CERTIFICATE OF DESIGNATION
OF
CONVERTIBLE PREFERRED STOCK
OF
MERISEL, INC.
_________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________
Merisel, Inc., a Delaware corporation (the "Corporation"), DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors (the
"Board") by the Restated Certificate of Incorporation, as amended (the
"Certificate of Incorporation"), of the Corporation, the Board on May 17, 2000
adopted the following resolution creating a series of 300,000 shares of the
authorized 1,000,000 unclassified shares of preferred stock, par value $0.01,
per share of the Corporation (the "Preferred Stock") to be designated as its
Convertible Preferred Stock:
RESOLVED, that pursuant to the authority conferred upon the Board by the
Certificate of Incorporation of the Corporation, the Board hereby authorizes the
creation of and establishes a series of Preferred Stock and hereby states the
designation and number of shares thereof and fixes the powers, preferences and
relative, participating, optional and other special rights of the shares of such
series, and the qualifications, limitations or restrictions thereof as follows:
1. Designation Amount. The shares of such series shall be designated as
Convertible Preferred Stock (the "Convertible Preferred Stock"). Shares of
Convertible Preferred Stock redeemed or purchased by the Corporation shall be
canceled and shall revert to authorized but unissued shares of Preferred Stock
undesignated as to series; provided, however, that such issued and reacquired
shares of such series may be reissued as shares of Convertible Preferred Stock
as a stock dividend on outstanding shares of Convertible Preferred Stock.
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Number of Shares. The number of authorized shares of Convertible Preferred Stock
shall initially be 300,000 which number may from time to time be increased by
the Board.
2. Definitions. For purposes of this Certificate, the following terms shall have
the meanings indicated:
"Affiliate" shall mean, with respect to any specified Person, any other Person,
directly or indirectly, controlling or controlled by or under direct or indirect
common control with such specified Person. For the purposes of this definition,
"control" when used with respect to any Person means the power to direct the
management and policies of such Person, directly or indirectly, whether through
the ownership of voting securities, by contract or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Change of Control" shall mean the occurrence of any Person, other than
Stonington Capital Appreciation 1994 Fund, L.P., a Delaware limited partnership,
and its Affiliates, acquiring, (I) with the approval of the Board, beneficial
ownership of (a) at least a majority of the voting Common Stock on a fully
diluted basis and (b) at least a majority of the voting power of the Corporation
entitled to vote for the election of members of the Board of the Corporation or
(II) all or substantially all of the assets of the Corporation and its
subsidiaries by sale, lease, transfer or other disposition of.
"Change of Control Price" shall mean a price per share equal to $108 plus
accrued and unpaid dividends if the redemption occurs prior to December 15, 2000
or $101 plus accrued and unpaid dividends if the redemption occurs after such
date.
"Closing Date" shall mean, with respect to the Convertible Preferred Stock, June
15, 2000 or such other date as the parties agree upon.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"Indenture" shall mean the Indenture between the Corporation and The Bank of New
York, as successor trustee, dated as of October 15, 1994, as in effect on the
date hereof.
"Notes" shall mean the 12- % Senior Notes due 2004 issued under the Indenture.
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"Person" shall mean any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, government
or any agency or political subdivision thereof or any other entity.
"Voting Stock" of a corporation shall mean all classes of Capital Stock of such
corporation then outstanding and normally entitled to vote in the election of
directors.
"Wholly Owned Subsidiary" shall mean a subsidiary all the Capital Stock of which
(other than directors' qualifying shares and shares held by other Persons to the
extent such shares are required by applicable law to be held by a Person other
than the Corporation or a subsidiary) is owned by the Corporation or one or more
Wholly Owned Subsidiaries.
3. Rank. The Convertible Preferred Stock shall, with respect to dividend
distributions and distributions on liquidation, winding up and dissolution, rank
senior to all classes and series of stock of the Corporation now or hereafter
authorized, issued or outstanding (collectively, the "Junior Securities");
provided that, the Corporation may authorize or create, or issue, any class or
series of stock that ranks senior to ("Senior Securities") or pari passu with
("Parity Securities") the series of Convertible Preferred Stock with respect to
dividend rights and/or rights on liquidation, winding-up and dissolution, with
the affirmative vote of the respective holders of at least a majority of the
outstanding shares of the Convertible Preferred Stock voting as a separate
class.
4. Dividends. (a) The holders of shares of Convertible Preferred Stock shall be
entitled to receive when, as and if declared by the Board of the Corporation,
out of funds legally available therefor, dividends at the annual rate per share
of 8% of the Liquidation Preference per share. Such dividends shall be
cumulative and shall be payable quarterly in arrears in four equal amounts
(other than the initial dividend due on September 30, 2000 if the Closing Date
is not June 30, 2000) on December 31, March 31, June 30 and September 30 (each
of such dates being a "Dividend Payment Date" and each period between such dates
being a "Dividend Period"), commencing September 30, 2000; provided, that if any
such day shall be Saturday, Sunday or a day on which banking institutions in the
State of New York or the State of California are authorized or obligated by law
to close, or a day which is or is declared a national or a New York or
California state holiday (any of the foregoing a "Non-Business Day"), then
Dividend Payment Date shall be the next succeeding day which is not a
Non-Business Day. Each such dividend shall be paid to stockholders of record on
the respective date, not exceeding 50 days preceding such Dividend Payment Date,
as shall be fixed for this purpose by the Board in advance of payment of each
particular dividend. Any dividend payments made with respect to shares of
Convertible Preferred Stock will be made in additional fully paid and
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nonassessable shares of Convertible Preferred Stock valued at $100 per share,
and the issuance of such additional shares shall constitute full payment of such
dividend. The Corporation shall make such dividend payment on such Dividend
Payment Date in additional shares of Convertible Preferred Stock to the extent
permitted by applicable law, regardless of the terms of any other securities of
the Corporation or any contract or other agreement to which it may be a party.
All dividends paid with respect to shares of Convertible Preferred Stock
pursuant to this paragraph 4(a) shall be paid pro rata to the holders entitled
thereto. The Corporation will issue, if necessary, fractions of a share
(calculated to nearest 1/100 of a share) of Convertible Preferred Stock as part
of the payment of any dividend paid in additional shares of Convertible
Preferred Stock. All shares of Convertible Preferred Stock which may be issued
as a dividend with respect to the Convertible Preferred Stock will thereupon be
duly authorized, validly issued, fully paid and nonassessable and free of all
liens and charges.
(b) Dividends on shares of Convertible Preferred Stock issued on the Closing
Date shall be fully cumulative and shall accrue (whether or not earned or
declared) from the Closing Date; provided, however, that dividends on any share
of Convertible Preferred Stock issued as dividends shall be fully cumulative and
shall accrue (whether or not earned or declared) from the applicable Dividend
Payment Date. Accumulated unpaid dividends for any past Dividend Periods may be
declared by the Board and paid on any date fixed by the Board, whether or not a
regular Dividend Payment Date, to holders of record on the books of the
Corporation on such record date as may be fixed by the Board. Holders of
Convertible Preferred Stock will not be entitled to any dividends in excess of
full cumulative dividends. No interest or sum of money in lieu of interest shall
be payable in respect of any accumulated unpaid dividends. Dividends payable on
shares of Convertible Preferred Stock for any period greater or less than a full
Dividend Period shall be computed on the basis of a 360-day year consisting of
twelve 30-day months.
(c) So long as any shares of Convertible Preferred Stock are outstanding, the
Corporation shall not (i) declare, pay or set apart for payment any dividend on
the Common Stock or any other shares of Junior Securities, (ii) make any payment
on account of, or set apart for payment money for a sinking or other similar
fund for, the purchase, redemption, retirement, or other acquisition for value
of any of, or redeem, purchase, retire or otherwise acquire for value any of,
the Junior Securities or any warrants, rights, calls or options exercisable for
or convertible into any of the Junior Securities (other than as a result of a
reclassification of Junior Securities, or the exchange or conversion of one
class or series of Junior Securities for or into another class or series of
Junior Securities, or other than through the use of proceeds of a substantially
contemporaneous sale of other Junior Securities) or (iii) make any distribution
in respect of the Junior Securities or any warrants, rights, calls or options
exercisable for or convertible into any of the Junior Securities, in any such
case,
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either directly or indirectly, and whether in cash, obligations or shares
of the Corporation or other property (other than distributions or dividends of a
particular class or series of Junior Securities to holders of such Junior
Securities), and shall not permit any corporation or other entity directly or
indirectly controlled by the Corporation to purchase, redeem or otherwise
acquire for value any of the Junior Securities or any warrants, rights, calls or
options exercisable for or convertible into any of the Junior Securities, unless
all dividends due and payable on the Convertible Preferred Stock have been paid
in cash or all shares of Convertible Preferred Stock issued in lieu of cash
dividends ("Dividend Shares") have been redeemed or repurchased by the
Corporation.
5. Liquidation Preference. (a) In the event of any voluntary or involuntary
liquidation, dissolution or winding-up of the affairs of the Corporation, then,
before any distribution or payment shall be made to the holders of any Junior
Securities, including the Common Stock, the holders of Convertible Preferred
Stock then outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in cash
equal to $100.00 for each share outstanding (which amount is herein referred to
as the Liquidation Preference), together with an amount in cash equal to all
accrued and unpaid dividends thereon, to the date fixed for liquidation,
dissolution or winding-up. Except as provided in the preceding sentence, holders
of Convertible Preferred Stock shall not be entitled to any distribution in the
event of any liquidation, dissolution or winding-up of the affairs of the
Corporation. If the assets of the Corporation are not sufficient to pay in full
the liquidation payments payable to the holders of outstanding shares of
Convertible Preferred Stock, and all other shares of Series of stock of the
Corporation ranking pari passu with respect to such payments, then the holders
of all such shares shall share ratably with any other series of pari passu stock
of the Corporation in any distribution of assets in accordance with the amount
which would be payable on such distribution if the amounts to which the holders
of outstanding shares of Convertible Preferred Stock and such other pari passu
shares are entitled were paid in full. After payment of the full amount of the
Liquidation Preference, together with an amount in cash equal to accrued and
unpaid dividends theron to which each holder is entitled, such holders of shares
of Convertible Preferred Stock will not be entitled to any further participation
in any distribution of the assets of the Corporation.
(b) For the purpose of this paragraph 5, neither the voluntary sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all of the property or assets of the
Corporation nor the consolidation or merger of the Corporation with any other
corporation shall be deemed to be a voluntary or involuntary liquidation,
dissolution or winding-up of the Corporation, unless such voluntary sale
conveyance, exchange or transfer shall be in connection with a plan of
liquidation, dissolution or winding-up of the Corporation.
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6. Redemption. (a) Subject to subparagraph (d) of this paragraph 6, to the
extent the Corporation shall have funds legally available for such redemption,
the Corporation may redeem, in whole or in part, the shares of the Convertible
Preferred Stock at the time outstanding, at any time or from time to time on or
after June 30, 2003, upon notice given as hereinafter specified at a price equal
to $105 per share (which price shall be reduced each September 30, December 31,
March 31 and June 30 thereafter by $0.25 until the price is $100) together with
all accrued and unpaid dividends thereon; provided that the Corporation may
redeem, in whole or in part, the shares of Convertible Preferred Stock at the
time outstanding at a price equal to the applicable Change of Control Price at
any time on or within 90 days after the date of a Change of Control.
Notwithstanding the foregoing, the Corporation may redeem, in whole or in part,
any Dividend Shares outstanding, at any time or from time to time, at a price
equal to $100 together with all accrued and unpaid dividends thereon.
(b) In the event of partial redemptions of Convertible Preferred Stock pursuant
to paragraph 6(a), the shares to be redeemed will be determined on a pro rata
basis (as determined by the number of shares of Convertible Preferred Stock
outstanding on a record date not less than 30 days nor more than 60 days prior
to the optional redemption date), provided, however, that the Corporation may
redeem all shares held by any holders of a number of shares not to exceed 1,000
as may be specified by the Corporation pursuant to paragraph 6(a). On and after
a redemption date, unless the Corporation defaults in the payment of the
redemption price, dividends will cease to accrue on shares of Convertible
Preferred Stock called for redemption and all rights of holders of such shares
will terminate except for the right to receive the redemption price and accrued
and unpaid dividends thereon to the redemption date.
(c) Upon the occurrence of a Change of Control, each holder of record of shares
of Convertible Preferred Stock will have the right, as set forth below, to
require that the Corporation redeem such holder's shares in cash at the Change
of Control Price.
Notwithstanding the foregoing, in the event the redemption set forth by this
paragraph 6(c) is not permitted under the Indenture, no rights under this
paragraph 6(c) shall attach to, and the Corporation shall have no correlative
obligations under this paragraph 6(c) with respect to, (x) the Convertible
Preferred Stock or (y) the Convertible Preferred Stock issued in satisfaction of
dividends on Convertible Preferred Stock until such time as the Notes are no
longer outstanding or the Corporation is not prohibited by the Indenture from
redeeming the Convertible Preferred Stock pursuant to this paragraph 6(c).
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Following any Change of Control, notice (a "Change of Control Notice") shall be
mailed by first class mail, postage prepaid and mailed within 30 days of such
Change of Control addressed to the holders of record of the shares at their
respective last addresses as they shall appear on the books of the Corporation.
Each such notice shall state: (i) that a Change of Control has occurred and that
such holder has the right to require the Corporation to redeem such holder's
shares at a redemption price in cash equal to the applicable Change of Control
Price, together with all accrued and unpaid dividends, to the date of
redemption; (ii) the circumstances and, to the extent available, relevant facts
regarding such Change of Control (including information with respect to pro
forma historical income, cash flow and capitalization of the Corporation or
other relevant entity after giving effect to such Change of Control); (iii) the
redemption date (which shall be not less than 30 days nor more than 60 days from
the date such notice is mailed); (iv) the place or places where certificates for
such shares are to be surrendered for payment of the redemption price; (v) that
dividends on the shares to be redeemed will cease to accrue on such redemption
date, and (vi) the instructions determined by the Corporation, consistent with
such provision, that a holder must follow in order to have its shares redeemed.
(d) Shares of Convertible Preferred Stock which have been issued and reacquired
in any manner, including shares purchased or redeemed, shall (upon compliance
with any applicable provisions of the laws of the State of Delaware) have the
status of authorized and unissued shares of the Preferred Stock undesignated as
to series and may be redesignated and reissued as part of any series of
Preferred Stock; provided, however, that no such issued and reacquired shares of
such series shall be reissued or sold as shares of Convertible Preferred Stock
unless reissued as a stock dividend on outstanding shares of Convertible
Preferred Stock.
(e) Notwithstanding the foregoing provisions of paragraph 6(a) hereof, unless
the full cumulative dividends on all outstanding shares of Convertible Preferred
Stock shall have been paid or contemporaneously are declared and paid for all
past dividend periods, none of the shares of Convertible Preferred Stock shall
be redeemed pursuant to paragraph 6(a) hereof unless all outstanding shares of
Convertible Preferred Stock are simultaneously redeemed.
(f) Notice of every redemption of shares of Convertible Preferred Stock shall be
mailed by first class mail, postage prepaid, and mailed not less than 30 days
nor more than 60 days prior to the redemption date addressed to the holders of
record of the shares to be redeemed at their respective last addresses as they
shall appear on the books of the Corporation; provided, however, that no failure
to give such notice or any defect therein or in the mailing thereof shall affect
the validity of the proceeding for the redemption of any shares so to be
redeemed except as to the holder to whom the Corporation has failed to give such
notice or except as to the holder to whom notice was defective.
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Each such notice shall state: (i) the redemption date; (ii) the total number of
shares of Convertible Preferred Stock to be redeemed and, if less than all the
shares held by such holder are to be redeemed, the number of shares of such
holder to be redeemed; (iii) the redemption price; (iv) the place or places
where certificates for such shares are to be surrendered for payment of the
redemption price; and (v) that dividends on the shares to be redeemed will cease
to accrue on such redemption date.
(g) Notice having been mailed as aforesaid and provided that on or before the
redemption date specified in such notice all funds necessary for such redemption
shall have been set aside by the Corporation, separate and apart from its other
funds, in trust for the pro rata benefit of the holders of the shares so called
for redemption so as to be and to continue to be available therefor, then, from
and after the redemption date, dividends on the shares of Convertible Preferred
Stock so called for redemption shall cease to accrue, and said shares shall no
longer be deemed to be outstanding and shall not have the status of shares of
Convertible Preferred Stock, and all rights of the holders thereof as
stockholders of the Corporation (except the right to receive from the
Corporation the redemption price and all dividends accrued and unpaid to the
date fixed for redemption) shall cease. Upon surrender in accordance with said
notice of the certificates for any shares so redeemed (properly endorsed or
assigned for transfer, if the Board shall so require and the notice shall so
state), such shares shall be redeemed by the Corporation at the redemption price
aforesaid. In case fewer than all the shares represented by any such certificate
are redeemed, a new certificate or certificates shall be issued representing the
unredeemed shares without cost to the holder thereof.
(h) If such notice of redemption shall have been duly given and if, prior to the
redemption date, the Corporation shall have irrevocably deposited the funds
sufficient for the redemption with a bank or trust company in trust for the pro
rata benefit of the holders of the shares called for redemption, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, from and after the time of such
deposit, all prohibitions on the Corporation set forth herein shall terminate,
holders of the shares of Convertible Preferred Stock called for redemption shall
cease to be stockholders with respect to such shares and thereafter such shares
shall no longer be transferable on the books of the Corporation and such holders
shall have no interest in or claim against the Corporation with respect to such
shares (including dividends thereon accrued after such redemption date) except
the right to receive payment of the redemption price (including all dividends
accrued and unpaid to the date for redemption) upon surrender of their
certificates. Any funds deposited and unclaimed at the end of one year and
eleven months from the date fixed for redemption shall be repaid to the
Corporation upon its request, after which repayment the holders of shares called
for redemption shall look only to the Corporation for payment of the redemption
price.
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The aforesaid bank or trust company shall be organized and in good
standing under the laws of the United States of America, or any state thereof,
shall have capital, surplus and undivided profits aggregating at least
$100,000,000 according to its last published statement of condition, and shall
be identified in the notice of redemption. Any interest accrued on such funds
shall be paid to the Corporation from time to time.
7. Voting Rights. (a) Except as otherwise provided in this paragraph 7 or as
otherwise from time to time provided by law, the holders of shares of
Convertible Preferred Stock shall have no voting rights and all voting rights in
the Corporation shall be vested exclusively in the holders of the Common Stock
of the Corporation.
(b) (i) If and whenever six full quarterly dividends (whether or not
consecutive) payable on shares of Convertible Preferred Stock shall be in
arrears in whole or in part (whether or not earned or declared) or if the
Corporation shall have failed to fulfill any redemption obligation with respect
to the Convertible Preferred Stock and such failure shall continue for a period
of 30 days, in addition to any other legal or equitable remedy available to any
Holder, the number of directors then constituting the Board of the Corporation
shall be increased by one director and the holders of the then outstanding
shares of the Convertible Preferred Stock shall be entitled to elect one
director at any annual meeting of stockholders or special meeting held in place
thereof, or at a special meeting of the holders of such shares of Convertible
Preferred Stock called as hereinafter provided.
(ii) Whenever such voting right shall have vested, such right may be exercised
initially either at a special meeting of the holders of the Convertible
Preferred Stock, called as hereinafter provided, or at any annual meeting of
stockholders held for the purpose of electing directors, and thereafter at such
annual meeting or by the written consent of the holders of Convertible Preferred
Stock pursuant to Section 228 of the Delaware General Corporation Law. Such
voting right of the Convertible Preferred Stock shall continue until such time
as (A) all dividends accumulated on the Convertible Preferred Stock shall have
been paid in full and (B) the Corporation has fulfilled all redemption
obligations with respect to such series to the extent such obligations have
matured, at which time such voting right of the holders of the Convertible
Preferred Stock shall terminate, subject to revesting in the event of each and
every subsequent failure of the Corporation for the requisite period of time
fully to pay dividends or to discharge its redemption obligations, as described
above.
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(iii) At any time after such voting power shall have been so vested in shares of
Convertible Preferred Stock and such right shall not already have been initially
exercised, a proper officer of the Corporation may, and upon the written request
of any holder of shares the Convertible Preferred Stock (addressed to the
Secretary at the principal office of the Corporation) shall, call a special
meeting of the holders of shares of the Convertible Preferred Stock for the
election of the one director to be elected by them as herein provided, such call
to be made by notice similar to that provided in the by-laws of the Corporation
for a special meeting of the stockholders or as required by law.
Such meeting shall be held at the earliest practicable date upon the notice
required for annual meetings of stockholders at the place for holding annual
meetings of stockholders of the Corporation or if none, at a place designated by
the Secretary of the Corporation. If such meeting shall not be called by the
proper officers of the Corporation within 30 days after the personal service of
such written request upon the Secretary of the Corporation, or within 30 days
after mailing the same within the United States by registered mail, addressed to
the Secretary of the Corporation at its principal office (such mailing to be
evidenced by the registry receipt issued by the postal authorities), then the
holders of record of 10% of the shares of the Convertible Preferred Stock then
outstanding may designate in writing a holder of the Convertible Preferred Stock
to call such meeting at the expense of the Corporation, and such meeting may be
called by such person so designated upon the notice required for annual meetings
of stockholders and shall be held at the same place as is elsewhere provided in
this paragraph (7)(b)(iii) or at such other place as is selected by such person
so designated. Any holder of Convertible Preferred Stock which would be entitled
to vote at any such meeting shall have access to the stockholders of the
Corporation for the purpose of causing a meeting of stockholders to be called
pursuant to the provisions of this paragraph. Notwithstanding the provisions of
this paragraph, however, no such special meeting shall be called during a period
within 90 days immediately preceding the date fixed for the next annual meeting
of stockholders.
(iv) At any meeting held for the purpose of electing directors at which the
holders of Convertible Preferred Stock shall have the right to elect a director
as provided herein, the presence in person, or by proxy of the holders of the
lesser of (A) a majority of the then outstanding shares of the Convertible
Preferred Stock or (B) a percentage of the then outstanding shares of the
Convertible Preferred Stock, which percentage is equal to the percentage of the
then outstanding shares of Common Stock
<PAGE>
then required to constitute a quorum for the election of directors by holders of
Common Stock, shall be required and be sufficient to constitute a quorum of the
series for the election of directors by such series. The director to be elected
by the holders of Convertible Preferred Stock pursuant to this paragraph 7 shall
be elected by the affirmative vote of the holders of a majority of the then
outstanding shares of Convertible Preferred Stock. At any such meeting or
adjournment thereof (x) the absence of a quorum of the holders of the
Convertible Preferred Stock shall not prevent the election of directors other
than the director to be elected by the holders of Convertible Preferred Stock
and the absence of a quorum or quorums of the holders of capital stock entitled
to elect such other directors shall not prevent the election of directors to be
elected by the holders of the Convertible Preferred Stock and (y) in the absence
of a quorum of the holders of any class or series of stock entitled to vote for
the election of directors, a majority of the holders present in person or by
proxy of such series shall have the power to adjourn the meeting for the
election of directors which the holders of such series are entitled to elect,
from time to time, without notice (except as required by law) other than
announcement at the meeting, until a quorum shall be present.
(v) The term of office of all directors elected by the holders of Convertible
Preferred Stock pursuant to paragraph (7)(b)(i) hereof in office at any time
when the aforesaid voting rights are vested in the holders of Convertible
Preferred Stock shall terminate in one year or upon the election of their
successors at any meeting of stockholders for the purpose of electing directors,
if later. Upon any termination of the aforesaid voting rights in accordance with
paragraph (7)(b)(ii) hereof, the term of office of all directors elected by the
holders of Convertible Preferred Stock pursuant to paragraph (7)(b)(i) hereof
then in office thereupon shall terminate and upon such termination the number of
directors constituting the Board shall, without further action, be reduced by,
the number of directors elected by the holders of Convertible Preferred Stock,
subject always to the increase of the number of directors pursuant to paragraph
(7)(b)(i) hereof in case of the future right of the holders of Convertible
Preferred Stock to elect a director as provided herein.
(vi) In case of any vacancy occurring among the directors so elected, the
holders of the Convertible Preferred Stock then outstanding may, at a special
meeting of the respective holders called as provided above, elect a successor to
hold office for the unexpired term of the director whose place shall be vacant.
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(c) In addition to any vote or consent of stockholders required by law or the
Certificate of Incorporation, the consent of the holders of at least a majority
of the shares of Convertible Preferred Stock at the time outstanding, given in
person or by proxy, either in writing without a meeting or by vote at any
meeting called for the purpose, shall be necessary for effecting or validating:
(i) Any amendment, alteration or repeal of any of the provisions of the
Certificate of Incorporation, or of the by-laws of the Corporation, which
affects adversely the voting powers, rights or preferences of the holders of
shares of the Convertible Preferred Stock, provided, that the amendment of the
provisions of the Certificate of Incorporation so as to authorize or create, or
to increase the authorized amount of, any of the Corporations Junior
Securities, shall not be deemed to affect adversely the powers, rights or
preferences of the holders of shares of Convertible Preferred Stock; or
(ii) The authorization or creation of, or the increase in the authorized amount
of, any shares of any class or any security convertible into any Senior Security
or Parity Security, provided, however, that no such consent of the holders of
Convertible Preferred Stock shall be required if, at or prior to the time when
such amendment, alteration or repeal is to take effect or when the issuance of
any such Senior Security, Parity Security or convertible security is to be made,
as the case may be, provision is made for the redemption of all shares of
Convertible Preferred Stock at the time outstanding; or
(iii) The merger or consolidation of the Corporation in which the Corporation is
not the surviving entity, unless any arrearages in dividends are either cured or
preserved and the holders of Convertible Preferred Stock receive preferred stock
in the surviving entity with terms substantially identical to those of the
Convertible Preferred Stock.
(d) Subject to paragraphs 3, 4 and 7(c) hereof, none of (i) the creation,
authorization or issuance of any shares of any Junior Securities (provided that
the terms of such Junior Securities are not inconsistent, or in any way
conflict, with the terms of the Convertible Preferred Stock) or the creation,
authorization or issuance of any obligation or security convertible into or
evidencing the right to purchase any Junior Securities, (ii) the creation of any
indebtedness of any kind of the Corporation (other than indebtedness convertible
into any Senior Security or Parity Security), nor (iii) the increase or decrease
in the amount of authorized capital stock of any class, including the
Convertible Preferred Stock, or any increase, decrease or change in the par
value of any such class other than the Convertible Preferred Stock, shall be
deemed to alter, change or affect adversely the powers, preferences and special
rights of shares of Convertible Preferred Stock and may be effected without the
consent of the holders thereof.
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8. Conversion. (a) The holders of the Convertible Preferred Stock may, at the
option of the holder and upon surrender of the certificates therefor, convert
any or all of their outstanding shares of Convertible Preferred Stock into fully
paid and nonassessable shares of Common Stock at any time after December 15,
2000 and on or prior to the second day prior to a redemption date, if any, as
may have been fixed in any redemption notice with respect to such shares,
provided, however, that the holders of the Convertible Preferred Stock may
convert the Convertible Preferred Stock prior to December 15, 2000 if a Change
of Control has occurred and the Corporation has not elected to redeem the Notes
pursuant to paragraph 6(a) or the holders of the Convertible Preferred Stock are
not permitted to require the Corporation to purchase such holders' Convertible
Preferred Stock pursuant to paragraph 6(c), in each case, within 60 days after
the Change of Control. Each outstanding share of Convertible Preferred Stock
shall be convertible at the executive offices of the Corporation, and at such
other office or offices, if any, as the Board may designate, into the number of
fully paid and nonassessable shares of Common Stock (calculated as to each
conversion to the nearest 1/100th of a share) equal to $100 divided by the then
applicable Conversion Price (as defined below). At the option of the
Corporation, each outstanding share of Convertible Preferred Stock shall
automatically be converted into the number of fully paid and nonassessable
shares of Common Stock equal to $100 divided by the then applicable Conversion
Price when the Average Sales Prices Per Share for any 20 consecutive trading
days reaches a price of $3.75 per share (as adjusted for any stock dividends,
combinations or splits with respect to such shares).
In the event of any stock dividend, stock split, other distribution in shares of
Common Stock, reclassification, recapitalization, combination, or exchange of
shares with respect to Common Stock, the Conversion Price shall be adjusted such
that the outstanding shares of Convertible Preferred Stock shall be convertible
into such number of shares of Common Stock which the holder of shares of
Convertible Preferred Stock would have been entitled to receive had such holder
converted its shares of Convertible Preferred Stock into shares of Common Stock
immediately prior to the occurrence of such event or the record date in respect
thereof.
In the event the Corporation shall issue or sell shares of Common Stock, or
rights, options, warrants or convertible or exchangeable securities containing
the right to subscribe for, purchase or otherwise acquire shares of Common Stock
(each an "Issuance," but such term shall not include the issuance or sale of any
of the foregoing types of securities in connection with or under any employee
benefit plan or director share plan in effect from time to time or which are
outstanding prior to the Closing Date) at a consideration (the "Consideration")
<PAGE>
per share of Common Stock (determined, in the case of such rights, options,
warrants or convertible or exchangeable securities, by dividing (i) the
aggregate amount received or receivable by the Corporation in consideration of
the issuance or sale of such rights, options, warrants or convertible or
exchangeable securities, plus the total consideration payable to the Corporation
upon exercise, conversion or exchange thereof, by (ii) the total number of
shares of Common Stock covered by such rights, options, warrants or convertible
or exchangeable securities) that is lower than the Fair Value Price (as defined
below) the Conversion Price shall be adjusted by multiplying such Conversion
Price by the Antidilution Conversion Factor (as defined below).
Such adjustments shall be made successively whenever such an Issuance is made.
For the purposes of such adjustments, the shares of Common Stock which the
holder of any rights, options, warrants or convertible or exchangeable
securities received in an Issuance shall be entitled to subscribe for, purchase
or otherwise acquire shall be deemed to be issued and outstanding as of the date
of such Issuance and the consideration received by the Corporation therefor
shall be deemed to be the Consideration received by the Corporation for such
rights, options, warrants or convertible or exchangeable securities, plus the
consideration or premiums stated in such rights, options, warrants or
convertible or exchangeable securities to be paid for the shares of Common Stock
covered thereby. In the event the Corporation shall issue or sell shares of
Common Stock or options, warrants or convertible or exchangeable securities
containing the right to subscribe for, purchase or otherwise acquire shares of
Common Stock in an Issuance, for a consideration consisting, in whole or in
part, of property other than cash or its equivalent, then, in determining the
"price per share of Common Stock" and the "Consideration received by the
Corporation" for purposes of the first sentence of this paragraph, the Board
shall determine, in good faith, the fair value of the property. If any Issuance
results in an adjustment pursuant to this paragraph and the rights, options,
warrants or convertible or exchangeable securities to which such Issuance
related expire or mature without being exercised, converted or exchanged, then
the adjustment made as a result of such Issuance shall be reversed and be of no
effect.
In addition to the foregoing adjustments, the Board may make any other
adjustment to increase the number of shares of Common Stock of the Corporation
issuable upon conversion of shares of Convertible Preferred Stock as it may, in
good faith, deem desirable to protect the rights and benefits of holders of
Convertible Preferred Stock. Notwithstanding anything in this paragraph 8(a), no
change in the Conversion Factor shall be made unless the effect of such
adjustment would change the Conversion Factor by more than 1%.
<PAGE>
For purposes of this paragraph 8:
The "Antidilution Conversion Factor," as adjusted from time to time, shall be a
fraction, the numerator of which shall be the number of shares of Common Stock
outstanding immediately prior to the Issuance below the Fair Value Price plus
the number of shares of Common Stock which the aggregate consideration received
by the Corporation for such Issuance would purchase at the Fair Value Price in
effect immediately prior to such Issuance, and the denominator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Issuance plus the number of additional shares of Common Stock issued or issuable
pursuant to such Issuance. For the purpose of the above calculation, the number
of shares of Common Stock outstanding immediately prior to such Issuance shall
be calculated on a fully diluted basis, as if all shares of Convertible
Preferred Stock and all other convertible securities had been fully converted
into shares of Common Stock immediately prior to such Issuance and any warrants,
options or other rights for the purchase of shares of stock or convertible
securities had been fully exercised immediately prior to such Issuance (and the
resulting securities fully converted into shares of Common Stock, if so
convertible) as of such date, but not including in such calculation any shares
of Common Stock issuable with respect to shares of Convertible Preferred Stock,
convertible securities or outstanding warrants, options or other rights for the
purchase of shares of stock or convertible securities, solely as a result of the
adjustment of the respective Conversion Prices (or other conversion ratios)
resulting from the Issuance of the additional shares of Common Stock causing the
adjustment question.
The "Average Sale Price Per Share" shall mean, with respect to the Common Stock
of the Corporation, for any day, (i) the average of the high and low sales price
per share regular way on a national securities exchange, or (ii) if the Common
Stock is not listed on a national securities exchange, the average of the high
and low sale price per share regular way on The Nasdaq National Market, or (iii)
if the Common Stock is not quoted on The Nasdaq National Market or listed or
admitted to trading on any national securities exchange, the average of the high
and low sales prices in the over-the-counter market as furnished by any New York
Stock Exchange member firm selected from time to time by the Company for that
purpose.
The "Conversion Price," as adjusted from time to time, shall initially be the
greater of (i) $1.75 and (ii) the lesser of 115% of the average closing price of
the Common Stock for the 10 trading days immediately prior to the date of
issuance of the Convertible Preferred Stock and $2.25.
The "Fair Value Price" on any date shall be calculated by the Corporation and be
deemed to be the average of the daily Average Sales Prices Per Share for the
five consecutive trading days selected by the Company commencing not more than
10 trading days before, and ending not later than, the date of issuance, or if
<PAGE>
earlier the date of agreement to issue, with respect to the Issuance requiring
such computation.
(b) The right of the holders of Convertible Preferred Stock to convert their
shares shall be exercised by surrendering for such purpose to the Corporation,
as provided above, certificates representing shares to be converted, duly
endorsed in blank or accompanied by proper instruments of transfer. The
Corporation shall not, however, be required to pay any tax that may be payable
in respect of any transfer involved in the issue and delivery upon conversion of
shares of Common Stock or other securities or property in a name other than that
of the holder of the shares of the Convertible Preferred Stock being converted
and the Corporation shall not be required to issue or deliver any such shares or
other securities of property unless and until the person or persons requesting
the issuance thereof shall have paid to the Corporation the amount of any such
tax or shall have established to the satisfaction of the Corporation that such
tax has been paid.
The right of the Corporation to convert the shares of Convertible Preferred
Stock at its option shall be exercised by notice to the holders of the
Convertible Preferred Stock. Notice shall be mailed by first class mail, postage
prepaid, and addressed to the holders of record of the shares to be redeemed at
their respective last addresses as they shall appear on the books of the
Corporation; provided, however, that no failure to give such notice or any
defect therein or in the mailing thereof shall affect the validity of the
proceeding for the conversion of the shares.
(c) A number of shares of the authorized but unissued Common Stock sufficient to
provide for the conversion of the Convertible Preferred Stock outstanding upon
the basis hereinbefore provided shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion.
(d) In case of any consolidation or merger of the Corporation with any other
corporation (other than a Wholly Owned Subsidiary of the Corporation), or in
case of any sale or transfer of all or substantially all of the assets of the
Corporation, or in the case of any share exchange pursuant to which all of the
outstanding shares of Common Stock are converted into other securities or
property, the Corporation shall make appropriate provision or cause appropriate
provision to be made so that holders of each share of Convertible Preferred
Stock then outstanding shall have the right thereafter to convert such share of
Convertible Preferred Stock, at the option of such holder (i) into a share of
preferred stock of the surviving corporation of a consolidation or merger with
preferences, privileges, rights, qualification, limitations and restrictions
that are substantially identical to those set forth herein or (ii) into the kind
and amount of shares of stock and other securities and property receivable upon
such consolidation, merger, sale, transfer or share exchange by a holder of the
number of shares of Common Stock into which such share of Convertible Preferred
<PAGE>
Stock might have been converted immediately prior to the effective date of such
consolidation, merger, sale, transfer or share exchange. If in connection with
any such consolidation, merger, sale, transfer or share exchange, each holder of
shares of Common Stock is entitled to elect to receive either securities, cash
or other assets upon completion of such transaction, the Corporation shall
provide or cause to be provided to each holder of Convertible Preferred Stock
the right to elect the securities, cash or other assets into which the
Convertible Preferred Stock held by such holder shall be convertible after
completion of any such transaction on the same terms and subject to the same
conditions applicable to holders of the Common Stock (including, without
limitation, notice of the right to elect, limitations on the period in which
such election shall be made and the effect of failing to exercise the election).
The Corporation shall not effect any such transaction unless the provisions of
this paragraph have been complied with. The above provisions shall similarly
apply to successive consolidations, mergers, sales, transfers, or share
exchanges.
(e) Upon the surrender of certificates representing shares of Convertible
Preferred Stock, the person converting shall be deemed to be the holder of
record of the Common Stock issuable upon such conversion and all rights with
respect to the shares surrendered shall forthwith terminate except the right to
receive the Common Stock or other securities, cash or other assets as herein
provided.
(f) No fractional shares of Common Stock shall be issued upon conversion of
Convertible Preferred Stock but, in lieu of any fraction of a share of Common
Stock that would otherwise be issuable in respect of the aggregate number of
such shares surrendered for conversion at one time by the same holder, the
Corporation shall pay in cash an amount equal to the product of (i) the Fair
Value Price of a share of Common Stock on the last trading day before the
conversion date and (ii) such fraction of a share.
(g) Whenever the Conversion Price is adjusted, the Corporation will give notice
by mail stating the adjustment and the Conversion Price to the holder of record
Convertible Preferred Stock. Notwithstanding the foregoing notice provisions,
failure of the Corporation to give such notice or a defect in such notice shall
not affect the binding nature of such action of the Corporation.
<PAGE>
IN WITNESS WHEREOF, Merisel, Inc. has caused this Certificate to be signed by
its Chairman of the Board, Chief Executive Officer and President this ___ day of
_________, 2000.
MERISEL, INC.
By:___________________________
Name: Dwight A. Steffenson
Title: Chairman of the Board,
Chief Executive Officer
and President
