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FORM OF CERTIFICATE OF DESIGNATION
SERIES B CONVERTIBLE PREFERRED STOCK
KEY TECHNOLOGY, INC.
Key Technology, Inc., an Oregon corporation (the "Corporation"), certifies
that pursuant to the authority contained in Article II of its Restated Articles
of Incorporation, and in accordance with the provisions of Section 60.134 of the
Oregon Revised Statutes, its Board of Directors has adopted the following
resolution creating a series of its $.0001 par Preferred Stock:
RESOLVED, that, pursuant to authority conferred upon the Board of Directors
by the Articles of Incorporation of the Corporation, the Board of Directors
hereby authorizes the issuance of Series B Convertible Preferred Stock of the
Corporation and hereby designates, pursuant to Section 60.134 of the Oregon
Revised Statutes, the rights, preferences, privileges, restrictions and other
matters relating to such Series B Preferred Stock as follows
1. DESIGNATION AND AMOUNT. [ ] shares of the Corporation's authorized
Preferred Stock are hereby designated as the Series B Convertible Preferred
Stock (the "Series B Preferred Stock").
2. DIVIDENDS. No dividends shall be declared and set aside for any shares
of the Series B Preferred Stock except in the event that the Board of Directors
of the Corporation shall declare a dividend payable upon the then outstanding
shares of the Common Stock of the Corporation, in which event the holders of the
Series B Preferred Stock shall be entitled to the amount of dividends per share
of Series B Preferred Stock as would be declared payable on the largest number
of whole shares of Common Stock into which each share of Series B Preferred
Stock held by each holder thereof could be converted pursuant to the provisions
of Section 5 hereof (such number determined as of the record date for the
determination of holders of Common Stock entitled to receive such dividend).
3. LIQUIDATION, DISSOLUTION OR WINDING UP
3.1 PREFERENCE. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, holders of each
share of Series B Preferred Stock shall be entitled to be paid first out of the
assets of the Corporation available for distribution to holders of the
Corporation's capital stock of all classes (whether such assets are capital,
surplus or earnings) before any sums shall be paid or any assets distributed
among the holders of Common Stock, an amount equal to Ten dollars ($10) per
share of Series B Preferred Stock plus an amount equal to all accrued and unpaid
dividends thereon, if any, computed up to and including the date full payment
shall be tendered to the holders of the Series B Preferred Stock with respect to
such liquidation, dissolution or winding up.
If the assets of the Corporation shall be insufficient to permit the
payment in full to holders of the Series B Preferred Stock of the amount thus
distributable, then the entire assets of the Corporation available for such
distribution shall be distributed ratably among the holders of the Series B
Preferred Stock.
3.2 DISTRIBUTIONS OTHER THAN CASH. Whenever the distribution provided
for in this Section 3 shall be paid in property other than cash, the value of
such distribution shall be the fair market value of such property as
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determined in good faith by the Board of Directors of the Corporation.
4. VOTING POWER. Except as otherwise required by law, each holder of Series
B Preferred Stock shall be entitled to vote on all matters and shall be entitled
to that number of votes equal to the number of votes that would be accorded to
the largest number of whole shares of Common Stock into which such holder's
shares of Series B Preferred Stock could be converted, pursuant to the
provisions of Section 5 of this Certificate, at the record date for the
determination of shareholders entitled to vote on such matter or, if no such
record date is established, at the date such vote is taken or any written
consent of shareholders is solicited. The holders of shares of Series B
Preferred Stock and Common Stock shall be entitled to vote together as a single
class on all matters. The holders of Series B Preferred Stock shall not be
entitled to vote as a separate class or voting group on any plan of merger.
5. CONVERSION RIGHTS. The holders of the Series B Preferred Stock shall
have the following conversion rights:
5.1 GENERAL. Subject to and in compliance with the provisions of this
Section 5, any shares of Series B Preferred Stock may, at the option of the
holder, be converted at any time or from time to time into fully paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a holder
of Series B Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the appropriate Applicable Conversion Rate
(determined as provided in Sections 5.3, 5.4 and 5.5 by the number of shares of
Series B Preferred Stock being converted.
5.2 MANDATORY CONVERSION.
(a) Conversion Upon Merger, Consolidation, Share Exchange or Sale
of Assets. All the outstanding shares of Series B Preferred Stock shall, at the
option of the Corporation and upon written notice to the holders thereof given
not less than 30 days prior to the closing of a merger or consolidation of the
Corporation with or into another Corporation, share exchange or the sale of all
or substantially all of the Corporation's assets to any other person, be
converted, effective upon such closing, into the number of shares of Common
Stock to which a holder of Series B Preferred Stock shall be entitled upon
conversion pursuant to Section 5.1, unless redeemed by the holder as provided
herein. Such conversion shall occur automatically on the effective date of such
event without any further action by such holders and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent for the Common Stock, except that any holder may elect to have
such holder's Series B shares redeemed at the liquidation value by sending a
notice of redemption to the Corporation at any time prior to the expiration of
the 30 day notice. Nothing in this Section 5.2, however, shall limit or in any
way restrict the rights of the holders of shares of Series B Preferred Stock to
convert such shares into shares of Common Stock at any time pursuant to Section
5.1 immediately above. Notwithstanding any other provision of this subparagraph,
the occurrence of a merger or consolidation of the Corporation with or into
another corporation, share exchange or the sale of all or substantially all of
the Corporation's assets to any other person, shall not be considered a
liquidation, dissolution or winding up of the Corporation under Section 3 of
this Certificate.
(b) SURRENDER OF CERTIFICATES. Upon the occurrence of a
conversion specified in this Section 5.2, the holders of such Series B Preferred
Stock shall surrender the certificates representing such shares at the office of
the Corporation or of its transfer agent for the Common Stock. Thereupon, the
Corporation or its transfer agent shall issue and deliver to such holder a
certificate or certificates for the number of shares of Common Stock into which
the shares of the Series B Preferred Stock surrendered were
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convertible on the date on which such conversion occurred. The Corporation shall
not be obligated to issue certificates evidencing the shares of Common Stock
issuable upon such conversion unless certificates evidencing such shares of the
Series B Preferred Stock being converted are either delivered to the Corporation
or any such transfer agent or the holder notifies the Corporation or any such
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection therewith.
5.3 SERIES B APPLICABLE CONVERSION RATE. The conversion rate for each
share of the Series B Preferred Stock in effect at any time (the "Series B
Applicable Conversion Rate") shall be the quotient obtained by dividing Ten
dollars ($10) by the Applicable Conversion Value, calculated as provided in
Section 5.4.
5.4 APPLICABLE CONVERSION VALUE. The Applicable Conversion Value shall
be fifteen dollars ($15) for the Series B Preferred Stock, except that such
amount shall be adjusted from time to time in accordance with this Section 5.
5.5 ADJUSTMENTS TO APPLICABLE CONVERSION VALUE. Upon the happening of
an Extraordinary Common Stock Event (as hereinafter defined), the Applicable
Conversion Value shall, simultaneously with the happening of such Extraordinary
Common Stock Event, be adjusted by multiplying the then effective Applicable
Conversion Value by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding immediately prior to such Extraordinary
Common Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable Conversion
Value. The Applicable Conversion Value, as so adjusted, shall be readjusted in
the same manner upon the happening of any successive Extraordinary Common Stock
Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the issue of
additional shares of the Common Stock as a dividend or other distribution on
outstanding Common Stock, (ii) the subdivision of outstanding shares of Common
Stock into a greater number of shares of the Common Stock or (iii) the
combination of outstanding shares of Common Stock into a smaller number of
shares of Common Stock.
5.6 DIVIDENDS. In the event the Corporation shall make, issue or fix a
record date for the determination of holders of Common Stock entitled to receive
a dividend or other distribution payable in securities of the Corporation other
than shares of Common Stock or in assets (excluding cash dividends or
distributions), then and in each such event provision shall be made so that the
holders of Series B Preferred Stock shall receive upon conversion thereof in
addition to the number of shares of Common Stock receivable thereupon the number
of securities or such other assets of the Corporation that they would have
received had their Series B Preferred Stock been converted into Common Stock on
the date of such event and had they thereafter, during the period from the date
of such event to and including the Conversion Date (as that term is hereafter
defined in Section 5.9, retained such securities or such other assets during
such period, giving application to all adjustments called for during such period
under this Section 5 with respect to the rights of the holders of Series B
Preferred Stock.
5.7 RECAPITALIZATION OR RECLASSIFICATION. If the Common Stock issuable
upon the conversion of the Series B Preferred Stock shall be changed into the
same or different number of shares of any class or classes of stock
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of the Corporation, whether by recapitalization, reclassification or otherwise
(other than a reorganization, merger, consolidation or sale of assets), then and
in each such event the holder of each share of Series B Preferred Stock shall
have the right thereafter to convert such share into the kind and amount of
shares of stock and other securities and property receivable upon such
reorganization, reclassification or other change by holders of the number of
shares of Common Stock into which such share of Series B Preferred Stock might
have been converted immediately prior to such reorganization, reclassification
or change, all subject to further adjustment as provided herein.
5.8 CERTIFICATE AS TO ADJUSTMENTS. In each case of an adjustment or
readjustment of the Applicable Conversion Rate, the Corporation will furnish
each holder of Series B Preferred Stock with a certificate showing such
adjustment or readjustment, and stating in reasonable detail the facts upon
which such adjustment or readjustment is based.
5.9 EXERCISE OF CONVERSION PRIVILEGE. To exercise a conversion
privilege, a holder of Series B Preferred Stock shall surrender the certificate
or certificates representing the shares being converted to the Corporation at
its principal office, and shall give written notice to the Corporation at the
office that such holder elects to convert such shares. The certificate or
certificates for shares of Series B Preferred Stock surrendered for conversion
shall be accompanied by proper assignment thereof to the Corporation or in
blank. The date when such written notice is received by the Corporation,
together with the certificate or certificates representing the shares of Series
B Preferred Stock being converted, is the "Conversion Date." As promptly as
practicable after the Conversion Date, the Corporation shall issue and deliver
to the holder of the shares of Series B Preferred Stock being converted (i) such
certificate or certificates as it may request for the number of whole shares of
Common Stock issuable upon the conversion of such shares of Series B Preferred
Stock in accordance with the provisions of this Section 5, (ii) cash in the
amount of all accrued and unpaid dividends on such shares of Series B Preferred
Stock, if any, computed up to and including the Conversion Date and (iii) cash,
as provided in Section 5.10 in respect of any fraction of a share of Common
Stock issuable upon such conversion. Such conversion shall be deemed to have
been effected immediately prior to the close of business on the Conversion Date,
and at such time the rights of the holder as holder of the converted shares of
Series B Preferred Stock shall cease and the person or person in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder or
holders of record of the shares of Common Stock represented thereby.
5.10 CASH IN LIEU OF FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon the conversion of shares of Series B Preferred Stock.
Instead of any fractional shares of Common Stock which would otherwise be
issuable upon conversion of Series B Preferred Stock, the Corporation shall pay
to the holder of the shares of Series B Preferred Stock which were converted a
cash adjustment in respect of such fractional shares in an amount equal to the
same fraction of the market price per share of the Common Stock (as determined
in a reasonable manner prescribed by the Board of Directors) at the close of
business on the Conversion Date. The determination as to whether or not any
fractional shares are issuable shall be based upon the total number of shares of
Series B Preferred Stock being converted at any one time by any holder thereof,
not upon each share of Series B Preferred Stock being converted.
5.11 PARTIAL CONVERSION. In the event some but not all of the shares
of Series B Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall
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execute and deliver to the holder a new certificate representing the number of
shares of Series B Preferred Stock that were not converted.
5.12 RESERVATION OF COMMON STOCK. The Corporation shall at all times
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of effecting the conversion of the shares of the
Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series B Preferred Stock. If at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series B Preferred Stock, the
Corporation shall take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as shall
be sufficient for such purpose.
6. REDEMPTION RIGHTS
6.1 MANDATORY REDEMPTION. Except as otherwise provided in this Section
6, on the fifth anniversary of the first date on which shares of Series B
Preferred Stock are issued (the "Mandatory Redemption Date"), the Corporation
shall redeem, out of funds legally available therefor, all outstanding shares of
Series B Preferred Stock, by paying therefor $10 per share, plus an amount equal
to any declared and unpaid dividends, if any, to such date, in cash (the
"Redemption Value").
6.2 NOTICE OF REDEMPTION. Notice of any redemption of shares of Series
B Preferred Stock pursuant to Section 6.1 shall be given by notice to the
registered holders of the Series B Preferred Stock not less than 30, nor more
than 60 days prior to the date fixed for redemption (a "Redemption Notice"), to
each holder of Series B Preferred Stock to be redeemed, at such holder's address
as it appears on the transfer books of the Corporation. In order to facilitate
the redemption of Series B Preferred Stock, the Board of Directors may fix a
record date for the determination of Series B Preferred Stock to be redeemed, or
may cause the transfer books of the Corporation for the Series B Preferred Stock
to be closed, not more than 60 days or less than 30 days prior to the date fixed
for such redemption. At any time prior to the expiration of the Redemption
Notice, any holder of the Series B shares may exercise the conversion rights
pursuant to the provisions of Section 5.9 above.
6.3 CANCELLATION OF SERIES B PREFERRED STOCK. Notice of Redemption
having been given as aforesaid in respect of shares of Series B Preferred Stock
to be redeemed pursuant to Section 6.1, notwithstanding that any certificates
for such shares shall not have been surrendered for cancellation, from and after
the date of redemption designated in the notice of redemption (i) the shares
represented thereby shall no longer be deemed outstanding, (ii) the rights to
receive dividends thereon shall cease to accrue, and (iii) all rights of the
holders of Series B Preferred Stock to be redeemed shall cease and terminate,
excepting only the right to receive the $10 per share redemption price therefor,
plus all accumulated and unpaid dividends (whether or not earned or declared) to
the date of redemption.
6.4 ACCELERATION OF REDEMPTION DATE. If at any time after the first
date on which shares of Series B Preferred Stock are issued (the "Issue Date")
the average closing price of the Company's Common Stock as listed on the Nasdaq
National Market is $15 or more for thirty consecutive trading days, then the
Company will have the right to accelerate redemption of all of the Series B
Preferred Stock at the Redemption Value per share by sending a Redemption Notice
as provided in Section 6.2 above. At any time prior to the expiration of the
Redemption Notice, any holder of the Series B shares may exercise the conversion
rights pursuant to the provisions of Section 5.9 above.
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7. PUT RIGHT
7.1 THE PUT. The Corporation hereby irrevocably grants and issues to
each holder of Series B Preferred Stock the right to require the Corporation to
purchase any time after the second anniversary of the Issue Date (hereinafter
referred to as the "Put") any or all of such Series B Preferred Stock at the
Redemption Value.
7.2 EXERCISE OF PUT. The holders of Series B Preferred Stock may
exercise the Put any time after the second anniversary of the Issue Date (the
"Exercise Period"). Any holder of Series B Preferred Stock may exercise the Put
during the Exercise Period by delivery of a written notice to the Corporation
specifying the number of Series B Preferred Stock as to which the Put is being
exercised, together with delivery of one or more certificates representing the
number of Series B shares as to which the Put is being exercised, duly endorsed
in blank by the holders of Series B Preferred Stock or having attached thereto a
stock power duly executed by the holder of Series B Preferred Stock in proper
form for transfer.
7.3 PAYMENT AND DELIVERY OF SERIES B PREFERRED STOCK. The Corporation
shall, within twenty (20) calendar days of the receipt of notice from a holder
of Series B Preferred Stock of its exercise of the Put, pay to such holder of
Series B Preferred Stock in cash or by check, the Redemption Value for each
share of Series B Preferred Stock as to which such holder of Series B Preferred
Stock has exercised the Put. Any residual Series B shares represented by the
certificates surrendered but not included within the Put will be issued in the
name of the holder by the Corporation.
