares
of Series B Preferred Stock shall be paid to or on the order of the person whose
name appears on such certificate or certificates as the owner thereof, and each
surrendered certificate shall be canceled. In the event that fewer than all of
the shares of Series B Preferred Stock represented by such certificate shall be
redeemed, a new certificate will be issued to the person whose name appears on
such certificate representing the unredeemed shares of Series B Preferred Stock.
If the notice of redemption shall have been duly given, and if on any Redemption
Date funds necessary for the redemption shall be available then, notwhitstanding
that the certificates evidencing any shares of Series B Preferred Stock so
called for redemption shall not have been surrendered, the dividends with
respect to the shares of Series B Preferred Stock so called for redemption
shall cease to accrued after the Redemption Date and all rights with respect
to the shares of Series B Preferred Stock so called for redemption shall after
that date cease and terminate, except only the right of the holders such Series
B Preferred Stock so called for redemption to receive the Redemption Price
without interest upon surrender their certificates.
(c) If, on or before any Redemption Date, the Company deposits with any bank
or trust company in California, as a trust fund, (1) a sum sufficient to
redeem, on the Redemption Date, the shares of Series B Preferred Stock called
for redemption and (2) irrevocable instructions and authority to the bank or
trust company to give notice of redemption thereof (or to complete the giving
of the notice if already commenced) and to pay, on and after the Redemption Date
or prior thereto, the Redemption Price of the shares of Series B Preferred Stock
to their respective holders upon the surrender of their share certificates,
then from and after the date of deposit (although prior to the Redemption Date),
the shares so called shall be redeemed and dividends on those shares shall cease
to accrue after the Redemption Date. The deposit shall contitute full payment
of shares to their holders and from and after the date of deposit the shares
shall no longer be outstanding and the holders shall cease to be shareholders
with respect to those shares and shall have no rights with respect thereto
except the right to receive from the bank or trust company payment of the
Redemption Price of the shares without interest (upon the surrender of their
certificates) and any rights of converstion which may be provided for those
shares in the resolution fixing the terms thereof. Any money so deposited on
account of the Redemption Price of Shares B Preferred that are converted after
the making of that deposit shall be repaid to the Company forthwith upon
conversion of such sahres of Series B Preferred Stock. Any interest accrued on
any funds so deposited shall be property of, and paid to, the Comnpany. If the
shares of Series B Preferred Stock so called redemption shall not, at the end
of the two years form Redemption Date, have claim any funds so deposited, the
bank or trust company shall pay over to the Company the unclaimed funds, and the
bank or trust company shall thereafter be relieved of all responsability to
those holders and those holders shall look only to the Company for payment of
the Redemption Price.
(d) If fewer than all of the shares of Series B Preferred Stock are to be
redeemed, the Board of Directors of the Company shall allocate the aggregate
number of shares to be redeemed pro rata (or as nearly pro rata as practicable)
or by lot or in such other manner as the Board may determine.
6. Priority of Series B Preferred Stock in event of Liquidation, Dissolution or
Winding Up:
In the event of any Liquidation, after payment or provision for payment of the
debts and other liabilities of the Company, the holders of shares of Series B
Preferred Stock shall be entitled to receive, out of the remaining net assets
of the Company, the amount equal to the sum of (i) ten dollars ($10.00) and
(ii) an amount equal to all dividends which have accrued in accordance with
Section 4 but have not yet been paid (the"Liquidation Preference") in cash for
each share of Series B Preferred Stock, before any payment shall be made or any
assets distributed to the share holders of Common Stock or any Junior
securities upon such Liquidation. If upon any Liquidation the amounts payable
with respect to the liquidation Preference of shares of Series B Preferred
Stock and any Parity Securities are not paid in full, the holders of shares of
Series B Preferred Stock and of the Parity Securities will share pro rata in
the amount payable and other property distributable with respect to such
Liquidation so that the per share amounts to which holders of shares of Series
B Preferred Stock and the Parity Securities bear to each other.Except as
otherwise provided in this Section 6, holders of shares of Series B Preferred
Stock shall not be entitled to any distribution in the event of liquidation.
Neither a consolidation, merger or other business combination of the Company
with or into another corporation or other entity, nor a sale or transfer of all
or part of the Company's assets for cash, securities or other property shall
constitute a Liquidation for purposes of this Section 6. With regard to rights
to receive distribution upon Liquidation, the Series B Preferred Stock shall
rank prior to any other equity securities of the Company, including the Common
Stock of the Company except with respect to Parity Securities.
7. Conversion:
(a) Optional Conversion
The shares of Series B Preferred Stock are convertible, at any time or from time
to time prior to the close of business on the Redemption Date, in whole or in
part, at the option of the holders thereof ("Optional Conversion"), unless
previously redeemed, into shares of Common Stock at a rate of eight shares of
Common Stock for each share of Series B Preferred Stock (the "Conversion Rate"),
subject to adjustment as set forth below. The right of conversion of any shares
of Series B Preferred Stock called for redemption will terminate at the close of
business on the Redemption Date with respect to such shares of Series B
Preferred Stock.
Optional Conversion of shares of Series B Preferred Stock may be effected by
delivering the certificates evidencing such shares of Series B Preferred Stock,
together with written notice of conversion and proper assignment of such
certificates to the Company or in blank, to the office maintained by the Company
for that purpose. Each Optional Conversion shall be deemed to have been effected
immediately prior to the close of business on the date on which the foregoing
requirements shall have been satisfied and the person or persons entitled to
receive the shares of Common Stock deliverable upon conversion of the Series B
Preferred Stock shall be treated for all purposes as the record holder of such
shares of Common Stock at such time on such date. The Optional Conversion shall
be at the Conversion Rate in effect at such time on such date.
(b) Issuance of Common Stock Certificates.
Upon any conversion described in Section 7(a) above, the Company shall, as soon
as practicable after the surrender for conversion of certificates evidencing
shares of Series B Preferred Stock and compliance with any other required
conditions, deliver to the person for whom such shares of Series B Preferred
Stock are so surrendered, or to the nominee or nominees of such person,
certificates evidencing the number of full shares of Common Stock to which such
person shall be entitled, together with a cash payment in respect of any
fraction of share of Common Stock as hereinafter provided.
(c) Adjustment.
The Conversion Rate is subject to adjustment from time to time as provided below
in this Section 7(c).
(i) If the Company shall fix a Determination Date with respect to the payment
of, or the making of, a dividend or other distribution with respect to its
Common Stock in shares of Common Stock (including by way of reclassification
of any shares of its Common Stock), the Conversion Rate in effect at the
opening of business on the day following the Determination Date shall be
increased by multiplying such Conversion Rate by a fraction, the numerator
of which shall be the sum of the number of shares of Common Stock outstanding
at the close of business on the Determination Date, excluding the effect of
such dividend or distribution, plus the total number of shares of Common
Stock constituting such dividend or other distribution, and the denominator
of which shall be the numberof shares of Common Stock outstanding at the
close opf business on the Determination Date, excluding the effect of such
dividend or distribution, such increase to become effective at opening of
business on the day following the Determination Date. For the purposes
of this clause (i), the number of shares oc Common Stock at any time out-
standing shall not include shares held in the treasusry of the Company and
the numbers of shares constituting such dividend or other distribution shall
included , if applicable , shares represented by cash issued in lieu of
fractional shares of Common Stock.
(ii)If outstanding shares of Common Stock shall be subdivided or split into a
greater number of shares of Common Stock, the Conversion Rate in effect at the
opening of business on the day following the day upon which such subdivision
or split becomes effective shall be proportionately increased, and, conversely
in case outstanding shares of Common Stock shall be combined into a lesser
number of shares of Common Stock, the Conversion Rate in effect at the opening
of business on the day following the day upon which such combination becomes
effective sahll be proportionately reduced, such increase or reduction, as the
case may be, become effective at the opening of business on the day following
the day upon which such subdivision or splitor combination becomes effective.
(iii)All adjustments to the Conversion Rate will be calculated to the nearest
1/100th of a share of Common Stock. No adjustment in the Conversion Rate will
be required unless such adjustment would require an increase or decrease of at
least one percent in the Conversion Rate; provided, however, that any
adjustments which by reason of this Section 7(c)(iii) are not required to be
made shall be carried forward and taken into account in any subsequent
adjustment. All adjustments to the Conversion Rate shall be made successively
(d) Adjustment for Reorganization:
Consolidation or Merger. If there shall occur any capital reorganization or
any reclassification of the capital stock of the Company, consolidation, merger
or other business combination of the Company with or into another corporation
or other entity, or the conveyance of all or substantially all of the assets of
the Company to another corporation or other entity, each share of Series B
Preferred Stock shall thereafter be convertible into the number of shares or
other securities or property to which a holder of the numbers of shares of
Common Stock deliverable upon conversion of each share of Series B Preferred
Stock would have been entitled upon such reorganization, reclassification,
consolidation, merger or conveyance. In any such case, appropiate adjustment
(as determined by the Board) shall be made in the application of the provision
hereof with respect to the rights of holders of shares of Series B Preferred
Stock such that the provisions hereof (including whitout limitation, provisions
with respect to changes in and other adjustments of the Conversion Rate) shall
thereafter be applicable, as nearly as reasonably practicable, in relation to
any shares or other property thereafter deliverable upon the conversion of the
shares of Series B Preferred Stock.
(e) Computation and Notification of Adjustment.
Whenever the Conversion Rate is adjusted as provided in Section 7, the Company
shall:
(i) forthwith compute the adjusted Conversion Rate in accordance with this
Section 7 and prepare a certificate signed and verified by the Chairman of
the Board, the President or a Vice President of the Company and by the Chief
Financial Officer, the Treasurer or an Assistant Treasurer of the Company
setting forth the adjusted Conversion Rate, the method of calculation thereof
in reasonable detail and the facts requiring such adjustment and upon which
such adjustment is based, and shall maintain such certificate at its
principal executive office; and
(ii) mail a notice stating that the Conversion Rate has been adjusted, the
facts requiring such adjustment and upon which such adjustment is based and
setting forth the adjusted Conversion Rate, to the holders of record of the
outstanding shares of Series B Preferred Stock at their last addresses as
they shall appear on the stock register of the Company, as soon as
practicable after such adjustment has been made.
9.No Fractional Shares.
No fractional shares of Common Stock shall be issued upon the conversion of
any shares of Series B Preferred Stock. Upon any such conversion, in lieu of
any fractional share of Common Stock otherwise issuable in respect of the
aggregate number of shares of Series B Preferred Stock of any holder that are
converted, such holders shall be entitled to receive an amount in cash
(computed to the nearest cent, with one-half cent rounded upward) equal to the
same fraction of the current value of one share of Common Stock, such value
to be conclusively determined by the Board in its sole and absolute discretion
If more than one share of Series B Preferred Stock shall be surrended for
conversion at one time by or for the same holder, the number of full shares
of Common Stock issuable upon conversion thereof shall be computed on the
basis of the aggregate number of shares of Series B Preferred Stock so
surrended.
10. Reservation of Common Stock. The Company shall at all times reserve and
keep available out of its authorized and unissued Common Stock, solely for
issuance upon the conversion of shares of Series B Preferred Stock as herein
provided, free from any preemptive rights, such number of shares of Common
Stock as shall from time to time be sufficient to permit the conversion of all
the shares of Series B Preferred Stock then outstanding.
11.Status of Redeemed or Converted Series B Preferred Stock. So long as shares
of Series B Preferred Stock remain outstanding, shares of Series B Preferred
Stock redeemed by the Company or converted into shares of Common Stock will be
restored to the status of authorized but unissued shares of Series B Preferred
Stock and may thereafter be issued as shares of Series B Preferred Stock.
Upon the redemption or conversion of shares of Series B Preferred Stock such
that no shares of Series B Preferred Stock remain outstanding, all unissued
shares of Series B Preferred Stock will be restored to the status of
authorized bur unissued shares of Preferred Stock whitout designation as to
series and may not thereafter be issued as shares of Series B Preferred Stock.
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