<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[X] Preliminary Proxy Statement [ ] Confidential, for Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
</TABLE>
JTS CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
[ ] Fee paid previously with preliminary materials:
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
JTS CORPORATION
166 BAYPOINTE PARKWAY
SAN JOSE, CALIFORNIA 95134
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 12, 1998
TO THE STOCKHOLDERS OF JTS CORPORATION:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders (the "Special
Meeting") of JTS Corporation, a Delaware corporation (the "Company"), will be
held on Thursday, March 12, 1998 at 10:00 a.m. (local time) at 166 Baypointe
Parkway, San Jose, California 95134, for the following purposes:
1. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of shares
of Common Stock from 250,000,000 shares to 500,000,000 shares.
2. To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to permit holders of not less than 25% of
the outstanding voting power of the Company to call a special meeting of
stockholders.
3. To transact such other business as may properly come before the Special
Meeting or any adjournment or postponement thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
The Special Meeting is being called by the Company in satisfaction of
certain contractual obligations under a Securities Purchase Agreement, dated as
of September 25, 1997 (the "Securities Purchase Agreement") by and among the
Company, Amber Arbitrage LDC, Sirjang Lal Tandon, Jack Tramiel and David T.
Mitchell, as amended to date. The Board of Directors has fixed the close of
business on January 26, 1998 as the record date for the determination of
stockholders entitled to notice of and to vote at this Special Meeting and at
any adjournment or postponement thereof.
By Order of the Board of Directors
LOGO
Joseph Prezioso
Chief Financial Officer
San Jose, California
February 6, 1998
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
HOWEVER, WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE
YOUR REPRESENTATION AT THE MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE PREPAID
IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF YOU HAVE
GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE MEETING. PLEASE
NOTE, HOWEVER, THAT IF YOUR SHARES ARE HELD OF RECORD BY A BROKER, BANK OR OTHER
NOMINEE AND YOU WISH TO VOTE AT THE MEETING, YOU MUST OBTAIN FROM THE RECORD
HOLDER A PROXY ISSUED IN YOUR NAME.
<PAGE> 3
JTS CORPORATION
166 BAYPOINTE PARKWAY
SAN JOSE, CALIFORNIA 95134
------------------------
PROXY STATEMENT
------------------------
FOR SPECIAL MEETING OF STOCKHOLDERS
MARCH 12, 1998
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of JTS
Corporation, a Delaware corporation ("JTS" or the "Company"), for use at the
Special Meeting of Stockholders to be held on Thursday, March 12, 1998, at 10:00
a.m. (local time) (the "Special Meeting"), or at any adjournment or postponement
thereof, for the purposes set forth herein and in the accompanying Notice of
Special Meeting. The Special Meeting will be held at the Company's principal
executive office located at 166 Baypointe Parkway, San Jose, California 95134.
The Company intends to mail this proxy statement and accompanying proxy card on
or about February 6, 1998 to all stockholders entitled to vote at the Meeting.
VOTING RIGHTS AND OUTSTANDING SHARES
Only holders of record of Common Stock at the close of business on January
26, 1998 will be entitled to notice of and to vote at the Special Meeting. At
the close of business on January 26, 1998, the Company had outstanding and
entitled to vote shares of Series E Convertible Preferred Stock, which
shares are entitled to an aggregate of votes at the Special
Meeting, and shares of Common Stock. The holders of shares of
Series E Convertible Preferred Stock shall vote as a combined class on an
as-converted basis with the holders of shares of Common Stock. Each share of
Series E Convertible Preferred Stock is convertible into 5,000 shares of Common
Stock. Shares of Series E Convertible Preferred Stock held in Escrow (as defined
below) are not entitled to vote until released from Escrow pursuant to the terms
of the Escrow Agreement (as defined below).
Each holder of record of Common Stock on an as-converted basis on such date
will be entitled to one vote for each share held on all matters to be voted upon
at the Special Meeting. The affirmative vote of the holders of
and shares of Common Stock, on an as-converted basis, will be
required to approve Proposals 1 and 2, respectively. Pursuant to an irrevocable
proxy granted to John Bender, a designee of Amber Arbitrage LDC, by certain
stockholders of the Company (the "Series E Proxy"), 30,000,016 shares of Common
Stock, representing of the outstanding voting power of the Company on
January 26, 1998, will be voted in favor of approving Proposals 1 and 2.
All votes will be tabulated by the inspector of election appointed for the
meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, but are not counted for any purpose in determining whether a matter has
been approved.
SOLICITATION
The Company will bear the entire cost of solicitation of proxies, including
preparation, assembly, printing and mailing of this proxy statement, the proxy
and any additional information furnished to stockholders. Copies of solicitation
materials will be furnished to banks, brokerage houses, fiduciaries and
custodians holding in their names shares of Common Stock beneficially owned by
others to forward to such beneficial owners. The Company may reimburse persons
representing beneficial owners of Common Stock for their costs
<PAGE> 4
of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of the
Company. No additional compensation will be paid to directors, officers or other
regular employees for such services.
REVOCABILITY OF PROXIES
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of the Company at the Company's principal executive office, 166
Baypointe Parkway, San Jose, California 95134, a written notice of revocation or
a duly executed proxy bearing a later date, or it may be revoked by attending
the Special Meeting and voting in person. Attendance at the Special Meeting will
not, by itself, revoke a proxy.
STOCKHOLDER PROPOSALS
Proposals of stockholders that are intended to be presented at the
Company's 1998 Annual Meeting of Stockholders must be received by the Company
not later than Friday, January 29, 1998 in order to be included in the proxy
statement and proxy relating to that Annual Meeting of Stockholders.
PROPOSAL 1
APPROVAL OF INCREASE IN NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Company's Amended and Restated Certificate of Incorporation
(the "Amended and Restated Certificate") to increase the Company's authorized
number of shares of Common Stock from 250,000,000 shares to 500,000,000 shares.
As previously disclosed in the Company's Quarterly Reports on Form 10-Q,
the Company's operating results have been materially adversely impacted by the
Company's financial resources and limited liquidity. The Company requires
significant cash resources to fund purchases of the inventory needed to achieve
required sales levels that may permit the Company to operate at profitable gross
margin levels. A shortage of cash resources has required the Company to either
obtain additional capital from external sources or to curtail its research and
development, equipment and working capital expenditures. Since curtailment has
generally adversely affected the Company's operations and competitive position,
the Company has sought additional financing as its preferred means of improving
its financial condition.
After considering a number of financing alternatives, including, but not
limited to, registered public offerings and bank financing, the Board of
Directors determined that a private placement of preferred stock would be
achievable in a reasonable timeframe and in the best interests of the Company.
Amber Arbitrage LDC ("Amber"), a private investment fund incorporated in the
Cayman Islands, was identified as an investor that was interested in investing
in the long-term growth of the Company. The sole director of Amber is Lismore
Management, Ltd., a British Virgin Islands corporation, whose directors are
Peter Breslow and John Andersen. During negotiations, Amber, represented by its
investment advisor, John Bender, offered to invest either a smaller amount of
capital if members of the Board of Directors of the Company did not participate
in the financing or approximately $20,000,000 in equity financing if members of
the Board of Directors of the Company invested approximately $5,000,000 in the
financing. In the interests of maximizing the proceeds from the financing, the
opportunity to participate was offered to all of the members of the Board of
Directors. Since other members of the Board were unable to participate in such a
financing because of their affiliation with certain venture capital funds, which
could not complete their due diligence obligations in the timeframe required to
complete the financing, Sirjang Lal Tandon, Jack Tramiel and David T. Mitchell
(the "Management Investors") agreed to participate. The terms of the financing
were not considered by either an independent party or an independent committee
of the Board of Directors but were considered by the entire Board of Directors
of the Company and were unanimously approved by the members of the Board of
Directors who did not participate in the financing.
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<PAGE> 5
On September 25, 1997, after full negotiation of terms, the Company, Amber
and the Management Investors (Amber and the Management Investors shall be
collectively referred to herein as the "Purchasers") entered into a securities
purchase agreement (the "Securities Purchase Agreement") relating to a proposed
financing (the "Series D Financing") of the Company, consisting of an aggregate
of 28,802 shares of Series D Convertible Preferred Stock (the "Series D
Preferred Stock") of the Company at a purchase price of $875 per share, or an
aggregate purchase price of $25,201,750. Pursuant to the terms of the Escrow
Agreement (as defined below), 22,858 shares of Series D Preferred Stock were
attributable to Amber at an aggregate purchase price of $20,000,750, 3,429
shares of Series D Preferred Stock were attributable to Jack Tramiel at an
aggregate purchase price of $3,000,375, 229 shares of Series D Preferred Stock
were attributable to David T. Mitchell at an aggregate purchase price of
$200,375 and 2,286 shares of Series D Preferred Stock were attributable to
Sirjang Lal Tandon at an aggregate purchase price of $2,000,250. Each share of
Series D Preferred Stock was convertible by the holder thereof into 5,000 shares
of Common Stock by the payment of additional consideration equal to $.65625 per
share of Common Stock issuable upon such conversion (the "Additional
Consideration"), which equaled or exceeded the closing bid price of the
Company's Common Stock on the American Stock Exchange on September 25, 1997,
subject to adjustment for stock splits and similar events.
On September 26, 1997, the closing of the Series D Financing occurred,
pursuant to which the purchase price for the Series D Preferred Stock as well as
certificates representing the Series D Preferred Stock were deposited in escrow
(the "Escrow") with Cooley Godward, LLP, as escrow agent (the "Escrow Agent"),
pursuant to an Escrow Agreement (the "Escrow Agreement") among Amber, the
Management Investors, the Company and the Escrow Agent. Pursuant to the Escrow
Agreement, the funds in the Escrow were the property of the Purchasers and the
shares of Series D Preferred Stock in the Escrow were the property of the
Company, in each case until delivered pursuant to the Escrow Agreement by the
Escrow Agent upon the instruction of a representative designated by a majority
in interest of the Purchasers, who had sole discretion to cause the delivery of
such funds and shares at any time until May 31, 1998. Shares of Series D
Preferred Stock held in Escrow were not entitled to vote until released from
Escrow. Notwithstanding the foregoing, prior to the expiration or early
termination of the statutory waiting period under the Hart Scott Rodino
Antitrust Improvements Act of 1976 with respect to the purchase and sale
contemplated in the Securities Purchase Agreement, the Escrow Agent was not
permitted to deliver to the Company any of the funds or deliver to the
Purchasers any of the shares unless there remained in the Escrow an aggregate of
$6,714,750 and 7,675 shares of Series D Preferred Stock. Immediately after the
entering into of the Escrow Agreement $9,000,250 aggregate amount of purchase
price was delivered to the Company from the Escrow, and the corresponding 10,286
shares of Series D Preferred Stock were delivered to the Purchasers from the
Escrow. On October 16, 1997, an additional $3,199,000 aggregate amount of
purchase price was delivered to the Company from Escrow, and the corresponding
3,656 shares of Series D Preferred Stock were delivered to the Purchasers from
Escrow. On October 23, 1997, $1,199,625 aggregate amount of purchase price was
delivered to the Company from Escrow, and the corresponding 1,371 shares of
Series D Preferred Stock were delivered to the Purchasers from Escrow. In
November 1997, the Investors agreed to release $2,000,000 to the Company as a
loan secured by certain assets of the Atari division of the Company. In December
1997, the Company, Amber and the Management Investors entered into an amendment
of the Escrow Agreement. The amendment contemplated the immediate release from
escrow of an additional $10,000,000, pledged as collateral by the Purchasers to
secure their guarantee of a third-party $10,000,000 loan facility to the
Company. The parties also agreed to extend the term of the escrow to July 31,
1998. In consideration of this amendment, the Company agreed to exchange the
shares of Series D Preferred Stock (issued or in escrow) with shares of its
Series E Convertible Preferred Stock (the "Series E Preferred Stock") on a
one-for-one basis. The Series E Preferred Stock is similar to the Series D
Preferred Stock with the following significant differences: (i) each share of
Series E Preferred Stock is convertible by the holder thereof at any time after
August 5, 1998 into 5,000 shares of Common Stock by the payment of additional
consideration equal to $.10 per share of Common Stock issuable upon such
conversion, which when added to the equivalent of $.175 paid for the Series E
Preferred Stock, exceeded the closing bid price of the Company's Common Stock on
the American Stock Exchange at the time of the amendment; (ii) the holders of
the Series E Preferred Stock are entitled to elect two members of the Board of
Directors and the holders of the Common Stock are entitled to elect the other
four members of the
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<PAGE> 6
Board of Directors; and (iii) the holders of the Series E Preferred Stock are
entitled to certain anti-dilution adjustments in the event that the Company
issues after December 18, 1997 more than 11,000,000 shares of Common Stock upon
conversion of the then remaining shares of Series C Preferred and Series B
Financing Common Stock Purchase Warrants. Of the shares of Series E
Preferred Stock released from Escrow as of January 26, 1998, are held of record
by Amber, are held of record by Sirjang Lal Tandon, are held of
record by Jack Tramiel and are held of record by David T. Mitchell. As of
January 26, 1998, Amber is entitled to an aggregate of votes
representing of the outstanding voting power of the Company, Sirjang Lal
Tandon is entitled to an aggregate of votes representing of the
outstanding voting power of the Company, Jack Tramiel is entitled to an
aggregate of votes representing of the outstanding voting power
of the Company and David T. Mitchell is entitled to an aggregate of
votes representing of the outstanding voting power of the Company. Upon
adoption of this Proposal 1 and upon full conversion of the Series E Preferred
Stock, Amber will be entitled to 156,196,616 votes representing of the
outstanding voting power of the Company, Sirjang Lal Tandon will be entitled to
votes representing of the outstanding voting power of the
Company, Jack Tramiel will be entitled to votes representing of
the outstanding voting power of the Company and David T. Mitchell will be
entitled to votes representing of the outstanding voting power
of the Company. Upon adoption of this Proposal 1 and upon full conversion of the
Series E Preferred Stock and payment of the additional consideration therefor,
Amber, by owning a majority of the voting power of the Company could acquire
control of the Registrant.
In the event that after July 9, 1998, there are insufficient shares of
Common Stock available for issuance upon conversion of the Series E Preferred
Stock, the holders of Series E Preferred Stock may convert the Series E
Preferred Stock without payment of the Additional Consideration. Therefore, a
failure by the stockholders to approve Proposal 1 or a similar proposal at a
subsequent meeting held prior to July 9, 1998 would result in the trigger of
this conversion provision which would have an adverse impact on the Company's
financial condition.
For so long as 2,500 shares of Series E Preferred Stock remain outstanding,
the holders of shares of Series E Preferred Stock, voting as a separate class,
are entitled to elect two (2) members of the Board of Directors at each meeting
or pursuant to each consent of the Company's stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of either or both of such directors.
No director has been designated to date by the holders of the Series E Preferred
Stock. The shares of Series E Preferred Stock also have certain piggyback and
demand registration rights under the Securities Act of 1933, as amended and
applicable state securities laws pursuant to a Registration Rights Agreement,
dated as of September 25, 1997, by and among the Company and the Purchasers. The
Company intends to file shortly a registration statement on Form S-3 permitting
resale of the shares of Common Stock issuable upon conversion of the Series E
Preferred Stock. In addition, the shares of Series E Preferred Stock are subject
to certain redemption and cashless exercise provisions. Pursuant to such
redemption provisions, the Company may redeem the shares of Series E Preferred
Stock in the event that after August 5, 1998 the closing price per share of the
Common Stock on The American Stock Exchange, Inc. exceeds $3.9375 (as adjusted
for any stock dividends, contributions, splits, recapitalizations and the like
with respect to the Common Stock) for twenty consecutive trading days
immediately preceding the issuance by the Company of a redemption notice to all
holders of shares of Series E Preferred Stock. The Company may not, however,
redeem from any holder more than one-third of the total number of shares of
Series E Preferred Stock purchased by such holder during any one (1) year period
and may not make any such redemption unless at the time of such redemption there
is in effect a registration statement covering the resale of shares of Common
Stock issuable upon conversion of the shares of Series E Preferred Stock to be
redeemed. Pursuant to the cashless exercise provisions, the holders of the
shares of Series E Preferred Stock may convert the Series E Preferred Stock
without delivering the Additional Consideration upon either receipt of a notice
of redemption from the Company or immediately prior to the closing of a
significant acquisition or asset transfer by receiving the number of shares of
Common Stock equal to the number yielded by the following formula: (i) the
quotient obtained by dividing (A) the average closing price of the Common Stock
on the American Stock Exchange for the five (5) trading days ending (1) day
before the conversion (the "Fair Market Value")
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<PAGE> 7
less the Additional Consideration by (B) the Fair Market Value, multiplied by
(ii) the number of shares of Common Stock issuable upon conversion of one share
of Series E Preferred Stock.
If all of the shares of Series E Preferred Stock held in Escrow are
eventually issued, the Series E Preferred Stock subject to the Securities
Purchase Agreement will be convertible into an aggregate of 252,017,500 shares
of Common Stock. Such 252,017,500 shares of Common Stock would represent
approximately % of the outstanding Common Stock of the Company as of January
26, 1998. As of September 26, 1997, there were only 63,295,773 shares of Common
Stock available for issuance upon conversion of Series E Preferred Stock.
Pursuant to the Securities Purchase Agreement, the Company agreed to hold its
1998 annual meeting of stockholders no later than July 9, 1998 and to hold a
special meeting of stockholders by November 30, 1997 (unless the proxy statement
relating to such meeting is reviewed by the Securities and Exchange Commission,
in which case the length of time of such review shall be added to the above
date) and to propose at such special meeting and every special or annual meeting
thereafter until adopted, an amendment (the "Amendment") to the Certificate of
Incorporation of the Company, raising the number of authorized shares of Common
Stock to at least the number of shares of Common Stock issuable upon conversion
of the Series E Preferred Stock.
The additional Common Stock to be authorized by adoption of the Amendment
would have rights identical to the currently outstanding Common Stock of the
Company. Adoption of the proposed Amendment and issuance of the Common Stock
would not affect the rights of the holders of the currently outstanding Common
Stock and outstanding Series C Convertible Preferred Stock and Series E
Preferred Stock of the Company, except for effects incidental to increasing the
number of shares of the Company's Common Stock outstanding, such as dilution of
the earnings per share and the voting rights of current holders of Common Stock.
Since the ratio of outstanding Common Stock (assuming approval of this Proposal
and full conversion of Series E Preferred Stock) to outstanding Common Stock as
of January 26, 1998 is , or approximately , earnings per
share and voting rights of the current holders of Common Stock will be diluted
by approximately a factor of . If the Amendment is adopted, it will become
effective upon filing of a Certificate of Amendment of the Amended and Restated
Certificate with the Secretary of State of the State of Delaware.
The Certificate of Amendment would change paragraph A of Article IV of the
Amended and Restated Certificate to read in its entirety as follows:
"A. This corporation is authorized to issue two classes of stock
to be designated, respectively, "Common Stock" and "Preferred
Stock." The total number of shares which the corporation is
authorized to issue is Five Hundred Ten Million (510,000,000)
shares. Five Hundred Million (500,000,000) shares shall be
Common Stock, each having a par value of one-tenth of one cent
($.001). Ten Million (10,000,000) shares shall be Preferred
Stock, each having a par value of one-tenth of one cent
($.001)."
In addition to the shares of Common Stock outstanding at January
26, 1998, the Board had reserved as of such date: (i) shares for
issuance upon exercise of options and rights granted under the Company's Amended
and Restated 1995 Stock Option Plan, (ii) shares issuable upon
exercise of warrants currently held by GFL Advantage Fund Limited and Genesee
Fund Limited -- Portfolio B, (iii) approximately shares of Common
Stock issuable upon conversion of all of the outstanding Series C Preferred
Stock and any payments of dividends on any outstanding shares of Series C
Preferred Stock in Common Stock, (iv) approximately shares of Common
Stock issuable upon conversion of the Company's 5 1/4% Convertible Subordinated
Debentures, (v) 500,000 shares of Common Stock for issuance upon option grants
under the 1996 Non-Employee Directors' Stock Option Plan, and (vi) approximately
shares of Common Stock issuable upon the exercise of warrants
currently held by Lunenberg S.A., Silicon Valley Bank, Wharton Capital
Corporation and Adaptec, Inc. The remaining approximately shares of
Common Stock are reserved for issuance upon conversion of shares of Series E
Preferred Stock.
A portion of the shares authorized by the Amendment will be reserved for
issuance upon conversion of the Series E Preferred Stock pursuant to the
obligations of the Company under the Securities Purchase
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<PAGE> 8
Agreement. The Board of Directors desires to have the additional shares of
Common Stock authorized by the Amendment to be available to provide additional
flexibility for business and financial purposes in the future. The additional
shares may be used, without further stockholder approval, for various purposes
including, without limitation, raising capital, providing equity incentives to
employees, officers or directors, establishing strategic relationships with
other companies and expanding the Company's business or product lines through
the acquisition of other businesses or products. Pursuant to the terms of the
Securities Purchase Agreement, the Board of Directors is restricted from issuing
additional shares of Common Stock until the Amendment is approved.
The additional shares of Common Stock that would become available for
issuance if the proposal were adopted could also be used by the Company to
oppose a hostile takeover attempt or delay or prevent changes in control or
management of the Company. For example, without further stockholder approval,
the Board could strategically sell shares of Common Stock in a private
transaction to purchasers who would oppose a takeover or favor the current
Board. Although this proposal to increase the authorized Common Stock has been
prompted by business and financial considerations and not by the threat of any
hostile takeover attempt (nor is the Board currently aware of any such attempts
directed at the Company), nevertheless, stockholders should be aware that
approval of this proposal could facilitate future efforts by the Company to
deter or prevent changes in control of the Company, including transactions in
which the stockholders might otherwise receive a premium for their shares over
then current market prices.
The affirmative vote of the holders of a majority of the outstanding voting
power of the Company, equivalent to votes as of January 26, 1998, will
be required to approve this amendment to the Amended and Restated Certificate.
As a result, abstentions and broker non-votes will have the same effect as
negative votes. The holders of outstanding shares of Series D Preferred Stock
shall vote as a class with the holders of shares of Common Stock on an
as-converted basis.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 1.
PROPOSAL 2
APPROVAL OF STOCKHOLDER RIGHT TO CALL SPECIAL MEETING OF STOCKHOLDERS
The Board of Directors has adopted, subject to stockholder approval, an
amendment to the Amended and Restated Certificate to permit holders of not less
than twenty-five percent (25%) of the outstanding voting power of the Company to
call a special meeting of the stockholders. At present, the Amended and Restated
Certificate does not permit stockholders to call a special meeting. The Board of
Directors wishes to amend the Amended and Restated Certificate to provide such
right in order to enhance the stockholders' ability to submit matters to the
vote of the stockholders pursuant to the obligations of the Company in the
Securities Purchase Agreement. Such matters might include, without limitation,
the election of new members to the Board of Directors and the amendment of the
Amended and Restated Certificate.
The stockholders of the Company should be aware that approval of this
proposal could facilitate future efforts to effect a change in control of the
Company.
If the amendment is adopted, it will become effective upon filing a
Certificate of Amendment of the Amended and Restated Certificate with the
Delaware Secretary of State. The amendment would change paragraph B(4) of
Article IV of the Amended and Restated Certificate to read in its entirety as
follows:
"(4) Special meetings of the stockholders of the corporation may
be called for any purpose or purposes, by (i) the Chairman of
the Board of Directors, (ii) the Chief Executive Officer, (iii)
the Board of Directors pursuant to a resolution adopted by at
least two (2) directors, or (iv) by the holders of shares
entitled to cast not less than 25% of the votes at the meeting,
and shall be held at such place, on such date, and at such time
as the Board of Directors shall fix."
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The affirmative vote of the holders of at least sixty-six and two-thirds
percent (66 2/3%) of the outstanding voting power of the Company, equivalent to
votes as of January 26, 1998, will be required to approve this
amendment to the Amended and Restated Certificate. As a result, abstentions and
broker non-votes will have the same effect as negative votes. The holders of
outstanding shares of Series D Preferred Stock shall vote as a class with the
holders of shares of Common Stock on an as-converted basis.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
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<PAGE> 10
SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the ownership
of the Company's Common Stock and Series E Preferred Stock as of December 31,
1997 by: (i) each director of the Company; (ii) certain executive officers of
the Company; (iii) all executive officers and directors of the Company as a
group; and (iv) all those known by the Company to be beneficial owners of more
than five percent of its Common Stock or Series E Preferred Stock.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF NUMBER OF SHARES VOTING POWER OF
COMMON OF SERIES E COMBINED CLASS PERCENTAGE OF
STOCK PERCENT OF CLASS PREFERRED STOCK PERCENT OF CLASS OF COMMON STOCK OUTSTANDING
BENEFICIALLY BENEFICIALLY BENEFICIALLY BENEFICIALLY AND SERIES E VOTING POWER
BENEFICIAL OWNER OWNED(1) OWNED(1) OWNED(1) OWNED(1) PREFERRED STOCK OF THE COMPANY
- ------------------------- ---------- ---------------- ---------------- ---------------- --------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Amber Arbitrage LDC(2)... 11,166,400 6.6% 12,153 79.3% 71,931,400 42.3%
c/o Custom House Fund
Management Limited
31 Kildare Street
Dublin 2, Ireland
Jack Tramiel(3).......... 279,690 * 1,823 11.9% 9,394,690 5.5%
18331 Lexington Drive
Monte Sereno, CA 95030
Sirjang L. Tandon(4)..... 0 * 1,215 7.9% 6,075,000 3.6%
David T. Mitchell(5)..... 1,270,833 * 122 * 1,880,833 1.1%
Jean D. Deleage(6)....... 3,937,500 2.3% -- -- 3,937,500 2.3%
Lip-Bu Tan(7)............ 1,500,000 * -- -- 1,500,000 *
Steven L. Kaczeus(8)..... 483,011 * -- -- 483,011 *
Kenneth D. Wing(9)....... 427,084 * -- -- 427,084 *
Roger W. Johnson(10)..... 43,083 * -- -- 43,083 *
Joseph A. Prezioso(11)... 82,916 * -- -- 82,916 *
All current directors and
executive officers as a
group (9
persons)(12)........... 8,024,117 4.7% 15,313 20.6% 23,824,117 14.0%
</TABLE>
- ---------------
* Less than one percent.
(1) Applicable percentage of ownership of Common Stock is based upon
169,718,512 shares of Common Stock outstanding at December 31, 1997.
Applicable percentage of ownership of Series E Preferred Stock is based
upon 15,313 shares of Series E Preferred Stock released from Escrow to the
Purchasers by the Escrow Agent as of December 31, 1997. Applicable
percentage of ownership of outstanding voting power of the Company is based
upon 246,283,512 voting shares of Common Stock which consists of
169,718,512 shares of Common Stock outstanding as of December 31, 1997 and
76,565,000 shares of Common Stock issuable upon conversion of 15,313 shares
of Series E Preferred Stock released from Escrow as of December 31, 1997.
Pursuant to the terms of the Securities Purchase Agreement and the Escrow
Agreement, an aggregate of 28,802 shares of Series E Preferred Stock were
issued by the Company and deposited in Escrow. Pursuant to the terms of the
Escrow Agreement, the funds in the Escrow are the property of the
Purchasers and the shares of Series E Preferred Stock are the property of
the Company, in each case, until delivered pursuant to the Escrow Agreement
by the Escrow Agent upon the instruction of a representative designated by
a majority in interest of the Purchasers, who shall have sole discretion to
cause the delivery of such funds and shares at any time until May 31, 1998.
Beneficial Ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes sole or shared voting or
investment power with respect to shares shown as beneficially owned except
as otherwise set forth herein. Shares of Common Stock subject to options
currently exercisable or exercisable within 60 days are deemed outstanding
for computing the percentage ownership of common stock of the person
holding such options, but are not deemed outstanding for computing the
percentage ownership of Common Stock of any other person. Shares of Common
Stock issuable upon conversion of shares of Series E Preferred Stock shall
be deemed to be outstanding for computing the percentage ownership of the
person holding such shares of Series E Preferred Stock, but are not deemed
outstanding for computing the percentage ownership of any other person.
8
<PAGE> 11
(2) Beneficial ownership of Common Stock includes 30,000,016 shares of Common
Stock over which Amber has shared voting power pursuant to the terms of an
irrevocable proxy (the "Series E Proxy") granted to John Bender, a designee
of Amber, by certain stockholders of the Company Mr. Bender holds voting
and investment control over the shares held by Amber pursuant to the Series
E Proxy. Beneficial ownership of Series E Preferred Stock does not include
approximately 10,705 shares of Series E Preferred Stock currently held in
Escrow. Such 10,705 shares of Series E Preferred do not have voting rights
until released from Escrow. Pursuant to the terms of the Escrow Agreement,
the funds in the Escrow are the property of Amber and the other purchasers
of Series E Preferred Stock and the shares of Series E Preferred Stock in
the Escrow are the property of the Company, in each case until delivered
pursuant to the Escrow Agreement by the Escrow Agent upon the instruction
of a representative designated by a majority in interest of the Purchasers,
who shall have sole discretion to cause the delivery of such funds and
shares at any time until May 31, 1998.
(3) Represents 279,690 shares held by Mr. Tramiel's wife as trustee of trusts
for the benefit of Mr. Tramiel's minor grandchildren. Does not include
11,597,315 shares held by Mr. Tramiel's wife and 707,611 shares held
directly by Mr. Tramiel which are subject to the Series E Proxy.
(4) Does not include 2,411,673 shares of Common Stock held by Lunenberg S.A.
which are subject to the Series E Proxy. Sirjang L. Tandon, a director of
JTS, may have shared voting power over the shares held by Lunenberg S.A.
Does not include 4,350,000 shares of Common Stock subject to the Series E
Proxy held by the Tandon Family Partnership, of which Mr. Tandon is a
general partner. Does not include 1,000,000 shares issuable pursuant to
options exercisable within 60 days of December 31, 1997 which are subject
to the Series E Proxy. Mr. Tandon disclaims beneficial ownership of the
shares held by Lunenberg S.A. and the Tandon Family Partnership except to
the extent of his shareholder and proportionate partnership interests
therein.
(5) Represents 1,270,833 shares issuable pursuant to options exercisable within
60 days of December 31, 1997. Does not include 4,010,196 shares of Common
Stock beneficially owned by Mr. Mitchell and Jintamai K. Mitchell as
trustees of the Mitchell 1990 Rev. Trust UTA 3390, as amended which are
subject to the Series E Proxy.
(6) Includes 3,896,550 shares and 40,950 shares of Common Stock held by Alta V
Limited Partnership and Custom House Partners, respectively. The 3,896,550
shares held by Alta V Limited Partnership are subject to the Series E
Proxy. Jean Deleage, a director of JTS, is Vice President of Burr, Egan,
Deleage & Co., which is a general partner of Alta V Management Partners,
L.P., a general partner of Alta V Limited Partnership, L.P. and Customs
House Partners, L.P. Mr. Eeleage and the general partners of Alta V
Management Partners, L.P. and Customs House Partners disclaim beneficial
ownership of such shares except to the extent of their proportionate
interests therein.
(7) Includes 600,000, 300,000, 200,000, 200,000, and 200,000 shares of Common
Stock held by International Venture Capital Investment Corporation; BI
Walden Ventures Kedua Sdn Bhd; Seed Ventures II Limited; OWW Pacrim
Investments Ltd.; and OCBC, Wearnes & Walden Investments (Singapore) Ltd.,
respectively. Lip-Bu Tan, a director of JTS, has investment and voting
power with respect to the shares held by each of the foregoing investment
funds. Mr. Tan disclaims beneficial ownership of such shares except to the
extent of his proportionate partnership interests therein.
(8) Includes 222,500 shares issuable pursuant to options exercisable within 60
days of December 31, 1997.
(9) Includes 245,834 shares issuable pursuant to options exercisable within 60
days of December 31, 1997.
(10) Consists of 39,583 shares issuable pursuant to options exercisable within
60 days of December 31, 1997.
(11) Consists of 82,916 shares issuable pursuant to options exercisable within
60 days of December 31, 1997.
(12) Includes 8,024,117 shares of Common Stock held by executive officers,
directors and entities affiliated with certain directors and includes
options to purchase 2,870,666 shares of Common Stock held by executive
officers and directors that are exercisable within 60 days of December 31,
1997. See footnotes (3) through (11).
9
<PAGE> 12
OTHER MATTERS
The Board of Directors knows of no other matters that will be presented for
consideration at the Annual Meeting. If any other matters are properly brought
before the meeting, it is the intention of the persons named in the accompanying
proxy to vote on such matters in accordance with their best judgment.
By Order of the Board of Directors
LOGO
Joseph A. Prezioso
San Jose, California
February 6, 1998
A COPY OF THE COMPANY'S ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION ON FORM 10-K FOR THE FISCAL YEAR ENDED FEBRUARY 2, 1997 IS AVAILABLE
WITHOUT CHARGE UPON WRITTEN REQUEST TO: CORPORATE SECRETARY, JTS CORPORATION,
166 BAYPOINTE PARKWAY, SAN JOSE, CALIFORNIA 95134.
The following documents filed with the Securities and Exchange Commission
under the Exchange Act are hereby incorporated by reference into this
Prospectus:
(a) The Company's Annual Report on Form 10-K for the fiscal year ended
February 2, 1997; and
(b) The Company's Quarterly Reports on Form 10-Q, as amended.
(c) The Company's Current Reports on Form 8-K, as amended.
10
<PAGE> 13
CERTIFICATE OF DESIGNATION OF
SERIES D CONVERTIBLE PREFERRED STOCK OF
JTS CORPORATION
The undersigned, David T. Mitchell and Joseph A. Prezioso hereby certify
that:
I. They are the duly elected and acting President and Secretary,
respectively, of JTS Corporation, a Delaware corporation (the "Company").
II. The Certificate of Incorporation of the Company, as amended,
authorizes 10,000,000 shares of preferred stock, par value $0.001 per share.
III. The following is a true and correct copy of the consent duly
adopted by the Board of Directors of the Company dated September 16, 1997, which
constituted all requisite action on the part of the Company for adoption of such
consent.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board") is
authorized to provide for the issuance of shares of preferred stock in series,
and, by filing a certificate pursuant to the applicable law of the State of
Delaware, to establish from time to time the number of shares to be included in
such series, and to fix the designations, powers, preferences and rights and
qualifications, limitations or restrictions thereof;
WHEREAS, the Board desires, pursuant to its authority as aforesaid, to
designate a new series of preferred stock, set the number of shares constituting
such series and fix the rights, preferences, privileges and restrictions of such
series;
NOW, THEREFORE, BE IT RESOLVED, that the Board hereby designates a new
series of preferred stock and the number of shares constituting such series and
fixes the designations, power, preferences, rights, qualifications, limitations,
restrictions and privileges relating to such series as follows:
SECTION 1. DESIGNATION, AMOUNT AND PAR VALUE. There are hereby
provided one series of Preferred Stock designated and to be known as "Series D
Convertible Preferred Stock" (the "Series D Preferred"). The number of shares
constituting Series D Preferred shall be twenty-eight thousand eight hundred and
two (28,802) (which shall not be subject to increase), with a par value of
$0.001.
1.
<PAGE> 14
SECTION 2. DIVIDEND RIGHTS. No dividend shall be paid or set
aside for payment with respect to Common Stock in any fiscal year, other than
dividends payable solely in common stock, unless a dividend is concurrently paid
with respect to all outstanding shares of Series D Preferred in an amount equal
per share (on an as if converted to Common Stock basis) to the amount paid or
set aside for each share of Common Stock.
SECTION 3. VOTING RIGHTS.
a. GENERAL RIGHTS. Except as otherwise provided herein
or as required by law, the Series D Preferred shall be voted together with the
shares of the Common Stock of the Company and not as a separate class, at any
annual or special meeting of stockholders of the Company, and may act by written
consent in the same manner as the Common Stock, in either case upon the
following basis: each holder of shares of Series D Preferred shall be entitled
to such number of votes as shall be equal to the whole number of shares of
Common Stock into which such holder's aggregate number of shares of Series D
Preferred are convertible (pursuant to Section 6 hereof) immediately after the
close of business on the record date fixed for such meeting or the effective
date of such written consent.
b. ELECTION OF BOARD. For so long as at least 2,500
shares of Series D Preferred remain outstanding, (i) the holders of Series D
Preferred, voting as a separate class, shall be entitled to elect one (1) member
of the Board at each meeting or pursuant to each consent of the Company's
stockholders for the election of directors, and to remove from office such
director and to fill any vacancy caused by the resignation, death or removal of
such director; (ii) the holders of Common Stock, voting as a separate class,
shall be entitled to elect six (6) members of the Board at each meeting or
pursuant to each consent of the Company's stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors; and (iii) the
holders of Common Stock and Series D Preferred, voting together as a class (on
an as if converted to Common Stock basis), shall be entitled to elect all
remaining members of the Board.
SECTION 4. LIQUIDATION RIGHTS.
a. Upon any liquidation, dissolution, or winding up of
the Company, whether voluntary or involuntary, before any distribution or
payment shall be made to the holders of any Common Stock, the holders of Series
D Preferred shall be entitled to be paid out of the assets of the Company, but
after all required distributions and payments have been made to any series of
class of stock that is senior in liquidation preference to the Series D
Preferred, an amount per share of Series D Preferred equal to the Original Issue
Price plus all declared and unpaid dividends on such shares of Preferred Stock
(as adjusted for any stock dividends, combinations, splits, recapitalizations
and the like with respect to such shares) for each share of Series D Preferred
held by them. The "Original Issue Price" of the Series D Preferred shall be
$875.00 per share.
2.
<PAGE> 15
b. The following events shall be considered a
liquidation under this Section:
(i) 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 stockholders of the Company immediately
prior to such consolidation, merger or reorganization, own less than 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 (an
"Acquisition"); or
(ii) a sale, lease or other disposition of all or
substantially all of the assets of the Company (an "Asset Transfer").
c. If, upon any liquidation, distribution, or winding
up, the assets of the Company shall be insufficient to make payment in full to
all holders of Series D Preferred of the liquidation preference set forth in
Section 4(a), then such assets shall be distributed among the holders of Series
D Preferred at the time outstanding, ratably in proportion to the full amounts
to which they would otherwise be respectively entitled.
SECTION 5. REDEMPTION.
a. At any time, and from time to time, the Company may
redeem the Series D Preferred in the event that the closing price per share of
the Common Stock on the American Stock Exchange (as reported in the Wall Street
Journal) exceeds $3.9375 (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to the Common Stock) for
twenty (20) consecutive trading days immediately preceding the issuance of the
Redemption Notice (as defined below); provided, however, that the Company may
not redeem from any holder more than one-third of the total number of Series D
Preferred Shares originally purchased by such holder during any one (1) year
period; provided further, that no such redemption shall be made unless at the
time of such redemption there shall be in effect a registration statement with
the Securities and Exchange Commission covering the resale of shares of Common
Stock issuable upon conversion of the Series D shares to be redeemed.
(i) The Company shall effect such redemptions
(the date on which a redemption occurs being referred to herein as a "Redemption
Date") by paying in cash in exchange for the shares of Series D Preferred to be
redeemed, a sum equal to the Original Issue Price per share of Series D
Preferred (as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to such shares) plus declared and
unpaid dividends with respect to such shares.
(ii) At least sixty (60) days prior to each
Redemption Date, the Company shall send a notice (a "Redemption Notice") to all
holders of Series D Preferred to be redeemed setting forth (A) the number of
shares of Series D Preferred to be redeemed; and (B)
3.
<PAGE> 16
the date and place at which such holders may obtain payment of the Redemption
Price upon surrender of their share certificates.
b. On or prior to a Redemption Date, the Company shall
deposit the Redemption Price of all shares to be redeemed with a bank or trust
company having aggregate capital and surplus in excess of $100,000,000, as a
trust fund, with irrevocable instructions and authority to the bank or trust
company to pay, on and after such Redemption Date, the Redemption Price of the
shares to their respective holders upon the surrender of their share
certificates. Any moneys deposited by the Company pursuant to this Section 5(b)
for the redemption of shares thereafter converted into shares of Common Stock
pursuant to Section 6 hereof shall be returned to the Company forthwith upon
such conversion. The balance of any funds deposited by the Company pursuant to
this Section 5(b) remaining unclaimed at the expiration of one (1) year
following such Redemption Date shall be returned to the Company promptly upon
its written request.
c. On or after such Redemption Date, each holder of
shares of Series D Preferred to be redeemed shall 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 shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by such certificates are redeemed, a new certificate shall be issued
representing the unredeemed shares. From and after such Redemption Date, all
rights of the holders of such shares as holders of Series D Preferred (except
the right to receive the Redemption Price without interest upon surrender of
their certificates), shall cease and terminate with respect to such shares,
provided that in the event that shares of Series D 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 D Preferred shall
remain outstanding and shall be entitled to all of the rights and preferences
provided herein.
SECTION 6. CONVERSION RIGHTS.
The holders of the Series D Preferred shall have the following rights
with respect to the conversion of the Series D Preferred into shares of Common
Stock (the "Conversion Rights"):
a. OPTIONAL CONVERSION. Subject to and in compliance
with the provisions of this Section 6, including the additional payment
specified in paragraph 6(d) below, shares of Series D Preferred may, at the
option of the holder, be converted at any time, and from time to time, into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which a holder of Series D Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series D Preferred
Conversion Rate" then in effect (determined as provided in Section 6(b)) by the
number of shares of Series D Preferred being converted.
4.
<PAGE> 17
b. SERIES D PREFERRED CONVERSION RATE. The conversion
rate in effect at any time for conversion of the Series D Preferred (the "Series
D Preferred Conversion Rate") shall be the quotient obtained by dividing the
Original Issue Price of the Series D Preferred by the "Series D Preferred
Conversion Price," calculated as provided in Section 6(c).
c. CONVERSION PRICE. The conversion price for the
Series D Preferred shall initially be $0.175 (the "Series D Preferred Conversion
Price"). Such initial Series D Preferred Conversion Price shall be adjusted from
time to time in accordance with this Section 6. All references to the Series D
Preferred Conversion Price herein shall mean the Series D Preferred Conversion
Price as so adjusted.
d. MECHANICS OF CONVERSION.
(i) Each holder of Series D Preferred who desires
to convert the same into shares of Common Stock pursuant to this Section 6 shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Company or any transfer agent for the Series D Preferred, shall pay in
cash to the Company the sum (the "Additional Consideration") obtained by
multiplying (A) $0.65625 (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to the Common Stock) and (B)
the number of shares of Common Stock to be issued upon such conversion, and
shall give written notice to the Company at such office that such holder elects
to convert the same. Such notice shall state the number of shares of Series D
Preferred being converted. Thereupon, the Company shall 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 and shall promptly pay in cash or,
to the extent sufficient funds are not then legally available therefor, in
Common Stock (at the Common Stock's fair market value determined by the Board of
Directors as of the date of such conversion), any declared and unpaid dividends
on the shares of Series D Preferred being converted. Such conversion shall 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 D Preferred to be
converted, and the person entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder of such shares of Common Stock on such date.
(ii) Notwithstanding the foregoing, the holders
may convert the Series D Preferred on a "net exercise" basis, described below,
and shall not, in such case, be required to deliver Additional Consideration,
but only (A) following receipt of a Redemption Notice or (B) immediately prior
to the closing of an Acquisition or Asset Transfer. If a holder elects to
convert shares of Series D Preferred on a "net exercise" basis in such event,
such holder shall be entitled to receive upon conversion of each share of Series
D Preferred that number of shares of Common Stock equal to the number yielded by
the following formula: (i) the quotient obtained by dividing (A) the Fair Market
Value, as defined below, less the Additional Consideration by (B) the Fair
Market Value, multiplied by (ii) the number of shares of Common Stock issuable
upon conversion of one share of Series D Preferred. The "Fair Market Value"
shall equal the average closing price of the Common Stock on the American Stock
Exchange (as
5.
<PAGE> 18
reported in the Wall Street Journal) for the five (5) trading days ending one
(1) day before the conversion.
(iii) In the event that there is an insufficient
number of shares of Common Stock available for issuance upon conversion of the
Series D Preferred at any time after July 9, 1998, the holders of Series D
Preferred may convert shares of Series D Preferred on a pro rata basis at the
Conversion Rate and shall be entitled to receive certificates evidencing
such number of shares as shall be issuable upon such conversion, without the
payment of the Additional Consideration.
e. ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If
the Company shall at any time or from time to time after the date that the first
share of Series D Preferred is issued (the "Original Issue Date") effect a
subdivision of the outstanding Common Stock without a corresponding subdivision
of the Preferred Stock, the Series D Preferred Conversion Price in effect
immediately before that subdivision shall be proportionately decreased.
Conversely, if the Company shall at any time or from time to time after the
Original Issue Date combine the outstanding shares of Common Stock into a
smaller number of shares without a corresponding combination of the Series D
Preferred, the Series D Preferred Conversion Price in effect immediately before
the combination shall be proportionately increased. Any adjustment under this
Section 6(e) shall become effective at the close of business on the date the
subdivision or combination becomes effective.
f. 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 Series D
Preferred Conversion Price that is then in effect shall 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 Series D Preferred
Conversion Price then in effect by a fraction (i) the numerator of which is the
total number of shares of Common Stock issued and outstanding immediately prior
to the time of such issuance or the close of business on such record date, and
(ii) the denominator of which is the total number of shares of Common Stock
issued and outstanding immediately prior to the time of such issuance or 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 Series D
Preferred Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series D Preferred Conversion
Price shall be adjusted pursuant to this Section 6(f) to reflect the actual
payment of such dividend or distribution.
g. 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
6.
<PAGE> 19
such event provision shall be made so that the holders of the Series D Preferred
shall receive upon conversion thereof, in addition to the number of shares of
Common Stock receivable thereupon, the amount of other securities of the Company
which they would have received had their Series D 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 during such period,
subject to all other adjustments called for during such period under this
Section 6 with respect to the rights of the holders of the Series D Preferred or
with respect to such other securities by their terms.
h. 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 D 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 as defined in Section 4(b) or a subdivision or
combination of shares or stock dividend or a reorganization, merger,
consolidation or sale of assets provided for elsewhere in this Section 6), in
any such event each holder of Series D Preferred shall 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
by holders of the maximum number of shares of Common Stock into which such
shares of Series D 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.
i. CAPITAL 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 as defined in
Section 4(b) or a recapitalization, subdivision, combination, reclassification,
exchange or substitution of shares provided for elsewhere in this Section 6), as
a part of such capital reorganization, provision shall be made so that the
holders of the Series D Preferred shall thereafter be entitled to receive upon
conversion of the Series D 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. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 6 with respect to
the rights of the holders of Series D Preferred after the capital reorganization
to the end that the provisions of this Section 6 (including adjustment of the
Series D Preferred Conversion Price then in effect and the number of shares
issuable upon conversion of the Series D Preferred) shall be applicable after
that event and be as nearly equivalent as practicable.
j. CERTIFICATE OF ADJUSTMENT. In each case of an
adjustment or readjustment of the Series D Preferred Conversion Price or the
number of shares of Common Stock or other securities issuable upon conversion of
the Series D Preferred, the Company, at its expense, shall compute such
adjustment or readjustment in accordance with the provisions hereof and prepare
a certificate showing such adjustment or readjustment, and shall mail such
certificate,
7.
<PAGE> 20
by first class mail, postage prepaid, to each registered holder of Series D
Preferred at the holder's address as shown in the Company's books. The
certificate shall set forth such adjustment or readjustment, showing in detail
the facts upon which such adjustment or readjustment is based, including a
statement of the Series D Preferred Conversion Price as adjusted.
k. NOTICES OF RECORD DATE. Upon (i) 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 (ii) any Acquisition (as defined in Section 4(b)) or
other capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company with or into any other corporation, or any Asset
Transfer (as defined in Section 4(b)), or any voluntary or involuntary
dissolution, liquidation or winding up of the Company, the Company shall mail to
each holder of Series D Preferred at least twenty (20) days prior to the record
date specified therein a notice specifying (A) 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, (B) the date on which any such
Acquisition, reorganization, reclassification, transfer, consolidation, merger,
Asset Transfer, dissolution, liquidation or winding up is expected to become
effective, and (C) the date, if any, that is to be fixed as to when the holders
of record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up.
l. FRACTIONAL SHARES. No fractional shares of Common
Stock shall be issued upon conversion of Series D Preferred. All shares of
Common Stock (including fractions thereof) issuable upon conversion of more than
one share of Series D Preferred by a holder thereof shall 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 shall, in lieu
of issuing any fractional share, pay cash equal to the product of such fraction
multiplied by the Common Stock's fair market value (as determined by the Board
of Directors) on the date of conversion.
m. NOTICES. Any notice required by the provisions of
this Section 5 shall be in writing and shall be deemed effectively given: (a)
upon personal delivery to the party to be notified, (b) when sent by confirmed
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 shall be
addressed to each holder of record at the address of such holder appearing on
the books of the Company.
n. 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 D Preferred, excluding any tax or other charge
imposed in connection with any transfer involved in the issue
8.
<PAGE> 21
and delivery of shares of Common Stock in a name other than that in which the
shares of Series D Preferred so converted were registered.
RESOLVED FURTHER, that the President and Secretary of the Company be,
and they hereby are, authorized and directed to prepare, execute, verify and
file with the Secretary of the State of Delaware, a Certificate of Designation
in accordance with these resolutions and as required by law.
IN WITNESS WHEREOF, JTS Corporation has caused this certificate to be
signed by David T. Mitchell, its President, and attested by Joseph A. Prezioso,
its Secretary, this 22nd day of September, 1997.
Attest: Executed:
- -------------------------------- ----------------------------------
Joseph A. Prezioso, Secretary David T. Mitchell, President
9.
<PAGE> 22
CERTIFICATE OF DESIGNATION OF
SERIES E CONVERTIBLE PREFERRED STOCK OF
JTS CORPORATION
The undersigned, David T. Mitchell and Joseph A. Prezioso hereby certify
that:
I. They are the duly elected and acting President and Secretary,
respectively, of JTS Corporation, a Delaware corporation (the "Company").
II. The Certificate of Incorporation of the Company, as amended,
authorizes 10,000,000 shares of preferred stock, par value $0.001 per
share.
III. The following is a true and correct copy of the consent duly
adopted by the Board of Directors of the Company dated December 18, 1997,
which constituted all requisite action on the part of the Company for
adoption of such consent.
RESOLUTIONS
WHEREAS, the Board of Directors of the Company (the "Board") is authorized
to provide for the issuance of shares of preferred stock in series, and, by
filing a certificate pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in such series,
and to fix the designations, powers, preferences and rights and qualifications,
limitations or restrictions thereof;
WHEREAS, the Board desires, pursuant to its authority as aforesaid, to
designate a new series of preferred stock, set the number of shares constituting
such series and fix the rights, preferences, privileges and restrictions of such
series;
NOW, THEREFORE, BE IT RESOLVED, that the Board hereby designates a new
series of preferred stock and the number of shares constituting such series and
fixes the designations, power, preferences, rights, qualifications, limitations,
restrictions and privileges relating to such series as follows:
SECTION 1. Designation, Amount and Par Value. There are hereby provided one
series of Preferred Stock designated and to be known as "Series E Convertible
Preferred Stock" (the "Series E Preferred"). The number of shares constituting
Series E Preferred shall be twenty-eight thousand eight hundred and two (28,802)
(which shall not be subject to increase), with a par value of $0.001.
SECTION 2. Dividend Rights. No dividend shall be paid or set aside for
payment with respect to Common Stock in any fiscal year, other than dividends
payable solely in common stock, unless a dividend is concurrently paid with
respect to all outstanding shares of Series E Preferred in an amount equal per
share (on an as if converted to Common Stock basis) to the amount paid or set
aside for each share of Common Stock.
SECTION 3. Voting Rights.
a. General Rights. Except as otherwise provided herein or as required by
law, the Series E Preferred shall be voted together with the shares of the
Common Stock of the Company and not as a separate class, at any annual or
special meeting of stockholders of the Company, and may act by written consent
in the same manner as the Common Stock, in either case upon the following basis:
each holder of shares of Series E Preferred shall be entitled to such number of
votes as shall be equal to the whole number of shares of Common Stock into which
such holder's aggregate number of shares of Series E Preferred are convertible
(pursuant to Section 6 hereof, but without regard to the date set forth in
paragraph 6(a)) immediately after the close of business on the record date fixed
for such meeting or the effective date of such written consent.
b. Election of Board.
(i) For so long as at least 2,500 shares of Series D Convertible
Preferred Stock (the "Series D Preferred") remain outstanding, the holders
of Series D Preferred, voting as a separate class, shall be entitled to
elect one (1) member of the Board at each meeting or pursuant to each
consent of the Company's stockholders for the election of directors, and to
remove from office such director and to fill any vacancy caused by the
resignation, death or removal of such director.
1
<PAGE> 23
(ii) For so long as at least 2,500 shares of Series E Preferred remain
outstanding, the holders of Series E Preferred, voting as a separate class,
shall be entitled to elect two (2) members of the Board at each meeting or
pursuant to each consent of the Company's stockholders for the election of
directors, and to remove from office such director and to fill any vacancy
caused by the resignation, death or removal of such director.
(iii) The holders of Common Stock, voting as a separate class, shall
be entitled to elect four (4) members of the Board at each meeting or
pursuant to each consent of the Company's stockholders for the election of
directors, and to remove from office such directors and to fill any vacancy
caused by the resignation, death or removal of such directors.
(iv) The holders of Common Stock, Series D Preferred and Series E
Preferred, voting together as a class (on an as if converted to Common
Stock basis), shall be entitled to elect all remaining members of the
Board.
SECTION 4. Liquidation Rights.
a. Upon any liquidation, dissolution, or winding up of the Company, whether
voluntary or involuntary, before any distribution or payment shall be made to
the holders of any Common Stock, the holders of Series E Preferred shall be
entitled to be paid out of the assets of the Company, but after all required
distributions and payments have been made to any series of class of stock that
is senior in liquidation preference to the Series E Preferred, an amount per
share of Series E Preferred equal to the Original Issue Price plus all declared
and unpaid dividends on such shares of Preferred Stock (as adjusted for any
stock dividends, combinations, splits, recapitalizations and the like with
respect to such shares) for each share of Series E Preferred held by them. The
"Original Issue Price" of the Series E Preferred shall be $875.00 per share.
b. The following events shall be considered a liquidation under this
Section:
(i) 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 stockholders of the Company immediately prior
to such consolidation, merger or reorganization, own less than 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 (an "Acquisition"); or
(ii) a sale, lease or other disposition of all or substantially all of
the assets of the Company (an "Asset Transfer").
c. If, upon any liquidation, distribution, or winding up, the assets of the
Company shall be insufficient to make payment in full to all holders of Series E
Preferred of the liquidation preference set forth in Section 4(a), then such
assets shall be distributed among the holders of Series E Preferred at the time
outstanding, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled.
SECTION 5. Redemption.
a. From and after August 5, 1998, at any time, and from time to time, the
Company may redeem the Series E Preferred in the event that the closing price
per share of the Common Stock on the American Stock Exchange (as reported in the
Wall Street Journal) exceeds $3.9375 (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like with respect to the Common
Stock) for twenty (20) consecutive trading days immediately preceding the
issuance of the Redemption Notice (as defined below); provided, however, that
the Company may not redeem from any holder more than one-third of the total
number of Series E Preferred Shares originally purchased by such holder during
any one (1) year period; provided further, that no such redemption shall be made
unless at the time of such redemption there shall be in effect a registration
statement with the Securities and Exchange Commission covering the resale of
shares of Common Stock issuable upon conversion of the Series E shares to be
redeemed.
(i) The Company shall effect such redemptions (the date on which a
redemption occurs being referred to herein as a "Redemption Date") by
paying in cash in exchange for the shares of Series E
2
<PAGE> 24
Preferred to be redeemed, a sum equal to the Original Issue Price per share
of Series E Preferred (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to such shares) plus
declared and unpaid dividends with respect to such shares.
(ii) At least sixty (60) days prior to each Redemption Date, the
Company shall send a notice (a "Redemption Notice") to all holders of
Series E Preferred to be redeemed setting forth (A) the number of shares of
Series E Preferred to be redeemed; and (B) the date and place at which such
holders may obtain payment of the Redemption Price upon surrender of their
share certificates.
b. On or prior to a Redemption Date, the Company shall deposit the
Redemption Price of all shares to be redeemed with a bank or trust company
having aggregate capital and surplus in excess of $100,000,000, as a trust fund,
with irrevocable instructions and authority to the bank or trust company to pay,
on and after such Redemption Date, the Redemption Price of the shares to their
respective holders upon the surrender of their share certificates. Any moneys
deposited by the Company pursuant to this Section 5(b) for the redemption of
shares thereafter converted into shares of Common Stock pursuant to Section 6
hereof shall be returned to the Company forthwith upon such conversion. The
balance of any funds deposited by the Company pursuant to this Section 5(b)
remaining unclaimed at the expiration of one (1) year following such Redemption
Date shall be returned to the Company promptly upon its written request.
c. On or after such Redemption Date, each holder of shares of Series E
Preferred to be redeemed shall 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 shall be
payable to the order of the person whose name appears on such certificate or
certificates as the owner thereof and each surrendered certificate shall be
canceled. In the event less than all the shares represented by such certificates
are redeemed, a new certificate shall be issued representing the unredeemed
shares. From and after such Redemption Date, all rights of the holders of such
shares as holders of Series E Preferred (except the right to receive the
Redemption Price without interest upon surrender of their certificates), shall
cease and terminate with respect to such shares, provided that in the event that
shares of Series E 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 E Preferred shall remain outstanding and shall be entitled
to all of the rights and preferences provided herein.
SECTION 6. Conversion Rights.
The holders of the Series E Preferred shall have the following rights with
respect to the conversion of the Series E Preferred into shares of Common Stock
(the "Conversion Rights"):
a. Optional Conversion. Subject to and in compliance with the provisions of
this Section 6, including the additional payment specified in paragraph 6(d)
below, shares of Series E Preferred may, at the option of the holder, be
converted at any time on or after August 5, 1998, and from time to time, into
fully-paid and nonassessable shares of Common Stock. The number of shares of
Common Stock to which a holder of Series E Preferred shall be entitled upon
conversion shall be the product obtained by multiplying the "Series E Preferred
Conversion Rate" then in effect (determined as provided in Section 6(b)) by the
number of shares of Series E Preferred being converted.
b. Series E Preferred Conversion Rate. The conversion rate in effect at any
time for conversion of the Series E Preferred (the "Series E Preferred
Conversion Rate") shall be the quotient obtained by dividing the Original Issue
Price of the Series E Preferred by the "Series E Preferred Conversion Price,"
calculated as provided in Section 6(c).
c. Conversion Price. The conversion price for the Series E Preferred shall
initially be $0.175 (the "Series E Preferred Conversion Price"). Such initial
Series E Preferred Conversion Price shall be adjusted from time to time in
accordance with this Section 6. All references to the Series E Preferred
Conversion Price herein shall mean the Series E Preferred Conversion Price as so
adjusted.
3
<PAGE> 25
d. Mechanics of Conversion.
(i) Each holder of Series E Preferred who desires to convert the same
into shares of Common Stock pursuant to this Section 6 shall surrender the
certificate or certificates therefor, duly endorsed, at the office of the
Company or any transfer agent for the Series E Preferred, shall pay in cash
to the Company the sum (the "Additional Consideration") obtained by
multiplying (A) $0.10 (as adjusted for any stock dividends, combinations,
splits, recapitalizations and the like with respect to the Common Stock)
and (B) the number of shares of Common Stock to be issued upon such
conversion, and shall give written notice to the Company at such office
that such holder elects to convert the same. Such notice shall state the
number of shares of Series E Preferred being converted. Thereupon, the
Company shall 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 and shall promptly pay in cash or, to the extent sufficient
funds are not then legally available therefor, in Common Stock (at the
Common Stock's fair market value determined by the Board of Directors as of
the date of such conversion), any declared and unpaid dividends on the
shares of Series E Preferred being converted. Such conversion shall 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 E Preferred
to be converted, and the person entitled to receive the shares of Common
Stock issuable upon such conversion shall be treated for all purposes as
the record holder of such shares of Common Stock on such date.
(ii) Notwithstanding the foregoing, the holders may convert the Series
E Preferred on a "net exercise" basis, described below, and shall not, in
such case, be required to deliver Additional Consideration, but only (A)
following receipt of a Redemption Notice or (B) immediately prior to the
closing of an Acquisition or Asset Transfer. If a holder elects to convert
shares of Series E Preferred on a "net exercise" basis in such event, such
holder shall be entitled to receive upon conversion of each share of Series
E Preferred that number of shares of Common Stock equal to the number
yielded by the following formula: (i) the quotient obtained by dividing (A)
the Fair Market Value, as defined below, less the Additional Consideration
by (B) the Fair Market Value, multiplied by (ii) the number of shares of
Common Stock issuable upon conversion of one share of Series E Preferred.
The "Fair Market Value" shall equal the average closing price of the Common
Stock on the American Stock Exchange (as reported in the Wall Street
Journal) for the five (5) trading days ending one (1) day before the
conversion.
(iii) In the event that there is an insufficient number of shares of
Common Stock available for issuance upon conversion of the Series E
Preferred at any time after July 9, 1998, the holders of Series E Preferred
may convert shares of Series E Preferred on a pro rata basis at the
Conversion Rate and shall be entitled to receive certificates evidencing
such number of shares as shall be issuable upon such conversion, without
the payment of the Additional Consideration.
e. Adjustment for Stock Splits and Combinations. If the Company shall at
any time or from time to time after the date that the first share of Series E
Preferred is issued (the "Original Issue Date") effect a subdivision of the
outstanding Common Stock without a corresponding subdivision of the Preferred
Stock, the Series E Preferred Conversion Price in effect immediately before that
subdivision shall be proportionately decreased. Conversely, if the Company shall
at any time or from time to time after the Original Issue Date combine the
outstanding shares of Common Stock into a smaller number of shares without a
corresponding combination of the Series E Preferred, the Series E Preferred
Conversion Price in effect immediately before the combination shall be
proportionately increased. Any adjustment under this Section 6(e) shall become
effective at the close of business on the date the subdivision or combination
becomes effective.
f. 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 Series E Preferred Conversion Price that is then
in effect shall 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 Series E Preferred Conversion Price then in effect by a fraction
(i) the numerator of
4
<PAGE> 26
which is the total number of shares of Common Stock issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date, and (ii) the denominator of which is the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or 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 Series
E Preferred Conversion Price shall be recomputed accordingly as of the close of
business on such record date and thereafter the Series E Preferred Conversion
Price shall be adjusted pursuant to this Section 6(f) to reflect the actual
payment of such dividend or distribution.
g. 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 shall be made so that the
holders of the Series E Preferred shall receive upon conversion thereof, in
addition to the number of shares of Common Stock receivable thereupon, the
amount of other securities of the Company which they would have received had
their Series E 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 during such period, subject to all other adjustments called for
during such period under this Section 6 with respect to the rights of the
holders of the Series E Preferred or with respect to such other securities by
their terms.
h. Adjustments for Certain Dilutive Issuances. If the Company at any time
or from time to time after December 18, 1997, issues upon the conversion of the
Series B Convertible Preferred Stock and the Series C Convertible Preferred
Stock and the exercise of warrants therefor outstanding as of December 18, 1997,
more than eleven million (11,000,000) shares of Common Stock (as currently
constituted, subject to adjustment for any stock dividends, combinations,
splits, recapitalizations and the like with respect to the Common Stock), in the
aggregate, in such event provision shall be made so that the holders of the
Series E Preferred shall receive upon conversion thereof, in addition to the
number of shares of Common Stock receivable thereupon, an additional amount of
shares of Common Stock computed such that the percentage ownership of the
Company, on a fully diluted basis assuming conversion of all outstanding
convertible securities and exercise of all outstanding options and warrants for
securities of the Company, held by the holders of Series E Preferred (assuming
full conversion thereof) shall be the same as it would have been had (i) only an
aggregate of eleven million (11,000,000) shares of Common Stock (as currently
constituted, subject to adjustment for any stock dividends, combinations,
splits, recapitalizations and the like with respect to the Common Stock) been
issued upon conversion of the Series B and Series C Preferred and (ii) the
Series E Preferred converted in full without regard to the provisions of this
paragraph (h). No additional consideration shall be required to be paid for any
adjustment shares issued pursuant to this paragraph (h) as long as the
consideration required to be paid pursuant to paragraph (d) above is paid for
the underlying shares of Common Stock with respect to which adjustment is
required to be made under this paragraph (h).
i. 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 E 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 as defined in Section 4(b) or a subdivision or combination of
shares or stock dividend or a reorganization, merger, consolidation or sale of
assets provided for elsewhere in this Section 6), in any such event each holder
of Series E Preferred shall 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 by holders of the
maximum number of shares of Common Stock into which such shares of Series E
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.
j. Capital 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 as defined in
5
<PAGE> 27
Section 4(b) or a recapitalization, subdivision, combination, reclassification,
exchange or substitution of shares provided for elsewhere in this Section 6), as
a part of such capital reorganization, provision shall be made so that the
holders of the Series E Preferred shall thereafter be entitled to receive upon
conversion of the Series E 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. In any such case, appropriate adjustment shall
be made in the application of the provisions of this Section 6 with respect to
the rights of the holders of Series E Preferred after the capital reorganization
to the end that the provisions of this Section 6 (including adjustment of the
Series E Preferred Conversion Price then in effect and the number of shares
issuable upon conversion of the Series E Preferred) shall be applicable after
that event and be as nearly equivalent as practicable.
k. Certificate of Adjustment. In each case of an adjustment or readjustment
of the Series E Preferred Conversion Price or the number of shares of Common
Stock or other securities issuable upon conversion of the Series E Preferred,
the Company, at its expense, shall compute such adjustment or readjustment in
accordance with the provisions hereof and prepare a certificate showing such
adjustment or readjustment, and shall mail such certificate, by first class
mail, postage prepaid, to each registered holder of Series E Preferred at the
holder's address as shown in the Company's books. The certificate shall set
forth such adjustment or readjustment, showing in detail the facts upon which
such adjustment or readjustment is based, including a statement of the Series E
Preferred Conversion Price as adjusted.
l. Notices of Record Date. Upon (i) 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 (ii) any Acquisition (as defined in Section 4(b)) or other capital
reorganization of the Company, any reclassification or recapitalization of the
capital stock of the Company, any merger or consolidation of the Company with or
into any other corporation, or any Asset Transfer (as defined in Section 4(b)),
or any voluntary or involuntary dissolution, liquidation or winding up of the
Company, the Company shall mail to each holder of Series E Preferred at least
twenty (20) days prior to the record date specified therein a notice specifying
(A) 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, (B)
the date on which any such Acquisition, reorganization, reclassification,
transfer, consolidation, merger, Asset Transfer, dissolution, liquidation or
winding up is expected to become effective, and (C) the date, if any, that is to
be fixed as to when the holders of record of Common Stock (or other securities)
shall be entitled to exchange their shares of Common Stock (or other securities)
for securities or other property deliverable upon such Acquisition,
reorganization, reclassification, transfer, consolidation, merger, Asset
Transfer, dissolution, liquidation or winding up.
m. Fractional Shares. No fractional shares of Common Stock shall be issued
upon conversion of Series E Preferred. All shares of Common Stock (including
fractions thereof) issuable upon conversion of more than one share of Series E
Preferred by a holder thereof shall 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 shall, in lieu of issuing any
fractional share, pay cash equal to the product of such fraction multiplied by
the Common Stock's fair market value (as determined by the Board of Directors)
on the date of conversion.
n. Notices. Any notice required by the provisions of this Section 5 shall
be in writing and shall be deemed effectively given: (a) upon personal delivery
to the party to be notified, (b) when sent by confirmed 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 shall be addressed to each holder
of record at the address of such holder appearing on the books of the Company.
o. 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
6
<PAGE> 28
upon conversion of shares of Series E 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 E Preferred so converted were registered.
RESOLVED FURTHER, that the President and Secretary of the Company be, and
they hereby are, authorized and directed to prepare, execute, verify and file
with the Secretary of the State of Delaware, a Certificate of Designation in
accordance with these resolutions and as required by law.
IN WITNESS WHEREOF, JTS Corporation has caused this certificate to be
signed by David T. Mitchell, its President, and attested by Joseph A. Prezioso,
its Secretary, this 31st day of December, 1997.
<TABLE>
<S> <C>
Attest: Executed:
/s/ JOSEPH A. PREZIOSO /s/ DAVID T. MITCHELL
- ----------------------------------------------- -----------------------------------------------
Joseph A. Prezioso, Secretary David T. Mitchell, President
</TABLE>
7
<PAGE> 29
REVOCABLE PROXY
JTS CORPORATION
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
PROXY SOLICITED BY THE BOARD OF DIRECTORS
FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON MARCH 12, 1998
The undersigned hereby appoints David T. Mitchell and Joseph A. Prezioso,
and each of them, as attorneys and proxies of the undersigned, with full power
of substitution, to vote all of the shares of stock of JTS Corporation which the
undersigned may be entitled to vote at the Special Meeting of Stockholders of
JTS Corporation to be held at 166 Baypointe Parkway, San Jose, California
95134, on Thursday, March 12, 1998 at 10:00 a.m. (local time), and at any and
all postponements, continuations and adjournments thereof, with all powers that
the undersigned would possess if personally present, upon and in respect of the
following matters and in accordance with the following instructions, with
discretionary authority as to any and all other matters that may properly come
before the meeting.
PROPOSAL 1: To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to increase the authorized number of shares of
Common Stock from 250,000,000 to 500,000,000 shares.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
PROPOSAL 2: To approve an amendment to the Company's Amended and Restated
Certificate of Incorporation to permit holders of at least 25% of the
outstanding voting power of the Company to call a Special Meeting of
Stockholders.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
MANAGEMENT RECOMMENDS A VOTE FOR PROPOSALS 1 AND 2.
---
----------------
Please be sure to sign and date this Proxy in the box below. Date
- --------------------------------------------------------------------------------
- ------Stockholder sign above-----------------Co-holder (if any) sign above------
- --------------------------------------------------------------------------------
Detach above card, sign, date and mail in postage paid envelope provided.
JTS CORPORATION
- --------------------------------------------------------------------------------
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF THE COMPANY.
The above signed hereby directs and authorizes said proxies, and each of
them, or their substitutes, to vote as specified above with respect to the
proposals listed in paragraphs 1 and 2. Unless otherwise specified this proxy
will be voted in favor of proposals 1 and 2.
The above signed hereby acknowledges receipt of (1) Notice of Special
Meeting of Stockholders of the Company and (2) accompanying Proxy Statement.
Please sign exactly as your name appears hereon. If the stock is
registered in the names of two or more persons, each should sign. Executors,
administrators, trustees, guardians and attorneys-in-fact should add their
titles. If signer is a corporation, please give full corporate name and have a
duly authorized officer sign, stating title. If signer is a partnership, please
sign in partnership name by authorized person.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
- --------------------------------------------------------------------------------
