SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
JULY 10, 1996
Date of Report (Date of earliest event reported)
SBE, INC.
(Exact name of registrant as specified in its charter)
CALIFORNIA 0-8419 94-1517641
(State or other (Commission (I.R.S. Employer
jurisdiction of File Number) Identification No.)
incorporation)
4550 NORRIS CANYON ROAD, SAN RAMON, CALIFORNIA 94583-1369
(Address of principal executive offices)
(510) 355-2000
(Registrant's telephone number, including area code)
<PAGE>
ITEM 5. OTHER EVENTS.
On July 10, 1996, SBE, Inc. ("SBE") issued and sold 167 shares of its
Series A Preferred Stock ("Series A Preferred") for net proceeds of
approximately $1.1 million pursuant to the Subscription Agreement ("Agreement")
attached as Exhibit 99.1. The issuance of Series A Preferred was exempt,
pursuant to Regulation S promulgated under the Securities Act of 1933, as
amended (the "Act"), from registration requirements under the Act. The rights,
privileges, preferences and restrictions of the Series A Preferred are set
forth in the Certificate of Determination attached as Exhibit 99.2.
Each share of Series A Preferred is convertible into the number of
shares of Common Stock of SBE ("Common Stock") equal to $7,500 divided by the
Conversion Price. The applicable Conversion Price is the lesser of $6.675 and
75% of the average closing bid price of the Common Stock for the five
consecutive trading days immediately prior to conversion; PROVIDED, HOWEVER,
that the Series A Preferred, taken as a whole, may not at any time convert into
20% or more of the Company's outstanding Common Stock (measured on July 10,
1996 and on the date of conversion). The Series A Preferred will automatically
convert into Common Stock when the average closing bid price of the Common
Stock over a five trading day period is equal to or greater than $13.35. In
addition, all unconverted shares of Series A Preferred will be converted
automatically upon the earlier to occur of July 10, 1998 and the written
consent of the holders of two thirds of the then outstanding Series A
Preferred. Holders of Series A Preferred are also entitled to certain dividend
rights and liquidation preferences. The shares of Series A Preferred have no
voting rights.
In connection with the sale of the Series A Preferred, certain
affiliates of First Capital Partners, Inc., placement agent in this
transaction, received warrants to purchase an aggregate of 93,703 shares of
Common Stock with an exercise price of $8.25 per share.
Holders of Common Stock issued upon conversion of the Series A
Preferred or exercise of the warrants may, beginning August 19, 1996 and
subject to certain other restrictions and limitations, on one occasion require
SBE to register all or a portion of such Common Stock under the Act on Form S-
3.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits
99.1 Subscription Agreement
99.2 Certificate of Determination
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
SBE, INC.
August 29, 1996 By /s/ Timothy J. Repp
Timothy J. Repp
Chief Financial Officer
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INDEX TO EXHIBITS
EXHIBIT SEQUENTIALLY
NUMBERS DESCRIPTION NUMBERED PAGE
99.1 Subscription Agreement 5
99.2 Certificate of Determination 24
<PAGE>
EXHIBIT 99.1
SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is entered into as of
June 28, 1996 by and among SBE, INC., a California corporation (the "Company"),
the undersigned persons or entities (individually, "Investor" and collectively,
"Investors"), FIRST CAPITAL PARTNERS, INC. ("FCP"), CORETECH LTD. ("Coretech"),
and OVERSEAS CAPITAL FUNDING CORPORATION ("OCFC"). FCP, Coretech and OCFC are
sometimes referred to herein individually as "Distributor" and collectively as
"Distributors."
RECITALS
A. Investors desire to purchase shares of the Company's Series A
Preferred Stock ("Shares") on the terms and subject to the conditions set forth
in this Agreement.
B. The Company desires to issue and sell such Shares to Investors on the
terms and subject to the conditions set forth in this Agreement.
AGREEMENT
The parties hereto agree as follows:
1. SUBSCRIPTION; AUTHORIZATION.
1 SUBSCRIPTION. On the terms and subject to the conditions of this
Agreement, each Investor, severally and not jointly, hereby subscribes for and
commits to purchase the number of Shares set forth on such Investor's completed
Purchase Information Worksheet (a form of which is attached as EXHIBIT A) for a
purchase price of Seven Thousand Five Hundred Dollars ($7,500) per Share in
cash. The aggregate number of Shares sold hereunder may not exceed two hundred
(200). Upon acceptance by the Company, as indicated by its execution of this
Agreement, this Agreement will be a final and binding commitment by each
Investor to purchase the number of Shares specified in such Investor's
completed Purchase Information Worksheet; PROVIDED, HOWEVER, that if Closing
(as defined in Section 2.1) has not occurred on or before July 12, 1996 (other
than due to Investor's breach of this Agreement), Investor may rescind this
Agreement, whereupon this Agreement will be of no further force and effect.
2 AUTHORIZATION OF SHARES. On or prior to the Closing, the Company
will file with the California Secretary of State a Certificate of Determination
of the Company in the form attached hereto as EXHIBIT B, thereby authorizing
the issuance and sale of up to two hundred (200) Shares.
<PAGE>
2. CLOSING, DELIVERY AND PAYMENT.
1 CLOSING. The closing of the sale and purchase of the Shares pursuant
to this Agreement (the "Closing") will take place at 10:00 a.m. on July 2, 1996
at the offices of Cooley Godward Castro Huddleson & Tatum, One Maritime Plaza,
20th Floor, San Francisco, California 94111, or at such other time or place as
all of the conditions to closing specified herein or in the Escrow Agreement
attached as EXHIBIT C (the "Escrow Agreement") have been satisfied or waived
(the "Closing Date").
2 DELIVERY INTO ESCROW. On or prior to the Closing:
(a) the Company will deliver to Piper & Marbury L.L.P., as Escrow Agent
("Escrow Agent"), certificates representing the Shares to be issued and sold
pursuant to this Agreement, together with a certificate by the Company that the
Company's representations are true and correct as of the Closing Date
(collectively, the "Certificates"); and
(b) Each Investor will deliver to Escrow Agent wire transfer funds in the
amount of Seven Thousand Five Hundred Dollars ($7,500) for each Share to be
purchased (the "Purchase Price") by such Investor, and will deliver to the
Company a completed Purchase Information Worksheet in the form attached as
EXHIBIT A.
3 RELEASE FROM ESCROW. At the Closing, in accordance with the Escrow
Agreement attached as EXHIBIT C, Escrow Agent will deliver (a) to FCP, cash in
the amount of ten percent (10%) of the aggregate Purchase Price, less any fees
paid by FCP pursuant to the Escrow Agreement; (b) to the Company, cash in the
amount of ninety percent (90%) of the aggregate Purchase Price; and (c) to
Investors, the Certificates. Immediately thereafter, the Company will deliver
to each of Coretech and OCFC a warrant, substantially in the form attached as
EXHIBIT D, to purchase that number of shares of the Company's Common Stock
equal to twenty-five percent (25%) of the total number of shares of Common
Stock into which the Shares sold hereunder are convertible at the Closing
(collectively, the "Warrants").
3. INVESTOR REPRESENTATIONS AND WARRANTIES.
Each Investor hereby represents and warrants to the Company as set forth
in this Section 3. Such representations and warranties will survive the
Closing Date.
1 INVESTOR NOT A U.S. PERSON. Investor is not a U.S. person (a "U.S.
Person") as defined in Rule 902 of Regulation S promulgated under the United
States Securities Act of 1933, as amended (the "Act"). The Company's offer to
Investor of the opportunity to purchase has not been made to a person in the
United States. At the time the buy order on behalf of Investor was originated,
Investor was outside the United States.
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2 ACQUISITION FOR INVESTMENT. Investor is acquiring its Shares for
Investor's own account as principal, for investment purposes only, and not with
a view to, or for, resale, distribution, or fractionalization thereof, in whole
or in part. Investor is not acquiring its Shares for the account or benefit of
any other person, including but not limited to a U.S. Person.
3 INFORMATION REGARDING INVESTMENT. Investor acknowledges that it and
its attorney have been furnished with the following offering materials
(collectively, the "Offering Materials"): (a) risk factors pertaining to an
investment in the Company; (b) the Company's Quarterly Reports on Form 10-Q for
the quarters ended January 31, 1996 and April 30, 1996; (c) the Company's
Annual Report on Form 10-K for the year ended October 31, 1995; (d) the
Company's 1995 Annual Report to Shareholders; and (e) the Proxy Statement
relating to the Company's 1996 Annual Meeting of Shareholders. Investor has
carefully read the Offering Materials and understands and has evaluated the
risks of a purchase of Shares and the shares of Common Stock issuable upon
conversion thereof (the "Conversion Shares") and has relied solely and
exclusively on such information. Investor has been given the opportunity to
ask questions of, and receive answers from the Company concerning, the terms
and conditions of the offering contemplated by this Agreement and other matters
pertaining to this investment and has been given the opportunity to obtain such
additional information necessary to verify the accuracy of the information
provided herewith in order for Investor to evaluate the merits and risks of a
purchase of Shares and Conversion Shares to the extent that the Company
possesses such information or can acquire it without unreasonable effort or
expense, and has not been furnished any offering literature or prospectus
except as mentioned herein. Investor has not been furnished with any oral or
written representation in connection with the offering contemplated by this
Agreement that is not contained in this Agreement or the Offering Materials.
4 CAPACITY TO PROTECT OWN INTERESTS. Investor has the capacity to
protect its own interests in purchasing the Shares and the Conversion Shares
and has determined that the Shares and the Conversion Shares are suitable
investments for Investor and that at this time Investor has no need for
liquidity of these investments and could bear a complete loss of these
investments. Investor acknowledges that (a) no United States Federal, state or
non-United States agency has passed upon the Shares and the Conversion Shares
or made any finding or determination as to the fairness of these investments;
and (b) there are substantial risks of loss incident to the purchase of the
Shares.
5 AUTHORIZATION. If Investor is a corporation, partnership, trust,
estate, employee benefit plan, governmental plan, governmental unit or other
entity, it is empowered, authorized and qualified to purchase Shares and to
acquire Conversion Shares, and the person signing this Agreement on behalf of
such entity has been duly authorized by such entity to do so.
6 NOT AFFILIATED WITH OTHER INVESTORS. Investor is not an "affiliate,"
as such term is defined in Rule 405 under the Act, of any other Investor.
<PAGE>
7 BINDING OBLIGATION. Upon execution and delivery, this Agreement will
be a valid and binding obligation of each Investor, enforceable in accordance
with its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (b) general principles of equity that
restrict the availability of equitable remedies; and (c) to the extent that the
enforceability of the indemnification provisions of Section 7.6 of this
Agreement may be limited by applicable laws.
4. DISTRIBUTOR REPRESENTATIONS AND WARRANTIES.
Each Distributor hereby represents and warrants to the Company as set
forth in this Section 4. Such representations and warranties will survive the
Closing Date.
1 ACQUISITION FOR INVESTMENT. Coretech and OCFC are each acquiring the
Warrants and the shares of Common Stock issuable upon exercise thereof (the
"Warrant Shares") for its own account as principal, for investment purposes
only, and not with a view to, or for, resale, distribution, or
fractionalization thereof, in whole or in part. Neither Coretech nor OCFC is
acquiring the Warrants or the Warrant Shares for the account or benefit of any
other person, including but not limited to a U.S. Person.
2 INFORMATION REGARDING INVESTMENT. Each of Coretech and OCFC has been
furnished with the Offering Materials. Each of Coretech and OCFC has carefully
read the Offering Materials and understands and has evaluated the risks of a
purchase of the Warrants and the Warrant Shares and has relied solely and
exclusively on such information. Each of Coretech and OCFC has been given the
opportunity to ask questions of, and receive answers from the Company
concerning, the terms and conditions of the offering contemplated by this
Agreement and other matters pertaining to this investment and has been given
the opportunity to obtain such additional information necessary to verify the
accuracy of the information provided herewith in order for Coretech and OCFC to
evaluate the merits and risks of a purchase of the Warrants and the Warrant
Shares to the extent that the Company possesses such information or can acquire
it without unreasonable effort or expense, and has not been furnished any
offering literature or prospectus except as mentioned herein. Neither Coretech
nor OCFC has been furnished with any oral or written representation in
connection with the offering contemplated by this Agreement that is not
contained in this Agreement or the Offering Materials.
3 CAPACITY TO PROTECT OWN INTERESTS. Each of Coretech and OCFC has the
capacity to protect its own interests in acquiring the Warrants and the Warrant
Shares and has determined that the Warrants and the Warrant Shares are suitable
investments for Coretech and OCFC, respectively and that at this time neither
Coretech nor OCFC has a need for liquidity of these investments and each of
them could bear a complete loss of these investments. Each Distributor
acknowledges that (a) no United States Federal, state or non-United States
agency has passed upon the Warrants and the Warrant Shares or made any finding
or determination as to the fairness of these investments; and (b) there are
substantial risks of loss incident to the purchase of the Warrants and the
Warrant Shares.
<PAGE>
4 AUTHORIZATION. Each of Coretech and OCFC is empowered, authorized
and qualified to acquire the Warrants and the Warrant Shares. Each person
signing this Agreement on behalf of a Distributor has been duly authorized by
such Distributor's Board of Directors to do so.
5 BINDING OBLIGATION. Upon execution and delivery, this Agreement will
be a valid and binding obligation of each Distributor, enforceable in
accordance with its terms, except (a) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium or other laws of general application
affecting enforcement of creditors' rights; (b) general principles of equity
that restrict the availability of equitable remedies; and (c) to the extent
that the enforceability of the indemnification provisions of Section 7.6 of
this Agreement may be limited by applicable laws.
6 NO DIRECTED SELLING EFFORTS. No Distributor has made any "directed
selling efforts," as such term is defined in Rule 902(b) under the Act, in the
United States in connection with the transactions contemplated by this
Agreement.
5. COMPANY REPRESENTATIONS, WARRANTIES AND AGREEMENTS.
The Company hereby represents and warrants to each Investor as set forth
in this Section 5. Such representations and warranties will survive the
Closing Date.
1 GOOD STANDING. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of California. The
Company is duly qualified, is authorized to do business and is in good standing
as a foreign corporation in all jurisdictions in which the nature of its
activities and of its properties makes such qualification necessary, except
those jurisdictions in which failure to do so would not have a material adverse
effect on the Company or its business.
2 AUTHORIZATION. The Company presently has full legal right, power and
capacity and has obtained all necessary consents, approvals and authorizations,
whether corporate, shareholder, governmental or otherwise, as may be required
to execute and deliver this Agreement, and to issue and deliver the Shares and
the Conversion Shares pursuant hereto in the manner contemplated hereby.
3 SHARES FULLY-PAID, NON-ASSESSABLE, ETC. The Shares and the
Conversion Shares when delivered, will be duly and validly authorized and
issued, fully-paid and non-assessable and free and clear of any and all liens,
charges, restrictions (except as may be imposed by United States Federal and
state securities laws), claims and encumbrances and will not submit the holders
thereof to any liability by reason of holding such securities. The Company has
reserved and will continue to reserve enough shares of Common Stock to permit
the conversion of the Shares into Conversion Shares.
<PAGE>
4 NO CONFLICTS. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby do not and will not
conflict with or result in a breach by the Company of any of the terms or
provisions of, or constitute a default under, the articles of incorporation or
bylaws of the Company or any statute, law, regulation or agreement applicable
to the Company or its assets, except where said violation would not have a
material adverse effect on the Company or its business.
5 NO MISSTATEMENTS, ETC.
(a) This Agreement and the Offering Materials, when taken together,
neither contain an untrue statement of a material fact nor omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
(b) Since June 30, 1995 to the date hereof, the Company has filed its
annual reports on Form 10-K, quarterly reports on Form 10-Q and definitive
proxy statements with respect to its annual meetings of shareholders
(collectively, the "SEC Documents") with the United States Securities and
Exchange Commission (the "SEC"). The SEC Documents are the only documents
(other than preliminary materials) that the Company has been required to file
with the SEC since such date. As of their respective dates, none of the SEC
Documents contained any untrue statement of a material fact or omitted to state
a material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and no material event has occurred since the filing of the
Company's Report on Form 10-Q for the quarter ended April 30, 1996 that could
make any of the disclosures contained therein misleading. The financial
statements of the Company included in the SEC Documents have been prepared in
accordance with generally accepted accounting principles applied on a
consistent basis during the periods involved (except as may be indicated in the
notes thereto or, in the case of unaudited financial statements, as may be
permitted by Form 10-Q) and such statements, together with the notes thereto,
fairly present (subject in the case of unaudited financial statements, only to
normal recurring year-end audit adjustments) the consolidated financial
position of the Company and its consolidated subsidiaries as at the dates
thereof and the consolidated results of their operations and changes in
financial position for the periods then ended.
6 OFFERING VALID. Assuming the accuracy of the representations and
warranties of each Investor in Section 3 and the accuracy of the
representations and warranties of each Distributor in Section 4.6, the offer,
sale and issuance of the Shares and the Conversion Shares will be exempt from
the registration requirements of the Act pursuant to Regulation S thereof and
will have been registered or qualified (or are exempt from registration and
qualification) under the registration, permit or qualification requirements of
all applicable state securities laws. The Company is a "reporting issuer," as
such term is defined in Rule 902(l) under the Act.
<PAGE>
7 BINDING OBLIGATION. Upon execution and delivery, this Agreement will
be a valid and binding obligation of the Company, enforceable in accordance
with its terms except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application affecting
enforcement of creditors' rights; (b) general principles of equity that
restrict the availability of equitable remedies; and (c) to the extent that the
enforceability of the indemnification provisions of Section 7.6 of this
Agreement may be limited by applicable laws.
6. CONDITIONS TO CLOSING.
1 CONDITIONS TO INVESTORS' OBLIGATIONS AT CLOSING. Each Investor's
obligation to purchase its Shares at the Closing is subject to the
satisfaction, at or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE; PERFORMANCE OF OBLIGATIONS. The
representations and warranties made by the Company in Section 5 will be true
and correct in all material respects as of the Closing Date with the same force
and effect as if they had been made as of the Closing Date, and the Company
will have performed all obligations and conditions herein required to be
performed or observed by it on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance of the
Shares will be legally permitted by all laws and regulations to which the
Investor and the Company are subject.
(c) INSTRUCTIONS TO TRANSFER AGENT. On or before the Closing Date, the
Company and the transfer agents for its Common Stock and Series A Preferred
Stock will have entered into Irrevocable Instructions in the form attached
hereto as EXHIBIT E (the "Instructions").
2 CONDITIONS TO OBLIGATIONS OF THE COMPANY AT CLOSING. The Company's
obligation to issue and sell the Shares at the Closing is subject to the
satisfaction, on or prior to the Closing, of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES TRUE. The representations and
warranties made by Investors in Section 3 and by Distributors in Section 4 will
be true and correct in all material respects as of the Closing Date with the
same force and effect as if they had been made on and as of said date, and
Investor will have performed all obligations and conditions herein required to
be performed or observed by them on or prior to the Closing.
(b) LEGAL INVESTMENT. On the Closing Date, the sale and issuance of the
Shares will be legally permitted by all laws and regulations to which Investor
and the Company are subject.
<PAGE>
7. ADDITIONAL AGREEMENTS.
1 SALES DURING RESTRICTED PERIOD. During the forty (40) day period
commencing on the Closing Date (the "Restricted Period"), none of the Investors
or Distributors will sell or otherwise transfer any of the Shares or the
Conversion Shares or any portion thereof, or engage in any short sale or other
hedging transactions (such as option writing, equity swaps or other types of
derivative transactions) involving securities of the Company, in the United
States or to any U.S. Person, and Investors and Distributors acknowledge all
certificates evidencing the Shares and the Conversion Shares will bear a legend
referencing the restriction described in this Section 7.1.
2 INVESTOR SALES AFTER RESTRICTED PERIOD. Following the conclusion of
the forty (40) day period commencing on the Closing Date, Investors will not
sell or otherwise transfer any of the Shares, or the Conversion Shares or any
portion thereof without registration under the Act or an exemption therefrom.
Investors acknowledge that the Shares and the Conversion Shares have not been
registered under the Act, under the securities laws of any of the United
States, or under the laws of any non-United States jurisdictions and,
therefore, cannot be resold, pledged, assigned or otherwise disposed of unless
they are subsequently registered under the Act and under the applicable
securities laws of such states and non-United States jurisdictions or an
exemption from such registration is available.
3 DISTRIBUTOR SALES. No Distributor will sell or otherwise transfer
the Warrants or the Warrant Shares or any portion thereof without registration
under the Act or an exemption therefrom. Each Distributor acknowledges that
the Warrants and the Warrant Shares have not been registered under the Act,
under the securities laws of any of the United States, or under the laws of any
non-United States jurisdictions and, therefore, cannot be resold, pledged,
assigned or otherwise disposed of unless they are subsequently registered under
the Act and under the applicable securities laws of such states and non-United
States jurisdictions or an exemption from such registration is available.
4 MULTIPLE SUBSCRIPTIONS. In the event that multiple subscriptions for
Shares are accepted by the Company, each subscription will be deemed to be a
separate offering under Regulation S under the Act and the Restricted Period
will begin for each transaction separately on the date full payment is made to
the Company for the Shares sold in such transaction.
5 LEGENDS.
(a) The certificates representing the Shares and the Conversion Shares
will bear the following restrictive legend until the expiration of the
Restricted Period:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ISSUED PURSUANT
TO REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT. THESE SECURITIES MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR
TO U.S. PERSONS (AS DEFINED IN REGULATION S UNDER THE SECURITIES ACT)
UNTIL AFTER AUGUST 19, 1996 [THE 40TH DAY FOLLOWING COMPLETION OF THE
OFFERING]. AFTER SUCH DATE, THIS LEGEND SHALL HAVE NO FURTHER EFFECT."
<PAGE>
(b) The certificates representing the Warrants and the Warrant Shares
will bear the following restrictive legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND
MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR
HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE SECURITIES ACT OR
UNLESS AN EXEMPTION THEREFROM IS AVAILABLE."
"THESE SECURITIES HAVE BEEN ISSUED OR SOLD IN RELIANCE ON PARAGRAPH (13)
OF CODE SECTION 10-5-9 OF THE 'GEORGIA SECURITIES ACT OF 1973,' AND MAY
NOT BE SOLD OR TRANSFERRED EXCEPT IN A TRANSACTION THAT IS EXEMPT UNDER
SUCH ACT OR PURSUANT TO AN EFFECTIVE REGISTRATION UNDER SUCH ACT."
(c) The Company agrees to accept an officer's certificate and
representation letter from each Investor in the forms attached as Exhibit A and
Exhibit B, respectively, to the Instructions as sole and sufficient evidence
that such Investor has complied with applicable securities laws and upon
receipt of such letter will promptly instruct the transfer agent for the Shares
or the Conversion Shares, as applicable, to transfer the Shares or Conversion
Shares, as applicable, as requested by such Investor. The Company will use its
best efforts to cause the applicable transfer agent to effect such transfer as
expeditiously as practicable after receipt of the certificate(s) representing
the Shares or the Conversion Shares, as the case may be, the officer's
certificate and the representation letter; PROVIDED, HOWEVER, that the Company
will not be required to cause such transfer to be made if it knows, or
reasonably believes, any of the representations made in the officer's
certificate or representation letter is false.
6 REGISTRATION RIGHTS.
(a) DEFINITIONS. As used in this Section 7.6:
(1) "Exchange Act" means the Securities Exchange Act of 1934, as amended.
(2) "Form S-3" means such form under the Securities Act as in effect on
the date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC that permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(3) "Holder" means any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 7.6(h) hereof.
<PAGE>
(4) "Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with
the Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
(5) "Registrable Securities" means (1) Common Stock of the Company issued
or issuable upon conversion of the Shares or exercise of the Warrants; and (2)
any Common Stock of the Company issued (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued) as a dividend
or other distribution with respect to, or in exchange for or in replacement of,
such securities. Notwithstanding the foregoing, Registrable Securities will
not include any securities sold by a person to the public either pursuant to a
registration statement or Rule 144 or sold in a private transaction in which
the transferor's rights under this Section 7.6 are not assigned.
(6) "Registration Expenses" means all expenses incurred by the Company in
complying with this Section 7.6 including, without limitation, all registration
and filing fees, printing expenses, blue sky fees and expenses and the expense
of any special audits or accountant's consents incident to or required by any
such registration (but excluding the compensation of regular employees of the
Company, which will be paid by the Company in any event).
(7) "Selling Expenses" means, with respect to a sale of securities, all
underwriting discounts and selling commissions applicable to such sale.
(b) In case the Company receives from any Holder or Holders after the
Restricted Period a written request or requests that the Company effect a
registration on Form S-3 (or any successor to Form S-3) or any similar short-
form registration statement and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(1) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities; and
(2) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
PROVIDED, HOWEVER, that the Company will not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 7.6(b):
<PAGE>
(A) if Form S-3 (or any successor or similar form) is not available for
such offering by the Holders;
(B) if the Holders, together with the holders of any other securities of
the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than Three Hundred Fifty Thousand Dollars ($350,000);
(C) if the Company furnishes to the Holders a certificate signed by the
Chairman of the Board of Directors of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 registration
to be effected at such time, in which event the Company will have the right to
defer the filing of the Form S-3 registration statement for a period of not
more than ninety (90) days after the date on which the Company would otherwise
be required to file a registration statement pursuant to Section 7.6(b)(3);
PROVIDED, HOWEVER, that such right to delay a request will be exercised by the
Company not more than once in any one-year period;
(D) if the Company has already effected one (1) registration on Form S-3
for the Holders pursuant to this Section 7.6(b); or
(E) in any particular jurisdiction in which the Company would be required
to qualify to do business or to execute a general consent to service of process
in effecting such registration, qualification or compliance.
(3) Subject to the foregoing, the Company will file a Form S-3
registration statement covering the Registrable Securities and other securities
so requested to be registered within ninety (90) days after receipt of the
request or requests of the Holders.
(c) Except as specifically provided herein, all Registration Expenses
incurred in connection with a registration pursuant to this Section 7.6 will be
borne by the Company. All Selling Expenses incurred in connection with any
registrations hereunder will be borne by the holders of the securities so
registered pro rata on the basis of the number of shares so registered. The
Company will not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 7.6, the request of which has been
subsequently withdrawn by the Holders unless (a) the withdrawal is based upon
material adverse information concerning the Company of which the Holders were
not aware at the time of such request or (b) the Holders of a majority of
Registrable Securities agree to forfeit their right to the requested
registration pursuant to Section 7.6, in which event such right will be
forfeited by all Holders. If the Holders are required to pay the Registration
Expenses, such expenses will be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to the
number of shares for which registration was requested.
<PAGE>
(d) Whenever required to effect the registration of any Registrable
Securities, the Company will, as expeditiously as reasonably possible:
(1) Prepare and file with the SEC a registration statement with respect
to such Registrable Securities and use all reasonable efforts to cause such
registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for up to one hundred eighty (180) days
or, if earlier, until the participating Holder or Holders have completed the
distribution related thereto.
(2) Prepare and file with the SEC such amendments and supplements to such
registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by
such registration statement.
(3) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned by them.
(4) Use its best efforts to register and qualify the securities covered
by such registration statement under such other securities or Blue Sky laws of
such jurisdictions as will be reasonably requested by the Holders, provided
that the Company will not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.
(5) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting will also enter into and perform its
obligations under such an agreement.
(6) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
<PAGE>
(7) Furnish, at the request of the Holders of a majority of the
Registrable Securities being registered, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (A) an opinion, dated as of such date, of
counsel to the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to the Holders of a majority of the
Registrable Securities being registered, addressed to the underwriters, if any,
and to the Holders requesting registration of Registrable Securities and (B) a
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering
and reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
(e) All registration rights granted under this Section 7.6 will terminate
and be of no further force and effect three (3) years after the Closing Date.
In addition, a Holder's registration rights will expire if all Registrable
Securities held by such Holder may be sold under Rule 144 during any ninety-one
(91) day period.
(f)(1) No Holder will have any right to obtain or seek an injunction
restraining or otherwise delaying any such registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 7.6.
(1) It will be a condition precedent to the obligations of the Company to
take any action pursuant to Section 7.6 that the selling Holders will furnish
to the Company such information regarding themselves, the Registrable
Securities held by them and the intended method of disposition of such
securities as will be reasonably required to effect the registration of their
Registrable Securities.
(g) In the event any Registrable Securities are included in a
registration statement under Section 7.6:
<PAGE>
(1) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the partners, officers, directors, affiliates and legal
counsel of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Exchange Act, against any
losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any of the following
statements, omissions or violations (collectively a "Violation") by the
Company: (A) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (B) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (C) any violation or alleged violation by
the Company of the Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities Act, the Exchange
Act or any state securities law in connection with the offering covered by such
registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability or action; PROVIDED,
HOWEVER, that the indemnity agreement contained in this Section 7.6(g)(1) will
not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company, which consent will not be unreasonably withheld, nor will the Company
be liable in any such case for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation that
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by such Holder, partner,
officer, director, underwriter or controlling person of such Holder.
(2) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration is being effected, severally and not jointly, indemnify and hold
harmless the Company and each of its directors, officers, affiliates and legal
counsel and each person, if any, who controls the Company within the meaning of
the Securities Act, any underwriter and any other Holder selling securities
under such registration statement or any of such other Holder's partners,
directors or officers or any person who controls such Holder, against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, controlling person, underwriter or other Holder,
or partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; PROVIDED, HOWEVER, that the indemnity agreement contained in this
Section 7.6(g)(2) will not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent will not be unreasonably withheld;
PROVIDED FURTHER, that in no event will any indemnity under this Section 7.6(g)
exceed the proceeds from the offering received by such Holder.
<PAGE>
(3) Promptly after receipt by an indemnified party under this Section
7.6(g) of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 7.6(g), deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party will have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; PROVIDED, HOWEVER, that an indemnified party will
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if materially prejudicial to its ability to
defend such action, will relieve such indemnifying party of any liability to
the indemnified party under this Section 7.6(g), but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
7.6(g).
(4) If the indemnification provided for in this Section 7.6(g) is held by
a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any losses, claims, damages or liabilities referred to herein,
the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, will to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party will be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission; PROVIDED, that in no event will any contribution by
a Holder hereunder exceed the proceeds from the offering received by such
Holder.
(5) The obligations of the Company and Holders under this Section 7.6(g)
will survive completion of any offering of Registrable Securities in a
registration statement. No indemnifying party, in the defense of any such
claim or litigation, will, except with the consent of each indemnified party,
consent to entry of any judgment or enter into any settlement that does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect
to such claim or litigation. In the event any offering of Registrable
Securities is underwritten, and the underwriting agreement provides for
indemnification and/or contribution by the Company and the Holders offering
securities thereunder, the indemnification and/or contribution obligations of
the Company and the Holders hereunder will in no event exceed the obligations
of the parties set forth in such underwriting agreement.
(h) The rights to cause the Company to register Registrable Securities
pursuant to this Section 7.6 may be assigned by a Holder to a transferee or
assignee of Registrable Securities that (1) is a subsidiary, parent, general
partner, limited partner or retired partner of a Holder, or (2) acquires at
least fifty thousand (50,000) shares of Registrable Securities (as adjusted for
stock splits and combinations); PROVIDED, HOWEVER, that (A) the transferor
will, within ten (10) days after such transfer, furnish to the Company written
notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned
and (B) such transferee will agree to be subject to all restrictions set forth
in this Agreement.
<PAGE>
(i) If requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, if any, each Holder will
not sell or otherwise transfer or dispose of any Shares or Common Stock (or
other securities) of the Company held by each such Holder (other than those
included in the registration) for a period specified by the representative of
the underwriters not to exceed ninety (90) days following the effective date of
a registration statement of the Company filed under the Securities Act. The
obligations described in this Section 7.6(i) will not apply to a registration
relating solely to employee benefit plans or a registration relating solely to
an SEC Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said ninety (90) day period.
(j) With a view to making available to the Holders the benefits of
certain rules and regulations of the SEC that may permit the sale of the
Registrable Securities to the public without registration, the Company agrees
to use its best efforts to:
(1) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities
to the general public;
(2) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(3) So long as a Holder owns any Registrable Securities, furnish to such
Holder forthwith upon request: a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report
of the Company; and such other reports and documents as a Holder may reasonably
request in availing itself of any rule or regulation of the SEC allowing it to
sell any such securities without registration.
8. MISCELLANEOUS.
1 NOTICES. Any notice required by the provisions of this Agreement
will be in writing and will be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then
on the next business day; (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
notices will be directed to the following persons and addresses:
<PAGE>
(A) To the Company:
SBE, Inc.
4550 Norris Canyon Road
San Ramon, California 94583-1389
Attention: Timothy J.Repp.
Telephone: (510) 355-7600
Fax: (510) 355-2020
with a copy to:
Cooley Godward Castro Huddleson & Tatum
One Maritime Plaza, 20th Floor
San Francisco, CA 94111-3580
Attention: Christopher A. Westover, Esq.
Telephone: (415) 693-2000
Fax: (415) 951-3699
(B) To an Investor: To the person and at the address set forth in the
completed Purchase Information Worksheet completed by an Investor, with a copy
to:
Piper & Marbury L.L.P.
1251 Avenue of the Americas
New York, NY 10020
Attention: Paul J. Pollock, Esq.
Telephone: (212) 835-6280
Facsimile: (212) 835-6001
(C) To any of the Distributors:
c/o First Capital Partners, Inc.
8279 Dunwoody Place
Atlanta, GA 30350
Attention: Joel Rosenberg
Telephone: (770) 518-6433
Facsimile: (770) 552-1064
2 COUNTERPARTS. This Agreement may be executed through the use of
separate signature pages or in any number of counterparts, and each of such
counterpart will, for all purposes, constitute one agreement binding on all the
parties, notwithstanding that all parties are not signatories to the same
counterpart.
<PAGE>
3 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, this
Agreement will be binding upon and inure to the benefit of the parties and
their heirs, executors, administrators, successors, legal representatives, and
assigns. Notwithstanding the foregoing, this Agreement is not transferable or
assignable by Investor except as may be provided specifically elsewhere in this
Agreement.
4 APPLICABLE LAW. This Agreement will be governed by and construed in
accordance with the laws of the State of California without regard to conflict
of laws principles.
5 ENTIRE AGREEMENT. This Agreement and the Exhibits hereto constitute
the full and entire understanding and agreement between the parties with regard
to the subjects hereof and no party will be liable or bound to any other in any
manner by any representations, warranties, covenants and agreements except as
specifically set forth herein and therein.
6 SEVERABILITY. In case any provision of the Agreement will be
invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions will not in any way be affected or impaired thereby.
7 AMENDMENT AND WAIVER.
(a) Except as otherwise specifically set forth in this Section 8.7, a
provision of this Agreement may be amended, modified or waived only upon the
written consent of the Company and holders of at least a majority of the Shares
(treated as if converted and including any Conversion Shares that have not been
sold to the public).
(b) Any provision of Section 7.6 may be amended, modified or waived only
upon the written consent of the Company and the holders of a majority of the
Registrable Securities.
8 EXPENSES. The Company will pay all costs and expenses that it
incurs, and FCP will pay all costs and expenses that it or Investors incur,
with respect to the negotiation, execution, delivery and performance of this
Agreement.
9 ATTORNEYS' FEES. In the event that any dispute between the parties
to this Agreement should result in litigation, the prevailing party in such
dispute will be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including, without limitation, such reasonable fees and
expenses of attorneys and accountants, which will include, without limitation,
all fees, costs and expenses of appeals.
<PAGE>
10 TITLES AND SUBTITLES. The titles of the sections and subsections of
the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
The parties hereto have executed this Agreement as of the date set forth
in the first paragraph hereof.
COMPANY: INVESTOR:
SBE, INC. INTERNATIONAL INDEXED SAVINGS
PORTFOLIO
By: /s/ Timothy J. Repp By: /s/ Larry Skolnick
Title: Chief Financial Officer Title:
DISTRIBUTORS:
FIRST CAPITAL PARTNERS, INC. MAXI YIELD PORTFOLIO LIMITED S.A.
By: /s/ Joel Rosenberg By: /s/ Larry Skolnick
Title: President Title:
CORETECH LTD. METALS & CHEMICALS INCORPORATED
By: /s/ Paul Knowles By: /s/ Larry Skolnick
Title: Director Title:
OVERSEAS CAPITAL FUNDING CORPORATION
By: /s/ Joel Rosenberg
Title:
<PAGE>
EXHIBIT 99.2
CERTIFICATE OF DETERMINATION
OF
SERIES A PREFERRED STOCK
OF
SBE, INC.
The undersigned, WILLIAM B. HEYE, JR. and TIMOTHY J. REPP, hereby certify
that:
9. They are the duly elected and acting President and Chief Financial
Officer, respectively, of SBE, Inc., a California corporation (the "Company").
10. Pursuant to authority given by said corporation's Articles of
Incorporation, the Board of Directors of said corporation has duly adopted the
following recitals and resolutions:
"WHEREAS, the Articles of Incorporation of this corporation provide for a
class of shares known as Preferred Stock, issuable from time to time in one or
more series; and
WHEREAS, the Board of Directors is authorized within the limitations and
restrictions stated in the Articles of Incorporation to determine or alter the
rights, preferences, privileges, and restrictions granted to or imposed upon
any wholly-unissued series of Preferred Stock, to fix the number of shares
constituting any such series, and to determine the designation thereof; and
WHEREAS, the Board of Directors of this corporation desires, pursuant to
its authority as aforesaid, to fix the terms of a new series of said Preferred
Stock, the number of shares constituting said series, and the designation of
said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes
and determines the designation of, the number of shares constituting, and the
rights, preferences, privileges, and restrictions relating to, said new series
of Preferred Stock as follows:
11. DESIGNATION.
Two hundred (200) shares of Preferred Stock are designated as "Series A
Preferred Stock" with the rights, preferences, privileges and restrictions
specified herein (the "Series A Preferred").
12. DIVIDEND RIGHTS.
The holders of outstanding shares of the Series A Preferred will be
entitled to receive dividends, in preference to any dividend on the Common
Stock, at the rate of six hundred dollars ($600) per share (as adjusted for
stock splits, recapitalizations and the like) per annum, for each share of
Series A Preferred held by them. Such dividends will be cumulative so that if
such dividends in respect of any previous or current annual dividend period, at
the annual rate specified above, have not been declared and a sum sufficient
for the payment thereof set apart and paid, the deficiency will first be fully
paid before any dividend or other distribution is paid on or declared and set
apart for the Common Stock. Such dividends will accrue on each share of
Series A Preferred from the Original Issue Date and will accrue from day to
day, whether or not declared. The Company will not be obligated to pay any
accumulation of dividends on any shares of Series A Preferred until the
liquidation, dissolution or winding up of the Company pursuant to Section 4
hereof, the conversion of such shares into Common Stock pursuant to Section 5
hereof, or the redemption of such shares pursuant to Section 6 hereof. The
holders of Series A Preferred will not be entitled to participate in any
dividends paid on the Common Stock.
<PAGE>
13. VOTING RIGHTS.
1 GENERAL. Except as required by law or by Section 3.2, the Series A
Preferred will have no voting rights.
2 SEPARATE VOTE OF SERIES A PREFERRED. In addition to any other vote
or consent required by law, the vote or written consent of the holders of more
than fifty percent (50%) of the outstanding Series A Preferred will be
necessary for effecting or validating the following actions:
(a) The creation of a new class of shares having rights, preferences and
privileges prior to or on a parity with the shares of Series A Preferred; or
(b) Any amendment to the Company's Articles of Incorporation or Bylaws
that would change the rights, preferences, privileges and restrictions of the
Series A Preferred.
14. LIQUIDATION RIGHTS.
1 LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, before any distribution or
payment is made to the holders of any Common Stock, the holders of the Series A
Preferred will be entitled to receive, for each share of Series A Preferred
held by them, one hundred fifty percent (150%) of the Fixed Conversion Price
for each share of Common Stock into which the Series A Preferred is then
convertible, as adjusted for stock splits, recapitalizations and the like, plus
any accrued or declared but unpaid dividends thereon (the "Liquidation
Preference").
2 DISTRIBUTION OF ASSETS TO COMMON STOCK. After the payment of the
Liquidation Preference to the holders of the Series A Preferred as set forth in
Section 4.1, the remaining assets will be distributed ratably to the holders of
the Common Stock.
3 ACQUISITIONS AND ASSET TRANSFERS DEEMED LIQUIDATIONS. The following
events will be considered a liquidation under this Section 4:
(a) any consolidation or merger of the Company with or into any other
corporation or other entity or person, or any other corporate reorganization,
in which the shareholders of the Company immediately prior to such
consolidation, merger or reorganization own less than fifty percent (50%) of
the Company's voting power immediately after such consolidation, merger or
reorganization, or any transaction or series of related transactions in which
in excess of fifty percent (50%) of the Company's voting power is transferred
to third parties who were not shareholders of the Company immediately prior to
the commencement of such transaction or series of transactions (an
"Acquisition"); and
<PAGE>
(b) a sale or series of sales or other disposition after which all or
substantially all of the assets of the Company are sold or otherwise disposed
of (an "Asset Transfer").
4 PRO RATA DISTRIBUTION IF ASSETS INSUFFICIENT. If, upon occurrence of
a liquidation, dissolution or winding up of the Company, the assets and funds
thus distributed among the holders of the Series A Preferred are insufficient
to permit the payment to such holders of the full Liquidation Preference, the
entire assets and funds of the Company legally available for distribution will
be distributed ratably among the holders of the Series A Preferred in
proportion to the Liquidation Preference, as provided for in this Section 4,
that each such holder is otherwise entitled to receive.
15. CONVERSION RIGHTS.
The holders of the Series A Preferred will have the following rights with
respect to the conversion of the Series A Preferred into shares of Common Stock
(the "Conversion Rights"):
1 OPTIONAL CONVERSION. Subject to and in compliance with the
provisions of this Section 5, any share of Series A Preferred may, at the
option of the holder, be converted at any time into fully-paid, nonassessable
shares of Common Stock determined in accordance with the Conversion Rate
provided in Section 5.3 (the "Conversion Rate").
2 AUTOMATIC CONVERSION. The Series A Preferred will automatically
convert into Common Stock, at the then-applicable Conversion Rate, on the first
day on which the average closing bid price of the Company's Common Stock for
the five (5) trading days preceding such day is equal to or greater than one
hundred fifty percent (150%) of the average closing bid price of the Company's
Common Stock for the five (5) trading days ending with the trading day
immediately prior to the Original Issue Date (as defined in Section 5.4). In
addition, any shares of Series A Preferred not previously converted into Common
Stock will be converted automatically into Common Stock, at the then-applicable
Conversion Rate, upon the earlier to occur of (a) the second anniversary of the
Original Issue Date; and (b) the written consent of the holders of two thirds
(_) of the outstanding Series A Preferred. Upon any such automatic conversion,
any accrued or declared and unpaid dividends will be paid in accordance with
the provisions of Section 5.5. Upon the occurrence of an event specified in
Section 5.2, the outstanding shares of Series A Preferred will be converted
automatically without any further action by the holders of such shares and
whether or not the certificates representing such shares are surrendered to the
Company or its transfer agent; PROVIDED, HOWEVER, that the Company will not be
obligated to issue certificates evidencing the shares of Common Stock issuable
upon such conversion unless the certificates evidencing such shares of Series A
Preferred are delivered either to the Company or its transfer agent as provided
in Section 5.5.
3 CONVERSION RATE. The Conversion Rate will be one share of Series A
Preferred for X shares of Common Stock, where X is Seven Thousand Five Hundred
Dollars ($7,500) divided by the Conversion Price (as defined below). The
Conversion Price will be the lesser of the Fixed Conversion Price (as defined
in Section 5.4) and the Variable Conversion Price (as defined in Section 5.4);
PROVIDED, HOWEVER, that the Conversion Price will in no event be less than (a)
seven thousand five hundred dollars ($7,500) divided by (b) one two-hundredth
(1/200) of the lesser of (1) twenty percent (20%) of the shares of Common Stock
outstanding on the Original Issue Date (not including shares issuable upon the
exercise of options and warrants then outstanding or upon conversion of the
Series A Preferred then outstanding); and (2) twenty percent (20%) of the
shares of Common Stock outstanding on the date of conversion (not including
shares issuable upon the exercise of options and warrants then outstanding or
upon conversion of the Series A Preferred then outstanding), all as adjusted
for stock splits, recapitalizations and the like.
<PAGE>
4 CONVERSION PRICE. The Fixed Conversion Price will be seventy-five
percent (75%) of the average closing bid price of the Company's Common Stock
for the five (5) trading days ending with the trading day ending immediately
prior to the date on which the first share of Series A Preferred is issued (the
"Original Issue Date"). The Variable Conversion Price will be seventy-five
percent (75%) of the average closing bid price of the Company's Common Stock
for the five (5) trading days ending with the trading day ending immediately
prior to conversion.
5 MECHANICS OF CONVERSION. Each holder of Series A Preferred who
desires to convert the same into shares of Common Stock pursuant to this
Section 5 will surrender the certificate or certificates therefor, duly
endorsed, at the office of the Company or any transfer agent for the Series A
Preferred, and will give written notice to the Company at such office that such
holder elects to convert the same. Such notice will state the number of shares
of Series A Preferred being converted. Thereupon, the Company will promptly
issue and deliver to such holder a certificate or certificates for the number
of shares of Common Stock to which such holder is entitled. Upon any
conversion of Series A Preferred into Common Stock, all accrued or declared but
unpaid dividends will be converted into that number of shares of Common Stock
equal to the amount of such accrued or declared and unpaid dividends divided by
the then-applicable Conversion Price. Such conversion will be deemed to have
been made at the close of business on the date of such surrender of the
certificates representing the shares of Series A Preferred to be converted, and
the person entitled to receive the shares of Common Stock issuable upon such
conversion will be treated for all purposes as the record holder of such shares
of Common Stock on such date.
6 ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Company at any
time or from time to time after the Original Issue Date effects a subdivision
of the outstanding Common Stock, the Fixed Conversion Price in effect
immediately before that subdivision will be proportionately decreased.
Conversely, if the Company at any time or from time to time after the Original
Issue Date combines the outstanding shares of Common Stock into a smaller
number of shares, the Fixed Conversion Price in effect immediately before the
combination will be proportionately increased. Any adjustment under this
Section 5.6 will become effective at the close of business on the date the
subdivision or combination becomes effective.
7 ADJUSTMENT FOR COMMON STOCK DIVIDENDS AND DISTRIBUTIONS. If the
Company at any time or from time to time after the Original Issue Date makes,
or fixes a record date for the determination of holders of Common Stock
entitled to receive, a dividend or other distribution payable in additional
shares of Common Stock, in each such event the Fixed Conversion Price that is
then in effect will be decreased as of the time of such issuance or, in the
event such record date is fixed, as of the close of business on such record
date, by multiplying the Fixed Conversion Price then in effect by a fraction
(a) the numerator of which is the total number of shares of Common Stock issued
and outstanding immediately prior to the time of such issuance on the close of
business on such record date, and (b) the denominator of which is the total
number of shares of Common Stock issued and outstanding immediately prior to
the time of such issuance on the close of business on such record date plus the
number of shares of Common Stock issuable in payment of such dividend or
distribution; PROVIDED, HOWEVER, that if such record date is fixed and such
dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Fixed Conversion Price will be recomputed accordingly
as of the close of business on such record date and thereafter the Fixed
Conversion Price will be adjusted pursuant to this Section 5.7 to reflect the
actual payment of such dividend or distribution.
<PAGE>
8 ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the Company at
any time or from time to time after the Original Issue Date makes, or fixes a
record date for the determination of holders of Common Stock entitled to
receive, a dividend or other distribution payable in securities of the Company
other than shares of Common Stock, in each such event provision will be made so
that the holders of the Series A Preferred will receive upon conversion
thereof, in addition to the number of shares of Common Stock receivable
thereupon, the amount of other securities of the Company that they would have
received had their Series A Preferred 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, retained such securities
receivable by them as aforesaid, subject to all other adjustments called for
during such period under this Section 5 with respect to the rights of the
holders of the Series A Preferred or with respect to such other securities by
their terms.
9 ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE AND SUBSTITUTION. If at
any time or from time to time after the Original Issue Date the Common Stock
issuable upon the conversion of the Series A Preferred is changed into the same
or a different number of shares of any class or classes of stock, whether by
recapitalization, reclassification or otherwise (other than an Acquisition or
Asset Transfer or a recapitalization, subdivision, combination,
reclassification or exchange provided for elsewhere in this Section 5), each
holder of Series A Preferred will have the right thereafter to convert such
stock into the kind and amount of stock and other securities and property
receivable upon such recapitalization, reclassification or other change into
which such shares of Series A Preferred could have been converted immediately
prior to such recapitalization, reclassification or change, all subject to
further adjustment as provided herein or with respect to such other securities
or property by the terms thereof.
10 REORGANIZATIONS. If at any time or from time to time after the
Original Issue Date there is a capital reorganization of the Common Stock
(other than an Acquisition or Asset Transfer or a recapitalization,
subdivision, combination, reclassification or exchange provided for elsewhere
in this Section 5), as a part of such capital reorganization, provision will be
made so that the holders of the Series A Preferred will thereafter be entitled
to receive upon conversion of the Series A Preferred the number of shares of
stock or other securities or property of the Company to which a holder of the
number of shares of Common Stock deliverable upon conversion would have been
entitled on such capital reorganization, subject to adjustment in respect of
such stock or securities by the terms thereof.
11 CERTIFICATE OF ADJUSTMENT. In each case of an adjustment or
readjustment of the Fixed Conversion Price, the Company, at its expense, will
compute such adjustment or readjustment in accordance with the provisions
hereof and prepare a certificate showing such adjustment or readjustment, and
will mail such certificate, by first class mail, postage prepaid, to each
registered holder of Series A Preferred at the holder's address as shown in the
Company's books. The certificate will set forth such adjustment or
readjustment, showing in detail the facts upon which such adjustment or
readjustment is based, including a statement of (a) the Fixed Conversion Price
at the time in effect; and (b) the type and amount, if any, of other property
that at the time would be received upon conversion of the Series A Preferred.
<PAGE>
12 NOTICES OF RECORD DATE. Upon (a) any taking by the Company of a
record of the holders of any class of securities for the purpose of determining
the holders thereof who are entitled to receive any dividend or other
distribution, or (b) any Acquisition or other capital reorganization of the
Company, any reclassification or recapitalization of the capital stock of the
Company, any Asset Transfer or any voluntary or involuntary dissolution,
liquidation or winding up of the Company, the Company will mail to each holder
of Series A Preferred at least twenty (20) days prior to the record date
specified therein a notice specifying (1) the date on which any such record is
to be taken for the purpose of such dividend or distribution and a description
of such dividend or distribution, (2) the date on which any such Acquisition,
reorganization, reclassification, recapitalization, Asset Transfer,
dissolution, liquidation or winding up is expected to become effective, and
(3) the date, if any, that is to be fixed as to when the holders of record of
Common Stock (or other securities) will be entitled to exchange their shares of
Common Stock (or other securities) for securities or other property deliverable
upon such Acquisition, reorganization, reclassification, recapitalization,
Asset Transfer, dissolution, liquidation or winding up.
13 FRACTIONAL SHARES. No fractional shares of Common Stock will be
issued upon conversion of Series A Preferred. All shares of Common Stock
(including fractions thereof) issuable upon conversion of more than one share
of Series A Preferred by a holder thereof will be aggregated for purposes of
determining whether the conversion would result in the issuance of any
fractional share. If, after the aforementioned aggregation, the conversion
would result in the issuance of any fractional share, the Company will, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the closing bid price of the Company's Common Stock on the date
of conversion.
14 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company will 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 A Preferred, such number of its shares of Common Stock as
from time to time are sufficient to effect the conversion of all outstanding
shares of the Series A Preferred. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect the conversion of
all then outstanding shares of the Series A Preferred, the Company will take
such corporate action as may, in the opinion of its counsel, be necessary to
increase its authorized but unissued shares of Common Stock to such number of
shares as is sufficient for such purpose.
15 NOTICES. Any notice required by the provisions of this Section 5
will be in writing and will be deemed effectively given: (a) upon personal
delivery to the party to be notified; (b) when sent by confirmed telex or
facsimile if sent during normal business hours of the recipient; if not, then
on the next business day; (c) five (5) days after having been sent by
registered or certified mail, return receipt requested, postage prepaid; or
(d) one (1) day after deposit with a nationally recognized overnight courier,
specifying next day delivery, with written verification of receipt. All
notices will be addressed to each holder of record at the address of such
holder appearing on the books of the Company.
16 PAYMENT OF TAXES. The Company will pay all taxes (other than taxes
based upon income) and other governmental charges that may be imposed with
respect to the issue or delivery of shares of Common Stock upon conversion of
shares of Series A Preferred, excluding any tax or other charge imposed in
connection with any transfer involved in the issue and delivery of shares of
Common Stock in a name other than that in which the shares of Series A
Preferred so converted were registered.
17 NO DILUTION OR IMPAIRMENT. The Company will not amend its Articles
of Incorporation, as amended or restated from time to time, or participate in
any reorganization, transfer of assets, consolidation, merger, dissolution,
issuance or sale of securities or any other voluntary action for the purpose of
avoiding or seeking to avoid the observance or performance of any of the terms
to be observed or performed hereunder by the Company, but will at all times in
good faith assist in carrying out all such action as may be reasonably
necessary or appropriate in order to protect the conversion rights of the
holders of the Series A Preferred against dilution or other impairment.
<PAGE>
16. REDEMPTION.
The Company will be entitled to redeem the Series A Preferred, at its
option, for a redemption price equal to one hundred fifty percent (150%) of the
Fixed Conversion Price for each share of Common Stock into which the Series A
Preferred is then convertible, as adjusted for stock splits, recapitalizations
and the like, plus any accrued or declared but unpaid dividends thereon (the
"Redemption Price"), as follows:
1 REDEMPTION NOTICE. At least thirty (30) days but no more than sixty
(60) days prior to the date on which the Company proposes to redeem the
Series A Preferred, the Company will send a notice (a "Redemption Notice") to
all holders of Series A Preferred to be redeemed setting forth the place at
which such holders may obtain payment of the Redemption Price upon surrender of
their share certificates.
2 SURRENDER OF CERTIFICATES. On or after such Redemption Date, each
holder of shares of Series A Preferred to be redeemed will surrender such
holder's certificates representing such shares to the Company in the manner and
at the place designated in the Redemption Notice, and thereupon the Redemption
Price of such shares will be payable to the order of the person whose name
appears on such certificate or certificates as the owner thereof and each
surrendered certificate will be canceled. From and after such Redemption Date,
unless there has been a default in payment of the Redemption Price or the
Company is unable to pay the Redemption Price due to not having sufficient
legally available funds, all dividends on the shares of Series A Preferred to
be redeemed will cease to accrue and all rights of the holders of such shares
as holders of Series A Preferred (except the right to receive the Redemption
Price without interest upon surrender of their certificates), will cease and
terminate with respect to such shares, provided that in the event that shares
of Series A Preferred are not redeemed due to a default in payment by the
Company or because the Company does not have sufficient legally available
funds, such shares of Series A Preferred will remain outstanding and will be
entitled to all of the rights and preferences provided herein.
3 DETERMINATION OF SHARES TO BE REDEEMED. In the event the Company
elects to redeem some, but not all, of the outstanding shares of Series A
Preferred, the number of shares of outstanding Series A Preferred to be
redeemed from each holder thereof shall be equal to the product of (a) the
number of shares of Series A Preferred held by such holder, and (b) a fraction,
the numerator of which will be the total number of shares of Series A Preferred
to be redeemed, and the denominator of which will be the total number of shares
of Series A Preferred then outstanding.
4 TERMINATION OF CONVERSION RIGHTS. In the event of a call for
redemption of any shares of Series A Preferred, the Conversion Rights will
terminate as to the shares designated for redemption at the close of business
on the day preceding the Redemption Date, unless default is made in payment of
the Redemption Price.
RESOLVED FURTHER, that the President and Secretary of the corporation is
hereby authorized to execute, verify, and file with the California Secretary of
State a Certificate of Determination in accordance with California law."
<PAGE>
17. The authorized number of shares of Preferred Stock of this
corporation is two million (2,000,000), and the number of shares of Preferred
Stock constituting Series A Preferred Stock, none of which has been issued, is
two hundred (200).
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned certify under penalty of perjury that
the matters set forth in the foregoing Certificate of Determination are true of
their own knowledge.
Executed at San Ramon, California on June 27, 1996.
/s/ William B. Heye, Jr.
WILLIAM B. HEYE, JR.
President
/s/ Timothy J. Repp
TIMOTHY J. REPP
Chief Financial Officer
