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EXHIBIT 3(i)
CERTIFICATE OF DETERMINATION
FOR
THE HARVEY ENTERTAINMENT COMPANY
-----------------------------
The undersigned, Roger A. Burlage, and Glenn Weisberger, hereby certify
that:
They are the duly elected and acting Chief Executive Officer and Secretary,
respectively, of The Harvey Entertainment Company, a California corporation (the
"Company"); and
The number of authorized shares of the Company's Series A Convertible
Preferred Stock with no par value ("Series A Preferred Stock") is 300,000,
202,636 of which have been issued and are outstanding; and
The number of shares of the Company's Series B Convertible Preferred Stock
with no par value ("Series B Preferred Stock") to be authorized is 300,000; none
of the shares of Series B Preferred Stock has been issued; and
There are 30,000,000 shares of the Company's Class A Common Stock (herein
"Common Stock") authorized of which 4,549,441 are outstanding, and there are
374,500 shares of the Company's Class B Common Stock authorized, of which no
shares are outstanding, and;
The Board of Directors of the Company (the "Board of Directors") at a
special meeting of the Board of Directors held on May 25, 2000, in Los Angeles,
California, duly adopted the following preambles and resolutions:
WHEREAS, the amended Articles of Incorporation of the Company authorize up
to 3,000,000 shares of the preferred stock of the Company to be issued in series
and authorize the Board of Directors to determine the rights, preferences,
privileges and restrictions granted to or imposed upon any wholly issued series
of preferred stock and to fix the number of shares and designation of any such
series;
WHEREAS, the Company's Board of Directors, pursuant to its authority as
aforesaid and under Section 401(a) of the California General Corporations Code,
wishes to designate a series of Series B Convertible Preferred Stock with no par
value ("Series B Preferred Stock");
WHEREAS, a majority of the holders of outstanding Series A Preferred Stock
have consented to the issuance of the Series B Preferred Stock and the execution
and filing with the Secretary of State of California of this Certificate of
Determination, and the consent of the holders of the Company's Common Stock is
not required;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors does hereby
establish a series of Preferred Stock as follows:
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SECTION 1. DESIGNATION; NUMBER OF SHARES. The shares of such series shall
be designated as "Series B Convertible Preferred Stock" (the "Series B Preferred
Stock"), and the number of authorized shares constituting the Series B Preferred
Stock shall be 300,000. Each share shall have a stated value of One Hundred
Dollars $100.00 (the "Stated Value").
SECTION 2. RANK. The Series B Preferred Stock shall rank (i) prior to all
of the Company's Class A Common Stock no par value (herein the "Common Stock")
and Class B Common Stock, no par value, and any class or series of preferred or
other capital stock now outstanding or hereafter issued (other than the Series A
Preferred Stock, with respect to which the Series B Preferred Stock shall rank
on an equal basis), as to distributions of assets upon the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary and
(ii) prior to all Common Stock and Class B Common Stock and prior to or on
parity with any class or series of preferred or other capital stock now
outstanding or hereafter issued (other than the Series A Preferred Stock, with
respect to which the Series B Preferred Stock shall rank on an equal basis) as
to payment of dividends.
SECTION 3. DIVIDENDS.
(a) Holders of the Series B Preferred Stock shall be entitled to
receive an annual dividend at the rate, in the form, at the times and in the
manner set forth in this Section 3. Such dividends shall accrue on any given
share from the day of issuance of such share until the Conversion Date (as
defined in Section 5(c)(i) below) applicable to such share.
(b) Holders of Series B Preferred Stock shall be entitled to receive,
and the Company shall pay, in cash or additional shares of Series B Preferred
Stock, at its sole option, cumulative dividends as follows: if paid, at the
option of the Company, in additional shares of Series B Preferred Stock, at the
rate per share (as a percentage of the Stated Value per share) equal to 7% per
annum (the number of additional shares of Series B Preferred Stock issuable
shall be calculated by dividing the amount of the dividend by $100), or (ii) if
paid, at the option of the Company, in cash, dividends shall be calculated at a
rate per share (as a percentage of the Stated Value per share) equal to 7% per
annum. Any such dividend payment may be made, in the sole discretion of the
Board of Directors, partially in cash and partially in shares of Series B
Preferred Stock determined in accordance with the preceding terms; provided
further, that in the event that any such dividend payment is made partially in
cash and partially in shares of Series B Preferred Stock, each holder of Series
B Preferred Stock shall receive a ratable amount of cash and Series B Preferred
Stock. If any fractional interest in a share of Series B Preferred Stock would
be delivered upon any payment of dividends pursuant to this Section 3, the
Company, in lieu of delivering the fractional share of Series B Preferred Stock
shall pay an amount to the holder thereof equal to such fraction multiplied by
the Stated Value. All shares of Series B Preferred Stock issued as a dividend
shall be duly authorized, validly issued, fully paid and nonassessable.
(c) Dividends on the Series B Preferred Stock shall accrue daily
commencing on the date of issuance of such shares, and shall be deemed to accrue
whether or not earned or declared and whether or not there are profits, surplus
or other funds of the Company legally available for the payment of dividends,
and shall be paid quarterly in four equal quarterly payments on the last day of
March, June, September and December of each year (each such date being a
"Dividend Payment Date"). The party that holds the Series B Preferred Stock on
an
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applicable Dividend Payment Date or on the Conversion Date with respect to
shares of Series B Preferred Stock being converted on such date will be entitled
to receive such dividend payment and any other accrued and unpaid dividends
which accrued prior to such Dividend Payment Date. Except as otherwise provided
herein, if at any time the Company pays less than the total amount of dividends
then accrued on account of the Series B Preferred Stock, such payment shall be
distributed ratably among the holders of Series B Preferred Stock based upon the
number of shares held by each holder on such applicable record date. Dividends
shall accrue on the basis of a 360-day year consisting of twelve 30-day months
(four 90 day quarters) and the actual number of days elapsed in the period for
which payable.
(d) No dividends or other distributions (other than dividends payable
in Junior Dividend Stock (as defined below)) shall be paid or set apart for
payment on, and no purchase, redemption or other acquisition shall be made by
the Company, or any of its subsidiaries, of, any shares of Common Stock or other
capital stock of the Company ranking junior as to payment of dividends on the
Series B Preferred Stock (such Common Stock and other capital stock being
referred to herein collectively as "Junior Dividend Stock") unless all dividends
on the Series A Preferred Stock and Series B Preferred Stock have been paid in
full.
SECTION 4. LIQUIDATION PREFERENCE. In the event of a liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Series B Preferred Stock shall be entitled to receive, at their
election, either: (A) out of the assets of the Company an amount equal to the
dividends accumulated and unpaid thereon to the date of final distribution to
such holders, whether or not declared, without interest, plus a sum equal to
$100.00 per share, and no more (the "Liquidation Amount"), before any payment
shall be made or any assets distributed to the holders of Common Stock or any
other capital stock of the Company or (B) the amount they would receive as if
the Series B Preferred Stock had been converted into Common Stock. The entire
assets of the Company available for distribution shall be distributed ratably
among the holders of the Series A Preferred Stock and Series B Preferred Stock
to the extent that such holders are entitled to a liquidation preference. After
payment in full of the liquidation preference of the shares of the Series A
Preferred Stock and Series B Preferred Stock, the holders of such shares shall
not be entitled to any further participation in any distribution of assets by
the Company.
SECTION 5. CONVERSION. The record holders of Series B Preferred Stock shall
have conversion rights as follows (the "Conversion Rights"):
(a) Right to Convert. Each share of Series B Preferred Stock shall be
convertible at the option of the holder at any time prior to 11:00 a.m. Pacific
Standard Time on the business day next preceding the date fixed for redemption
of such share pursuant to Section 6 below, into shares of Common Stock at an
initial conversion price of $6.75 per share (the "Initial Conversion Price"),
subject to adjustment as set forth in Section 6 below (as adjusted from time to
time, the "Conversion Price"), at the office of the Company or any transfer
agent for the Series B Preferred Stock, at any time beginning on the date six
months following the date of the Closing. As used herein, the term "Closing"
shall mean the date of the closing of the sale by the Company of the Series B
Preferred Stock or the issuance date of a promissory note convertible by its
terms into Series B Preferred Stock. The number of shares of Common Stock
issuable upon conversion of a share of Series B Preferred Stock shall be
calculated by dividing the Stated Value of such share of Series B Preferred
Stock by the Conversion Price.
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(b) Automatic Conversion. This Section 5(b) shall apply if and only if
the Company is a "listed corporation" as defined in Section 301.5 of the
California Corporations Code ("CCC"). If the Company is a "listed corporation"
as defined in CCC Section 301.5, then, as authorized by CCC Section 403(a)(3),
during any period following the third anniversary of the Closing in which the
Average Market Price of the Common Stock exceeds 175% of the Conversion Price
and the average daily trading volume of the Common Stock for the same period
such Average Market Price is determined exceeds 10,000 shares, the Company may,
at its option, require the holders of Series B Preferred Stock to convert all
such shares on the same terms as set forth in Section 5(a) above. "Average
Market Price" of the Common Stock shall mean the average of the daily closing
prices of the Common Stock for the twenty trading days preceding the Conversion
Date. The closing price for each day shall be the last reported sale price
regular way of the Common Stock or, in case no such reported sale takes place on
such day, the average of the reported closing bid and asked prices regular way
of the Common Stock, in either case on the principal national securities
exchange on which the Common Stock is listed or admitted to trading or, if not
listed or admitted to trading on any national securities exchange, the average
of the closing bid and asked prices as reported by the National Association of
Securities Dealers Automated Quotation System.
(c) Mechanics of Conversion.
(i) At Holder's Option pursuant to Section 5(a) above. In order
to convert Series B Preferred Stock into full shares of Common Stock, a
Holder shall deliver, no later than 11:00 a.m., Pacific Standard Time on
the business day next preceding the conversion date, to the office of the
Company's designated transfer agent for the Series B Preferred Stock (the
"Transfer Agent") (1) a fully executed notice of conversion ("Notice of
Conversion"), and (2) the original certificate or certificates evidencing
the Series B Preferred Stock (a "Certificate"), duly endorsed.
(ii) Automatic Conversion Pursuant to Section 5(b) above. Upon
the satisfaction of the conditions set forth in Section 5(b) above, the
Company may, by notice to the holders of Series B Preferred Stock elect to
require such holders to convert all shares of Series B Preferred Stock into
fully paid and nonassessable shares of Common Stock at the applicable
Conversion Price. Such notice shall be delivered by first class mail,
postage prepaid, shall be given to the holders of record of the Series B
Preferred Stock to be converted, addressed to such holders at their last
addresses as shown on the Company's stock transfer ledger. Such notice of
conversion shall specify the date fixed for conversion; the then effective
Conversion Price; that accumulated but unpaid dividends to the date fixed
for conversion will be paid, at the Company's election in cash or in a
number of shares of Common Stock equal to the dividend amount divided by
the Conversion Price on the date fixed for conversion (which shall be
within thirty (30) days of the notice); and that on and after the
Conversion Date, dividends will cease to accumulate on such shares.
Any notice which is mailed as herein provided shall be conclusively presumed to
have been duly given, whether or not a holder of the Series B Preferred Stock
receives such notice; and failure so to give such notice or any defect in such
notice, shall not affect the validity of the proceedings for the conversion.
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(iii) Conversion Date. The date on which conversion occurs (the
"Conversion Date") shall be deemed to be the date the Notice of Conversion
and the original Certificates representing the Series B Preferred Stock to
be converted are surrendered to the Transfer Agent.
(iv) Issuance of Common Stock Within Three (3) Business Days.
Upon receipt of the original Certificates representing the Series B
Preferred Stock to be converted, the Company shall use its reasonable best
efforts to cause the Transfer Agent to issue the appropriate number of
shares of Common Stock no later than three (3) business days thereafter.
(v) No Fractional Shares. If any conversion of the Series B
Preferred Stock would create a fractional share of Common Stock or a right
to acquire a fractional share of Common Stock, such fractional share shall
be disregarded and the number of shares of Common Stock issuable upon
conversion shall, on an aggregate basis, be rounded to the nearest number
of shares.
(vi) Lost or Stolen Certificates. Within three (3) business days
after receipt by the Company of evidence of the loss, theft, destruction or
mutilation of a certificate or certificates representing the Series B
Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Company and the
Transfer Agent, and upon surrender and cancellation of the Series B
Preferred Stock, if mutilated, the Company shall use its reasonable best
efforts to cause the execution and delivery of new Series B Preferred Stock
of like tenor and date. The Company shall not be required to deliver new
Series B Preferred Stock if the request for replacement is made
contemporaneously with the conversion or redemption of such Series B
Preferred Stock.
(vii) Record Holders. The person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated
for all purposes as the record holder or holders of such shares of Common
Stock on such date.
(d) Reservation of Stock Issuable Upon Conversion. The Company shall
at all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion of
the Series B Preferred Stock, such number of its shares of Common Stock as shall
from time to time be issuable upon the conversion of all then outstanding Series
B Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to issue all shares of Common
Stock issuable upon the conversion of all then outstanding Series B Preferred
Stock, the Company will as soon as practicable take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
SECTION 6. ADJUSTMENT TO CONVERSION PRICE AND CONVERSION SHARES.
(a) Prohibited Actions. So long as any shares of Series B Preferred
Stock are outstanding, the Company will not avoid or seek to avoid the
observance or performance of any
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of the terms of the Series B Preferred Stock or impair the ability of the
holders of Series B Preferred Stock to realize the full intended economic value
thereof, but will at all times in good faith assist in the carrying out of all
such terms, and of the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of Series B Preferred
Stock against dilution or other impairment.
(b) Adjustment of Number of Shares. Subject to any applicable
exceptions set forth in Section 6(g) below, if and whenever after the date
hereof the Company shall in any manner (i) issue or sell any shares of its
Common Stock for less than Fair Value (as defined in Section 6 (k) below) as
determined at the time of such issuance or sale, or (ii) grant (whether directly
or by assumption in a merger or otherwise) any rights to subscribe for or to
purchase any options, warrants, convertible securities, securities and other
rights to acquire from the Company shares of Common Stock ( the "Common Stock
Equivalents"), or issue or sell (whether directly or by assumption in a merger
or otherwise) Common Stock Equivalents, and the price per share for which Common
Stock is issuable upon exercise, conversion or exchange of such Common Stock
Equivalents (determined by dividing (x) the aggregate amount received or
receivable by the Company as consideration for the issue, sale or grant of such
Common Stock Equivalents, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange thereof, by (y) the total maximum number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Common Stock
Equivalents) shall be less than the Fair Value (after taking into account any
consideration received or receivable by the Company with respect to the
exercise, exchange or conversion of any Common Stock Equivalents) on the date of
such issue, sale or grant, whether or not the rights to exercise, exchange or
convert thereunder are immediately exercisable or (iii) declare a dividend or
make any other distribution upon any stock of the Company payable in Common
Stock or Common Stock Equivalents, then the Conversion Price shall be reduced to
a price determined by multiplying the Conversion Price in effect prior to the
adjustment referred to in this Section 6(b) by a fraction, the numerator of
which is an amount equal to the sum of (x) the number of shares of Common Stock
outstanding (including shares of Common Stock issuable upon conversion of all
outstanding shares of Series B Preferred Stock) immediately prior to such issue,
sale, grant, dividend or distribution, plus (y) (A) the consideration, if any,
received or receivable by the Company upon any such issue or sale, plus, in the
case of Common Stock Equivalents, the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise, conversion or
exchange of such Common Stock Equivalents divided by (B) the Fair Value as
determined at the time of such issue or sale, and the denominator of which is
the total number of shares of Common Stock outstanding (including shares of
Common Stock issuable upon conversion of all outstanding shares of Series B
Preferred Stock) immediately after such issue, sale, grant, dividend or
distribution.
(c) Record Date. The record date for the holders of the Common Stock
for the purpose of entitling them (a) to receive a dividend or other
distribution payable in shares of Common Stock or Common Stock Equivalents, or
(b) to subscribe for or purchase shares of Common Stock or Common Stock
Equivalents shall be the date determined by the Board of Directors as the record
date for such purposes or, if none is established by the Board of Directors,
then the record date shall be the effective date for such action; provided
however, that if such dividend or other distribution payable in shares of Common
Stock or Common Stock Equivalents is not paid on the applicable payment date,
then such shares of Common Stock issuable upon conversion of Series B Preferred
Stock, and the applicable Conversion Price, shall
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be adjusted so as to give effect as if each declaration of a dividend or other
distribution had never been made.
(d) Certain Dividends. In case the Company shall pay a dividend or
make a distribution generally to the holders of the Common Stock of shares of
its capital stock (other than shares of Common Stock), evidences of its
indebtedness, assets or rights, warrants or options (excluding (i) dividends or
distributions payable in cash out of the current year's or retained earnings of
the Company, (ii) distributions relating to subdivisions and combinations
covered by Section 6(e) below, (iii) distributions relating to
reclassifications, changes, consolidations, mergers, sales or conveyances
covered by Section 6(f) below and (iv) rights, warrants or options to purchase
or subscribe for shares of Common Stock or Common Stock Equivalents or other
issuances covered by Section 6(b)), then in each such case the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the record date
mentioned below by a fraction, the numerator of which shall be (x) the total
number of shares of Common Stock then outstanding (including shares of Common
Stock issuable upon conversion of all outstanding shares of Series B Preferred
Stock) multiplied by the Fair Value per share of Common Stock on the record date
mentioned below, minus (y) the Fair Value as of such record date of said shares
of stock, evidences of indebtedness or assets so paid or distributed or of such
rights, warrants or options, plus (z) in the case of rights, warrants or
options, the minimum aggregate amount of consideration payable to the Company
upon the exercise of such rights, options or warrants, and the denominator of
which shall be the total number of shares of Common Stock then outstanding
(including shares of Common Stock issuable upon conversion of all outstanding
shares of Series B Preferred Stock) multiplied by the Fair Value per share of
Common Stock on the record date mentioned below. Such adjustments shall be made
whenever any such dividend is paid or such distribution is made and shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution.
In the event of a distribution by the Company of stock of a subsidiary or
securities convertible into or exercisable for such stock, then in lieu of an
adjustment in the Conversion Price, the holders of Series B Preferred Stock,
upon the conversion thereof at any time after such distribution, shall be
entitled to receive from the Company, such subsidiary or both, as the Company
shall determine, the stock or other securities to which such holders would have
been entitled if such holders had converted the Series B Preferred Stock
immediately prior thereto, all subject to further adjustment as provided in this
Section 6; provided, however, that no adjustment in respect of dividends or
interest on such stock or other securities shall be made upon the conversion of
the Series B Preferred Stock.
(e) Subdivision or Combination of Shares. In case the Company shall at
any time subdivide its outstanding shares of Common Stock into a greater number
of shares, the Conversion Price in effect immediately prior to such subdivision
shall be proportionally reduced. In case the outstanding shares of the Common
Stock of the Company shall be combined into a smaller number of shares, the
Conversion Price in effect immediately prior to such combination shall be
proportionately increased.
(f) Reorganization, Merger, etc. In case of any capital
reorganization, reclassification or similar transaction involving the capital
stock of the Company (other than as provided in Section 6(e) above), any
consolidation, merger or business combination of the
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Company with another corporation, or the sale or conveyance of all or
substantially all of its assets (a "Reorganization Event"), shall be effected in
such a way that holders of Common Stock shall be entitled to receive stock,
securities, or assets (including cash) with respect to or in exchange for shares
of the Common Stock, then, prior to and as a condition of such reorganization,
reclassification, consolidation, merger, business combination, sale or
conveyance, lawful and adequate provision shall be made whereby the holders of
Series B Preferred Stock shall thereafter have the right to receive upon
conversion of the Series B Preferred Stock and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion of the Series B Preferred
Stock, such shares of stock, securities or assets (including cash) as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of Common Stock equal to the number of shares of Common Stock immediately
theretofore issuable upon conversion of the Series B Preferred Stock had such
reorganization, reclassification, consolidation, merger, business combination,
sale or conveyance not taken place. In any such case, appropriate provision
shall be made with respect to the rights and interests of the holders of Series
B Preferred Stock to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and the number of
shares of Common Stock issuable upon conversion of the Series B Preferred Stock)
shall thereafter be applicable, as nearly as may be, in relation to any stock,
securities or assets thereafter deliverable upon the conversion of the Series B
Preferred Stock. The Company shall not effect any such consolidation, merger,
business combination, sale or conveyance (i) unless prior to or simultaneously
with the consummation thereof the survivor or successor corporation (if other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets shall assume by written instrument executed and sent to
each holder of Series B Preferred Stock, the obligation to deliver to such
holder of Series B Preferred Stock such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder of Series B
Preferred Stock may be entitled to receive, and containing the express
assumption by such successor corporation of the due and punctual performance and
observance of every provision herein to be performed and observed by the Company
and of all liabilities and obligations of the Company hereunder, and (ii) in
which the Company, as opposed to another party to the Reorganization Event,
shall be required under any circumstances to make a cash payment at any time to
the holders of the Series B Preferred Stock.
(g) Exceptions to Adjustment. Anything herein to the contrary
notwithstanding, the Company shall not be required to make any adjustment of the
Conversion Price or Conversion Quantity (i) upon the issuance of additional
shares of Series B Preferred Stock pursuant to Section 3(b) above or (ii) upon
the issuance of Common Stock issuable upon conversion of Series B Preferred
Stock, (iii) upon the exercise or conversion of any warrants, options,
subscriptions, convertible notes, convertible debentures, convertible preferred
stock or other convertible securities issued and outstanding on the date that
the Series B Preferred Stock is originally issued in accordance with the terms
of such securities as of such date; (iv) upon the grant or exercise of any stock
or options which may hereinafter be granted or exercised under any employee
benefit plan of the Company existing as of the date that the Series B Preferred
Stock is originally issued or to be implemented in the future, or upon grant or
exercise of any stock or options to or by any officer, director, employee,
agent, consultant or other entity providing services to the Company, whether or
not under a plan, if such grant or plan was approved by the Board of Directors
of the Company; (v) upon the issuance of securities in connection with any
merger, acquisition or consolidation, or purchase of assets or business from
another person, so long as the Company is the surviving corporation; (vi) upon
the issuance of
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securities issued as the result of anti-dilution rights granted to a third
party; or (vii) upon the issuance of securities in a private placement made
within six months of the original issuance date of the Series B Preferred Stock
at a discount below the Fair Value thereof which does not exceed 20%.
(h) Treasury Shares. The number of shares of the Common Stock
outstanding at any time shall not include shares owned or held by or for the
account of the Company or any of its subsidiaries, and the disposition (but not
the cancellation) of any such shares shall be considered an issue or sale of the
Common Stock for the purposes of Section 6.
(i) Adjustment Notices to Holders of Series B Preferred Stock. Upon
any increase or decrease in the number of shares of Common Stock issuable upon
the conversion of Series B Preferred Stock, or upon any adjustment in the
Conversion Price, then, and in each such case, the Company shall promptly
deliver written notice thereof to each holder of Series B Preferred Stock, which
notice shall state the increased or decreased number of shares of Common Stock
issuable upon conversion of Series B Preferred Stock, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculations are based. Such notice shall also contain a certificate of the
Company's independent public accountants as to the correctness of such
adjustments and calculations and to the effect that such adjustments and
calculations have been made in accordance with the terms hereof.
(j) Minimum Adjustment. No adjustment shall be made under this Section
6 unless such adjustment would change the Conversion Price at the time by $.125
or more; provided, however, that all adjustments not so made shall be deferred
and made when the aggregate thereof would change the Conversion Price at the
time by $.125 or more.
(k) Fair Value Defined. "Fair Value" of the Common Stock as of a
particular date shall mean the average of the daily closing prices for the
preceding twenty trading days before the day in question. The closing price for
each day shall be the last reported sale price regular way or, in case no such
reported sale takes place on such day, the average of the reported closing bid
and asked prices regular way, in either case on the principal national
securities exchange on which the common Stock is listed or admitted to treading
or, if not listed or admitted to trading on any national securities exchange,
the average of the closing bid and asked prices as reported by the National
Association of Securities Dealers Automated Quotation System. If such quotations
are unavailable, or with respect to other appropriate security, property,
assets, business or entity, "Fair Value" shall mean the fair value of such item
as determined by mutual agreement reached by the Company and the holders of a
majority of the shares of Series B Preferred Stock (the "Majority of the
Holders") or, in the event the parties are unable to agree, an opinion of an
independent investment banking firm or firms in accordance with the following
procedure. In the case of any event which gives rise to a requirement to
determine "Fair Value" hereunder, the Company shall be responsible for
initiating the process by which Fair Value shall be determined as promptly as
practicable, but in any event within sixty (60) days following such event and if
the procedures contemplated herein in connection with determining Fair Value
have not been complied with fully, then any such determination of Fair Value for
any purpose hereunder shall be deemed to be preliminary and subject to
adjustment pending full compliance with such procedures. Upon the occurrence of
an event requiring the determination of Fair Value, the Company shall give the
holders of Series B Preferred Stock notice of such event, and the Company and
the holders of Series B Preferred Stock shall engage
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in direct good faith discussions to arrive at a mutually agreeable determination
of Fair Value. In the event the Company and the Majority of the Holders are
unable to arrive at a mutually agreeable determination within thirty (30) days
of the notice, Deloitte & Touche LLP shall make such determination and render
such opinion. The determination so made shall be conclusive and binding on the
Company and the holders of Series B Preferred Stock. The fees and expenses of
the investment banking firm retained for such purpose shall be shared equally by
the Company and the holders of Series B Preferred Stock.
(l) Adjustments: Additional Shares, Securities or Assets. In the event
that at any time, as a result of an adjustment made pursuant to this Section 6,
a holder of Series B Preferred Stock shall, upon conversion of such stock,
become entitled to receive shares and/or other securities or assets (other than
Common Stock) then, wherever appropriate, all references herein to shares of
Common Stock shall be deemed to refer to and include such shares and/or other
securities or assets; and thereafter the number of such shares and/or other
securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this Section 6.
SECTION 7. REDEMPTION BY COMPANY.
(a) Company's Right to Redeem. At any time beginning 5 years after
April 26, 1999, the Company shall have the right, in its sole discretion, to
redeem all or any part of the outstanding Series B Preferred Stock.
(i) Redemption Price. The "Redemption Price" shall be equal to
the Liquidation Amount.
(ii) Mechanics of Redemption. The Company shall effect any such
redemption by giving at least 30 days prior written notice ("Notice of
Redemption") to (A) the holders of Series B Preferred Stock selected for
redemption, at the address and facsimile number of such holder appearing in
the Company's register for the Series B Preferred Stock and (B) the
Transfer Agent, which Notice of Redemption shall be deemed to have been
delivered three (3) business days after the Company's mailing (by overnight
courier, with a copy by facsimile) of such Notice of Redemption. Such
Notice of Redemption shall indicate the date which such redemption is to
become effective (the "Redemption Date") and the Redemption Price.
(iii) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of
Redemption and begin the redemption procedure under this Section 7(a)
unless it believes in good faith that as of the Date of Redemption it will
have:
(1) the full amount of the aggregate Redemption Price in
cash, available in a demand or other immediately available account in
a bank or similar institution; or
(2) immediately available credit facilities, in the full
amount of the aggregate Redemption Price with a bank or similar
financial institution, or
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(3) a combination of the items set forth in (1) and (2)
above, aggregating the full amount of the aggregate Redemption Price.
(b) Payment of Redemption Price. Each holder of Series B Preferred
Stock submitting stock being redeemed under this Section 6 shall send their
certificates representing the stock so redeemed to the Company or its Transfer
Agent, and the Company shall pay the redemption price to that holder within ten
(10) business days of the date of such receipt of the certificates. The Company
shall not be obligated to deliver the Redemption Price unless the certificates
representing the Series B Preferred Stock so redeemed are delivered to the
Company or its Transfer Agent, or in the event one or more certificates have
been lost, stolen, mutilated or destroyed, the holder has complied with Section
5(c)(vi).
SECTION 8. STATUS OF CONVERTED OR REDEEMED STOCK AND STOCK UPON A
REORGANIZATION EVENT. On the first to occur with respect to any Series B
Preferred Stock of a Conversion Date or a Redemption Date, such Series B
Preferred Stock shall no longer be deemed to be outstanding and all rights with
respect thereto, except only the right of the holders of Series B Preferred
Stock to receive shares of Common Stock upon such conversion, payment of the
applicable Redemption Price upon such redemption or the receipt of the
consideration payable to holders of Common Stock in the Reorganization Event as
if such shares of Series B Preferred Stock were converted immediately prior to
the record date or other date of determination of the holders of Common Stock
entitled to receive consideration in such Reorganization Event, shall terminate,
and such shares of Series B Preferred Stock shall be canceled. The Series B
Preferred Stock so canceled shall return to the status of authorized but
unissued Preferred Stock of no designated series.
SECTION 9. PROTECTIVE PROVISIONS.
(a) So long as shares of Series B Preferred Stock are outstanding, the
Company may not waive or amend any term of this Certificate of Determination
without first obtaining the approval (by vote or written consent) of the holders
of a majority of the Series B Preferred Stock then outstanding.
(b) So long shares of Series B Preferred Stock are outstanding, the
Company shall not, without the consent of the holders of a majority of the
shares of Series B Preferred Stock then outstanding:
(i) issue any class or series of preferred or other capital stock
senior to the Series B Preferred Stock as to payment of dividends or senior
to or on a parity with the Series B Preferred Stock as to payments on
liquidation, dissolution or winding up of the Company;
(ii) amend its Articles of Incorporation or bylaws in any manner
which would impair or reduce the rights of the Series B Preferred Stock;
(iii) permit a liquidation, dissolution or winding up of the
Company to occur; or
(iv) permit a consolidation, merger or business combination of
the Company with another corporation or the sale or conveyance of all or
substantially all of
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the Company's assets if the Company is not the surviving entity and the
holders of Common Stock and the Series A and Series B Preferred Stock prior
to the transaction do not hold more than a majority of the outstanding
shares of the surviving entity immediately after the transaction.
SECTION 10. VOTING RIGHTS. For so long as the holders of Series A Preferred
Stock are entitled to elect two directors to the Company's Board of Directors,
the holders of the Series B Preferred Stock shall not be entitled, as a class,
to elect any directors to the Company's Board of Directors. If at any time, (i)
the holders of the Series A Preferred Stock are no longer entitled to elect any
directors to the Company's Board of Directors, and (ii) the aggregate number of
outstanding shares of Series A Preferred Stock plus the number of outstanding
shares of Series B Preferred Stock is greater than or equal to 47,622 shares,
the holders of Series B Preferred Stock shall as a class be entitled to elect
two directors to the Company's Board of Directors. Notwithstanding the foregoing
provisions of this Section 10, the holders of Series B Preferred Stock shall
otherwise be entitled to vote on all matters (including the election of
remaining directors) together with the holders of Common Stock and Series A
Preferred Stock, voting together as one class. Each share of Series B Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible under Section 5. Holders of the
Series B Preferred Stock shall be entitled to notice of all shareholders
meetings or written consents with respect to which they would be entitled to
vote.
SECTION 11. PREFERENCE RIGHTS. Nothing contained herein shall be construed
to prevent the Board of Directors of the Company from issuing one or more series
of Preferred Stock with dividend and/or liquidation preferences junior to the
dividend, liquidation and other preferences of the Series B Preferred Stock.
RESOLVED FURTHER, that the Chief Executive Officer and Secretary of the
Company be, and hereby are, authorized and directed to prepare, execute, verify
and file in the Office of the California Secretary of State, a Certificate of
Determination in accordance with this resolution and as required by law.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Signed on May 25, 2000
/s/ Roger A. Burlage
-----------------------------------------
Roger A. Burlage, Chief Executive Officer
/s/ Glenn Weisberger
-----------------------------------------
Glenn Weisberger, Secretary
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