EXHIBIT 3.1(a)
ARTICLES OF INCORPORATION
OF
WEBTV NETWORKS, INC.
I.
The name of this corporation is WebTV Networks, Inc.
II.
The purpose of this corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The name and address in the State of California of this corporation's
initial agent for service of process is:
Stephen G. Perlman
721 Tiana Lane
Mountain View, California 94041
IV.
The corporation is authorized to issued one (1) class of shares, designated
Common Stock, of which the corporation is authorized to issued one hundred
million (100,000,000) shares.
V.
The liability of the directors of the corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law as
the same exists or may hereafter be amended.
VI.
The corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the Corporations Code) for breach of duty to the
corporation and its stockholders through bylaw provisions or through agreements
with the agents, or both, in excess of the indemnification otherwise permitted
by Section 317 of the Corporations Code, subject to the limits on such excess
indemnification set forth in Section 204 of the Corporations Code.
The undersigned declares under penalty of perjury under the laws of the
State of California that the matters set forth in the foregoing certificate are
true of his own knowledge.
Executed on this 29th day of June, 1995.
________________________________________
Stephen G. Perlman Incorporator
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
WEBTV NETWORKS, INC.
The undersigned hereby certify that:
1. They are the President and Secretary, respectively, of WebTV Networks,
Inc., a California corporation (the "Corporation").
2. Article IV of the Articles of Incorporation of the Corporation is amended
in its entirety to read as follows:
"The Corporation is authorized to issue two classes of shares to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares the Corporation shall have the authority to issue is one
hundred million (100,000,000) shares of Common Stock, without par value, and
twenty-five million (25,000,000) shares of Preferred Stock, without par value.
Preferred Stock may be issued from time to time in one or more series.
Subject to the provisions set forth in Section 6, the Board of Directors is
authorized to fix the number of shares of any series of any Preferred Stock and
to determine or alter the rights, preferences, privileges and restrictions
granted to or imposed upon any wholly unissued series of Preferred Stock and,
within the limits and restrictions stated in any resolution or resolutions of
the Board of Directors originally fixing the number of shares constituting any
series of Preferred Stock, to increase or decrease, but not below the number of
shares of any such series then outstanding, the number of shares of any such
series subsequent to the issue of shares of that series. The first series of
Preferred Stock shall be designated "Series A Convertible Preferred" and shall
consist of one million five hundred ten thousand five hundred thirty-three
(1,510,533) shares. The second series of Preferred Stock shall be designated
"Series B Convertible Preferred" and shall consist six million five hundred
sixty-seven thousand four hundred eighty-four (6,567,484) shares. The third
series of Preferred Stock shall be designated "Series C Convertible Preferred"
and shall consist of four million nine hundred twenty thousand five hundred
sixty-eight (4,920,568) shares. The fourth series of Preferred Stock shall be
designated "Series D Convertible Preferred" and shall consist of nine million
five hundred ninety-six thousand nine hundred twenty-eight (9,596,928) shares.
The relative rights, designations, preferences, qualifications, privileges,
limitations and restrictions granted to or imposed upon the authorized Preferred
Stock and the holders thereof are as follows:
Section 1. Dividends. The holders of Series A Convertible Preferred,
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Series B Convertible Preferred, Series C Convertible Preferred and Series D
Convertible Preferred shall be entitled to receive, when, as and if declared by
the Board of Directors, out of funds legally available therefor, dividends at
the annual rate of $0.0794 per share in the case of Series A Convertible
Preferred, $0.1141 per share in the case of Series B Convertible Preferred,
$0.4979 per share in the case of Series C Convertible Preferred and $0.7294 per
share in the case of Series D Convertible Preferred held by the respective
holders thereof (appropriately adjusted for any recapitalization, stock
dividend, stock split, reverse stock split or similar event (each, a
"Recapitalization")), payable in semi-annual installments and in preference and
priority to any payment of any dividend on Junior Stock (as defined below) of
the Corporation. So long as any share of Preferred Stock is outstanding, no
deposit, payment, dividends or other distributions shall be made with respect to
the Junior Stock until all declared dividends on the Preferred Stock have been
paid or set apart. Dividends shall not be cumulative, and no right to such
dividends shall accrue to holders of Series A Convertible Preferred, Series B
Convertible Preferred, Series C Convertible Preferred or Series D Convertible
Preferred, unless declared by the Board of Directors. "Junior Stock" means
Common Stock and all other stock of the Corporation ranking junior to the
Preferred Stock as to the payment of dividends and the distribution of assets
upon liquidation. Dividends, if paid or declared and set apart for payment,
must be paid or declared and set apart for payment in full on Series A
Convertible Preferred, Series B Convertible Preferred, Series C Convertible
Preferred and Series D Convertible Preferred, as applicable.
Section 2. Liquidation Preference.
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(a) In the event of any liquidation, dissolution, or winding up of the
Corporation, either voluntary or involuntary (a "Liquidation"), the holders of
each share of Series A Convertible Preferred, Series B Convertible Preferred,
Series C Convertible Preferred and Series D Convertible Preferred shall be
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of the Corporation to the holders of the Junior Stock by
reason of their ownership of such stock, an amount equal to $0.9930 per share
for each share of Series A Convertible Preferred, $1.63 per share for each share
of Series B Convertible Preferred, $7.1130 per share for each share of Series C
Convertible Preferred and $10.42 per share for each share of Series D
Convertible Preferred then held by them, in each case adjusted for any
Recapitalization with respect to such shares and, in addition, an amount equal
to all declared but unpaid dividends on such shares (respectively, the "Series A
Convertible Preferred Liquidation Preference," the "Series B Convertible
Preferred Liquidation Preference," the "Series C Convertible Preferred
Liquidation Preference" and the "Series D Convertible Preferred Liquidation
Preference").
(b) If the assets or property to be distributed are insufficient to permit
the payment to holders of Series A Convertible Preferred, Series B Convertible
Preferred, Series C Convertible Preferred and Series D Convertible Preferred of
their full preferential amounts, the entire assets and property legally
available for distribution shall be distributed ratably among the holders of
Series A Convertible Preferred, Series B Convertible Preferred, Series C
Convertible Preferred and Series D Convertible Preferred in such a manner that
the preferential amount to be distributed to each such holder shall equal the
amount obtained by multiplying the entire assets and funds of the Corporation
legally available for distribution hereunder by a fraction, which
(i) in the case of Series A Convertible Preferred, shall have a
numerator determined by multiplying the number of shares of Series A Convertible
Preferred then held by such holder by the Series A Convertible Preferred
Liquidation Preference, and a denominator consisting of the sum of (A) the total
number of shares of Series A Convertible
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Preferred then outstanding multiplied by the Series A Convertible Preferred
Liquidation Preference, (B) the total number of shares of Series B Convertible
Preferred then outstanding multiplied by the Series B Convertible Preferred
Liquidation Preference, (C) the total number of shares of Series C Convertible
Preferred then outstanding multiplied by the Series C Convertible Preferred
Liquidation Preference and (D) the total number of shares of Series D
Convertible Preferred then outstanding multiplied by the Series D Convertible
Preferred Liquidation Preference; and
(ii) in the case of Series B Convertible Preferred, shall have a
numerator determined by multiplying the number of shares of Series B Convertible
Preferred then held by such holder by the Series B Convertible Preferred
Liquidation Preference, and a denominator consisting of the sum of (A) the total
number of shares of Series A Convertible Preferred then outstanding multiplied
by the Series A Convertible Preferred Liquidation Preference, (B) the total
number of shares of Series B Convertible Preferred then outstanding multiplied
by the Series B Convertible Preferred Liquidation Preference, (C) the total
number of shares of Series C Convertible Preferred then outstanding multiplied
by the Series C Convertible Preferred Liquidation Preference and (D) the total
number of shares of Series D Convertible Preferred then outstanding multiplied
by the Series D Convertible Preferred Liquidation Preference;
(iii) in the case of Series C Convertible Preferred, shall have a
numerator determined by multiplying the number of Series C Convertible Preferred
then held by such holder by the Series C Convertible Preferred Liquidation
Preference, and a denominator consisting of the sum of (A) the total number of
shares of Series A Convertible Preferred then outstanding multiplied by the
Series A Convertible Preferred Liquidation Preference, (B) the total number of
shares of Series B Convertible Preferred then outstanding multiplied by the
Series B Convertible Preferred Liquidation Preference, (C) the total number of
shares of Series C Convertible Preferred then outstanding multiplied by the
Series C Convertible Preferred Liquidation Preference and (D) the total number
of shares of Series D Convertible Preferred then outstanding multiplied by the
Series D Convertible Preferred Liquidation Preference; and
(iv) in the case of Series D Convertible Preferred, shall have a
numerator determined by multiplying the number of Series D Convertible Preferred
then held by such holder by the Series D Convertible Preferred Liquidation
Preference, and a denominator consisting of the sum of (A) the total number of
shares of Series A Convertible Preferred then outstanding multiplied by the
Series A Convertible Preferred Liquidation Preference, (B) the total number of
shares of Series B Convertible Preferred then outstanding multiplied by the
Series B Convertible Preferred Liquidation Preference, (C) the total number of
shares of Series C Convertible Preferred then outstanding multiplied by the
Series C Convertible Preferred Liquidation Preference and (D) the total number
of shares of Series D Convertible Preferred then outstanding multiplied by the
Series D Convertible Preferred Liquidation Preference.
(c) After payment has been made to the holders of Series A Convertible
Preferred, Series B Convertible Preferred, Series C Convertible Preferred and
Series D Convertible Preferred of the full preferential amounts to which they
shall be entitled as
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aforesaid, the holders of the Junior Stock shall be entitled to receive
distributions of the remaining assets of the Corporation in proportion to their
respective ownership of Junior Stock.
(d) For purposes of this Section 2, a Liquidation shall be deemed to be
occasioned by, or to include (i) a merger or consolidation of this Corporation
(excluding any merger effected exclusively for the purpose of changing the
domicile of this Corporation), or (ii) a sale of all or substantially all of the
assets of this Corporation, unless in either case this Corporation's
shareholders of record as constituted immediately prior to such transaction
will, immediately after such transaction (by virtue of securities issued in such
transaction or otherwise), hold at least 50% of the voting power of the
surviving or acquiring entity.
Section 3. Voting Rights.
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(a) Except as otherwise required by law or by Section 3(b) or Section 6,
the holder of each share of Common Stock issued and outstanding shall have one
vote and the holder of each share of Preferred Stock issued and outstanding
shall be entitled to the number of votes equal to the number of shares of Common
Stock into which such shares of Preferred Stock could be converted at the record
date for determination of the shareholders entitled to vote on such matters or,
if no such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited, such votes to be counted together
with all other shares of stock of the Corporation having general voting power
and not separately as a class. Holders of Common Stock, Series A Convertible
Preferred, Series B Convertible Preferred, Series C Convertible Preferred and
Series D Convertible Preferred shall be entitled to notice of any shareholders'
meeting made in accordance with the Bylaws of the Corporation. Fractional votes
by the holders of Preferred Stock shall not, however, be permitted and any
fractional voting rights shall (after aggregating all shares into which shares
of Preferred Stock held by each holder could be converted) be rounded to the
nearest whole number.
(b) So long as the holders of Series D Preferred Stock hold at least ten
percent (10%) of TVP (as defined in Section 4(d)(i)(5) below), (i) the holders
of Series D Preferred Stock, voting separately as a class, shall have the right
to elect one member of the Board of Directors of this Corporation (the "Series D
Director"), and (ii) the remaining members of the Board of Directors of this
Corporation (collectively, the "Other Directors") shall be elected by the
holders of Preferred Stock and the holders of Common Stock, voting together as a
class in accordance with Section 3(a). So long as the holders of Series D
Preferred Stock hold at least ten percent (10%) of TVP, the Series D Director
may be removed from the Board of Directors only by the affirmative vote of the
holders of a majority of Series D Preferred Stock, voting separately as a class,
and the Other Directors may be removed from the Board of Directors only by the
affirmative vote of the holders of a majority of Preferred Stock and Common
Stock, voting together as a class in accordance with Section 3(a); provided,
however, that no director may be removed (unless the entire board is removed)
when the votes cast against removal, or not consenting in writing to the
removal, would be sufficient to elect the director if voted cumulatively by the
shareholders entitled to vote thereon at an election in which the same total
number of votes were cast (or, if the action is taken by written consent, all
shares entitled to vote were voted) and the entire number of
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directors authorized at the time of the director's most recent election were
then being elected. If a vacancy on the Board of Directors is to be filled by
the Board of Directors, only a director or directors elected by the same class
or classes of shareholders as those who would be entitled to vote to fill such a
vacancy, if any, shall vote to fill such vacancy.
Section 4. Conversion. The holders of Preferred Stock have conversion
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rights as follows (the "Conversion Rights"):
(a) Right to Convert.
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(i) Each share of Series A Convertible Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for Series A Convertible Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $0.9930 plus
an amount equal to all declared but unpaid dividends on each such share on such
date by the Series A Conversion Price, determined as hereinafter provided, in
effect at the time of the conversion. The price at which Common Stock shall be
deliverable upon conversion of Series A Convertible Preferred shall initially be
$0.9027 per share of Common Stock upon the conversion of Series A Convertible
Preferred (the "Series A Conversion Price"), and shall be subject to adjustment
as set forth in this Section 4.
(ii) Each share of Series B Convertible Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for Series B Convertible Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $1.63 plus an
amount equal to all declared but unpaid dividends on each such share on such
date by the Series B Conversion Price, determined as hereinafter provided, in
effect at the time of the conversion. The price at which Common Stock shall be
deliverable upon conversion of Series B Convertible Preferred shall initially be
$1.63 per share of Common Stock upon the conversion of Series B Convertible
Preferred (the "Series B Conversion Price"), and shall be subject to adjustment
as set forth in this Section 4.
(iii) Each share of Series C Convertible Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for Series C Convertible Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $7.1130 plus
an amount equal to all declared but unpaid dividends on each such share on such
date by the Series C Conversion Price, determined as hereinafter provided, in
effect at the time of the conversion. The price at which Common Stock shall be
deliverable upon conversion of Series C Convertible Preferred shall initially be
$7.1130 per share of Common Stock upon the conversion of Series C Convertible
Preferred (the "Series C Conversion Price"), and shall be subject to adjustment
as set forth in this Section 4.
(iv) Each share of Series D Convertible Preferred shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such share at the office of the Corporation or any transfer agent
for Series D Convertible Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing $10.42
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plus an amount equal to all declared but unpaid dividends on each such share on
such date by the Series D Conversion Price, determined as hereinafter provided,
in effect at the time of the conversion. The price at which Common Stock shall
be deliverable upon conversion of Series D Convertible Preferred shall initially
be $10.42 per share of Common Stock upon the conversion of Series D Convertible
Preferred (the "Series D Conversion Price"), and shall be subject to adjustment
as set forth in this Section 4.
For purposes of this Section 4, the term "Conversion Price" shall refer to
the applicable Series A Conversion Price, the Series B Conversion Price,
Series C Conversion Price and/or Series D Conversion Price, as the case may be,
unless specifically stated otherwise.
(b) Automatic Conversion. Each share of Preferred Stock shall
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automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock of the
Corporation to the public, which public offering results in aggregate gross
proceeds to the Corporation (net of underwriting discounts and commissions) of
at least (i) $10,000,000 with a price per share of at least $7.50, in the case
of Series A Convertible Preferred, Series B Convertible Preferred and Series C
Convertible Preferred, and (ii) $40,000,000 with a price per share of at least
$11.50, in the case of Series D Convertible Preferred (in each case as adjusted
for any Recapitalization) (the "Initial Public Offering"). Notwithstanding the
foregoing, in the event of the automatic conversion of the Preferred Stock upon
the Initial Public Offering, the person(s) entitled to receive the Common Stock
issuable upon such conversion shall not be deemed to have converted such
Preferred Stock until immediately prior to the closing of such sale of
securities.
(c) Mechanics of Conversion. No fractional shares of Common Stock shall
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be issued upon conversion of Preferred Stock. In lieu of any fractional shares
to which the holder would otherwise be entitled, the Corporation shall pay cash
equal to such fraction multiplied by the then effective Conversion Price.
Before any holder of Preferred Stock shall be entitled to convert the same into
full shares of Common Stock and to receive certificates therefor, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock and shall
give written notice to the Corporation at such office that he elects to convert
the same; provided, however, that in the event of an automatic conversion
pursuant to Section 4(b), the outstanding shares of Preferred Stock shall be
converted automatically without any further action by the holders of such shares
and whether or not the certificates representing such shares are surrendered to
the Corporation or its transfer agent, and provided further that the Corporation
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon such automatic conversion unless the certificates evidencing
such shares of Preferred Stock are either delivered to the Corporation or its
transfer agent as provided above, or the holder notifies the Corporation or its
transfer agent that such certificates have been lost, stolen or destroyed and
executes an agreement satisfactory to the Corporation to indemnify the
Corporation from any loss incurred by it in connection with such certificates.
The Corporation shall, as soon as practicable after delivery of such
certificates or such agreement and indemnification in the case of a lost, stolen
or destroyed certificate, issue and
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deliver at such office to such holder of Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which he shall be
entitled as aforesaid and a check payable to the holder in the amount of any
cash amounts payable as the result of a conversion into fractional shares of
Common Stock. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Preferred Stock to be converted or, in the case of automatic conversion pursuant
to Section 4(b), on the date immediately preceding the closing of the Initial
Public Offering, and the person or persons entitled to receive the shares of
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock on such date.
Notwithstanding the foregoing, in the event of the automatic conversion of the
Preferred Stock upon the Initial Public Offering, the person(s) entitled to
receive the Common Stock issuable upon such conversion shall not be deemed to
have converted such Preferred Stock until immediately prior to the closing of
such sale of securities. The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock solely for
the purpose of effecting the conversion of the shares of the Preferred Stock as
from time to time shall be sufficient to effect the conversion of all
outstanding shares of the Preferred Stock; and if at any time the number of
authorized but unissued shares of Common Stock shall not be sufficient to effect
the conversion of all then outstanding shares of the Preferred Stock, the
Corporation shall in accordance with the laws of the State of California
increase the authorized amount of its Common Stock to a level sufficient to
permit conversion of the Preferred Stock.
(d) Adjustments to Conversion Price for Diluting Issues.
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(i) Special Definitions. For purposes of this Section 4(d) and
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Section 3(b), the following definitions shall apply:
(1) "Options" shall mean rights, options or warrants to
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subscribe for, purchase or otherwise acquire either Common Stock or Convertible
Securities.
(2) "Original Issue Date" shall mean the date on which the
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first share of Series D Convertible Preferred was first issued.
(3) "Convertible Securities" shall mean any evidences of
----------------------
indebtedness, shares (other than the Common Stock) or other securities
convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
---------------------------------
shares of Common Stock issued (or, pursuant to Section 4(d)(iii), deemed to be
issued) by the Corporation after the Original Issue Date, other than shares of
Common Stock issued or issuable at any time:
(A) upon conversion of Series A Convertible Preferred,
Series B Convertible Preferred, Series C Convertible Preferred or Series D
Convertible Preferred;
(B) to officers, directors, and employees of, and
consultants to, the Corporation to be designated and approved by the Board of
Directors;
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(C) to the Corporation's landlords or lenders which
represent, or upon exercise would represent, less than one percent (1%) of TVP
(as defined in Section 4(d)(i)(5) below) in the aggregate; or
(D) as a dividend or distribution on Series A Convertible
Preferred, Series B Convertible Preferred, Series C Convertible Preferred and
Series D Convertible Preferred if such dividend or distribution is made pro rata
based on the respective percentages of TVP represented by Series A Convertible
Preferred, Series B Convertible Preferred, Series C Convertible Preferred and
Series D Convertible Preferred on the record date for such dividend or
distribution or, if no record date is established, on the date such dividend or
distribution is made.
(5) "TVP" shall mean the total number of votes that may be
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cast in the election of directors (without taking into effect cumulative voting,
if any) of the Corporation if all securities entitled to vote generally in such
election were present and voted, assuming full conversion, exchange or exercise
of all Convertible Securities and Options of the Corporation that are issued or
granted and outstanding or reserved for issuance or grant by the Corporation.
(ii) Adjustment of Conversion Price Upon Issuance of Additional
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Shares of Common Stock. In the event that the Corporation shall issue
----------------------
Additional Shares of Common Stock (including Additional Shares of Common Stock
deemed to be issued pursuant to Section 4(d)(iii), but, excluding any shares
issued whereby an adjustment to the Conversion Price is made pursuant to
Section 4(e), (f), (g) or (h) below) without consideration or for a
consideration per share less than the Conversion Price on the date of and
immediately prior to such issue, then and in such event, the Conversion Price
shall be reduced to a price (calculated to the nearest hundredth of a cent)
determined by multiplying the Conversion Price by a fraction, the numerator of
which shall be the number of shares of Common Stock outstanding immediately
prior to such issue plus the number of shares of Common Stock which the
aggregate consideration received by the Corporation for the total number of
Additional Shares of Common Stock would purchase at the Conversion Price, and
the denominator of which shall be the number of shares of Common Stock
outstanding immediately prior to such issue plus the number of such Additional
Shares of Common Stock so issued; provided, that, for the purpose of this
Section 4(d)(ii), all shares of Common Stock issuable upon conversion of any
outstanding Preferred Stock, options, warrants, or convertible securities shall
be deemed to be outstanding. The Conversion Price shall not be so reduced at
that time if the amount of such reduction would be an amount less than one cent
($0.01), but any such amount shall be carried forward and reduction with respect
thereto made at the time of any subsequent reduction which, together with such
amount and any other amount or amounts so carried forward, shall aggregate to
one cent ($0.01) or more. No adjustment in the Series A Conversion Price shall
be made in respect of the issuance of Additional Shares of Common Stock unless
the consideration per share for an Additional Share of Common Stock issued or
deemed to be issued by the Corporation is less than the
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Series A Conversion Price in effect on the date of, and immediately prior
to, such issue. No adjustment in the Series B Conversion Price shall be made in
respect of the issuance of Additional Shares of Common Stock unless the
consideration per share for an Additional Share of Common Stock issued or deemed
to be issued by the Corporation is less than the Series B Conversion Price in
effect on the date of, and immediately prior to, such issue. No adjustment in
the Series C Conversion Price shall be made in respect of the issuance of
Additional Shares of Common Stock unless the consideration per share for an
Additional Share of Common Stock issued or deemed to be issued by the
Corporation is less than the Series C Conversion Price in effect on the date of,
and immediately prior to, such issue. No adjustment in the Series D Conversion
Price shall be made in respect of the issuance of Additional Shares of Common
Stock unless the consideration per share for an Additional Share of Common Stock
issued or deemed to be issued by the Corporation is less than the Series D
Conversion Price in effect on the date of, and immediately prior to, such issue.
Except to the limited extent provided in Section 4(d)(iii)(1)(B), Section
4(d)(iii)(1)(C) and Section 4(e), no adjustment of the Conversion Price shall
have the effect of increasing the Conversion Price above the Conversion Price in
effect immediately prior to such adjustment.
(iii) Deemed Issuance of Additional Shares of Common Stock.
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(1) Options and Convertible Securities. Except as otherwise
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provided in Section 4(d)(ii), in the event the Corporation at any time or from
time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such a record date shall have been fixed, as of the close of
business on such record date, provided that Additional Shares of Common Stock
shall not be deemed to have been issued unless the consideration per share
(determined pursuant to Section 4(d)(iv) hereof) of such Additional Shares of
Common Stock would be less than the Conversion Price and provided further that
in any such case in which Additional Shares of Common Stock are deemed to be
issued:
(A) no further adjustment in the Conversion Price shall
be made upon the subsequent issue of Convertible Securities or shares of Common
Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(B) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
Conversion Price computed upon the original issue thereof (or upon the
occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(C) upon the expiration of any such Options or any rights
of conversion or exchange under such Convertible Securities which shall not have
been exercised, the Conversion Price computed upon the original issue thereof
(or upon the
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occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed as if:
(I) in the case of Convertible Securities or Options
for Common Stock, the only Additional Shares of Common Stock issued were shares
of Common Stock, if any, actually issued upon the exercise of such Options or
the conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Corporation for
the issue of all such Options, whether or not exercised, plus the consideration
actually received by the Corporation upon such exercise, or for the issue of all
such Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(D) no readjustment pursuant to clause (B) or (C) above
shall have the effect of increasing the Conversion Price to an amount which
exceeds the lower of (i) the Conversion Price on the original adjustment date,
or (ii) the Conversion Price that would have resulted from any issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date; and
(E) in the case of any Options which expire by their
terms not more than 30 days after the date of issue thereof, no adjustment of
the Conversion Price shall be made until the expiration or exercise of all such
Options.
(iv) Determination of Consideration. For purposes of this
------------------------------
Section 4(d), the consideration received by the Corporation for the issue of any
Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property: Such consideration shall:
-----------------
(A) insofar as it consists of cash, be computed at the
aggregate amount of cash received by the Corporation excluding amounts paid or
payable for accrued interest or accrued dividends and provided further that no
deduction shall be made for any commission or expense paid or incurred by the
Corporation for any underwriting of the issue or otherwise in connection
therewith;
(B) insofar as it consists of property other than cash,
be computed at the fair value thereof at the time of such issue, as determined
in good faith by the Board of Directors; and
-10-
(C) in the event Additional Shares of Common Stock are
issued together with other shares or securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The consideration
----------------------------------
per share received by the Corporation for Additional Shares of Common Stock
deemed to have been issued pursuant to Section 4(d)(iii)(1), relating to Options
and Convertible Securities, shall be determined by dividing
(x) the total amount, if any, received or receivable by
the Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration (as
set forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration) payable to
the Corporation upon the exercise of such Options or the conversion or exchange
of such Convertible Securities, or in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities and the
conversion or exchange of such Convertible Securities by
(y) the maximum number of shares of Common Stock (as set
forth in the instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or the conversion or exchange of such Convertible
Securities.
(e) Adjustments for Subdivisions, Stock Dividends, Combinations or
--------------------------------------------------------------
Consolidation of Common Stock. In the event that the outstanding shares of
-----------------------------
Common Stock shall be subdivided or increased (by stock split, stock dividend or
otherwise), into a greater number of shares of Common Stock, the Conversion
Price then in effect shall, concurrently with the effectiveness of such
subdivision or the close of business on the record date for the determination of
holders of Common Stock entitled to receive such stock dividend, be
proportionately decreased; provided, however, that if following the record date
with respect to such stock dividend such dividend is not fully paid, the
Conversion Price shall be recomputed accordingly based on the number of shares
of Common Stock actually issued. In the event the outstanding shares of Common
Stock shall be combined or consolidated, by reclassification, reverse stock
split or otherwise, into a lesser number of shares of Common Stock, the
Conversion Price then in effect shall, concurrently with the effectiveness of
such combination or consolidation, be proportionately increased.
(f) Adjustments for Other Distributions. In the event the Corporation at
-----------------------------------
any time or from time to time makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive, any distribution
payable in securities of the Corporation (other than shares of Common Stock) or
other persons and other than as otherwise provided for elsewhere in this
Section 4, then and in each such event provision shall be made so that the
holders of Preferred Stock shall receive upon conversion thereof, in addition to
the number of shares of Common Stock receivable thereupon, the amount of
securities of the Corporation or such other person which they would have
received had their Preferred Stock
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been converted into Common Stock immediately prior to such event and had they
thereafter, during the period from the date of such event to and including the
date of conversion, retained such securities receivable by them as aforesaid
during such period, subject to all other adjustments called for during such
period under this Section 4 with respect to the rights of the holders of the
Preferred Stock.
(g) Adjustment for Reclassification, Exchange and Substitution. If the
----------------------------------------------------------
Common Stock issuable upon conversion of the Preferred Stock shall be changed
into the same or a different number of shares of any other class or classes of
stock, whether by capital reorganization, reclassification or otherwise (other
than as provided for elsewhere in this Section 4 or Section 2), the Conversion
Price then in effect shall, concurrently with the effectiveness of such
reorganization or reclassification, be proportionately adjusted such that the
Preferred Stock shall be convertible into, in lieu of the number of shares of
Common Stock which the holders would otherwise have been entitled to receive, a
number of shares of such other class or classes of stock equivalent to the
number of shares of Common Stock that would have been subject to receipt by the
holders upon conversion of the Preferred Stock immediately before that change.
(h) Adjustment for Recapitalizations. If at any time or from time to time
--------------------------------
there shall be a recapitalization of the Common Stock (other than as provided
for elsewhere in this Section 4 or Section 2) provision shall be made so that
the holders of Preferred Stock shall thereafter be entitled to receive upon
conversion of Preferred Stock the number of shares of stock or other securities
or property of this Corporation or otherwise, to which a holder of Common Stock
deliverable upon conversion would have been entitled on such recapitalization.
In any such case, appropriate adjustment shall be made in the application of the
provisions of this Section 4 with respect to the rights of the holders of
Preferred Stock after the recapitalization to the end that the provisions of
this Section 4 (including adjustment of the Conversion Price then in effect and
the number of shares purchasable upon conversion of Preferred Stock) shall be
applicable after that event as nearly equivalent as may be practicable.
(i) No Impairment. The Corporation will not, by amendment of its Articles
-------------
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
appropriate in order to protect the Conversion Rights of the holders of the
Preferred Stock against impairment.
(j) Certificate as to Adjustments. Upon the occurrence of each adjustment
-----------------------------
or readjustment of the Conversion Price pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to each affected
holder of Preferred Stock a certificate setting forth such adjustment or
readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Preferred Stock, furnish or cause to be furnished to such
holder a like certificate
-12-
setting forth (i) such adjustments and readjustments, (ii) the appropriate
Conversion Price at the time in effect and (iii) the number of shares of Common
Stock and the amount, if any, of other property which at the time would be
received upon the conversion of Preferred Stock.
(k) Notices of Record Date. In the event that this Corporation shall
----------------------
propose at any time:
(i) to declare any dividend or distribution upon its Junior Stock,
whether in cash, property, stock or other securities, whether or not a regular
cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any class
or series of its stock any additional shares of stock of any class or series or
other rights (except for offers for subscription made pursuant to the
Corporation's 1996 Stock Incentive Plan);
(iii) to effect any reclassification or recapitalization of its
Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate, or enter into any other business
combination with, or into any other corporation, or sell, lease or convey all or
substantially all its property or business, or to liquidate, dissolve or wind
up;
then, in connection with each such event, this Corporation shall send to the
holders of the Preferred Stock (1) at least twenty (20) days' prior written
notice of the date on which a record shall be taken for any such dividend,
distribution or subscription rights (and specifying the date on which the
holders of Common Stock shall be entitled thereto); and (2) in the case of the
matters referred to in (iii) and (iv) above, at least twenty (20) days' prior
written notice of the date when the same shall take place (and specifying the
date on which the holders of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon the occurrence of
such an event).
Each such written notice shall be delivered personally or given by first-
class mail, postage prepaid, addressed to the holders of the Preferred Stock at
the address for each such holder as shown on the books of this Corporation.
Section 5. Status of Converted Shares. In case shares of Preferred Stock
--------------------------
shall be converted pursuant to Section 4, the shares so converted shall be
canceled, retired and eliminated from the shares which the Corporation is
authorized to issue.
Section 6. Covenants. In addition to any other rights provided by law,
---------
this Corporation shall not, without first obtaining the approval of the majority
of the outstanding shares of Series A Convertible Preferred, Series B
Convertible Preferred and Series D Convertible Preferred, voting together as a
class on an as-converted basis:
(a) apply any of its assets to the redemption, retirement, purchase or
other acquisition directly or indirectly, through subsidiaries or otherwise, of
any shares of Preferred Stock, except as set forth in Section 7 herein;
-13-
(b) apply any of its assets to the repurchase or other acquisition
directly or indirectly, through subsidiaries or otherwise, of any shares of
Common Stock (except from directors, employees and consultants of the
Corporation upon termination of employment) exceeding $25,000 in any twelve
month period;
(c) create or issue any new class or series of stock or any new series of
Preferred Stock or reclassify any shares of Common Stock or any other stock of
the Corporation into shares having any preference or priority as to dividends or
assets superior to or on a parity with any such preference or priority of the
Preferred Stock;
(d) declare or pay dividends on or make any distribution on account of any
shares of Common Stock;
(e) merge, consolidate or sell or assign substantially all of the
Corporation's assets;
(f) increase or decrease the authorized number of shares of Preferred
Stock; and
(g) amend or repeal any provision of, or add any provision to, the
Corporation's Articles of Incorporation (as amended from time to time) that
would change the rights, preferences, privileges or limitations of the Preferred
Stock.
Section 7. Mandatory Redemption.
--------------------
(a) Series A Redemption. This Corporation shall redeem, from any source
-------------------
of funds legally available therefor, the Series A Convertible Preferred in four
annual installments beginning on March 13, 2003, and continuing thereafter each
year until March 13, 2006 (each a "Series A Redemption Date"). The Corporation
shall effect such redemptions on the applicable Series A Redemption Date by
paying in cash in exchange for the shares of Series A Convertible Preferred to
be redeemed a sum of $0.9930 per share of Series A Convertible Preferred (as
adjusted for any Recapitalization) plus all declared or accumulated but unpaid
dividends on such shares (the "Series A Redemption Price"). The number of
shares of Series A Convertible Preferred that the Corporation shall be required
under this Section 7(a) to redeem on any one Series A Redemption Date shall be
equal to the amount determined by dividing (i) the aggregate number of shares of
Series A Convertible Preferred outstanding immediately prior to the Series A
Redemption Date by (ii) the number of remaining Series A Redemption Dates
(including the Series A Redemption Date to which such calculation applies). Any
redemption effectuated pursuant to this Section 7(a) shall be made on a pro rata
basis among the holders of Series A Convertible Preferred in proportion to the
number of shares of Series A Convertible Preferred then held by such holders.
Notwithstanding anything to the contrary set forth above, this redemption
provision with respect to Series A Convertible Preferred shall terminate upon
the closing of an Initial Public Offering.
(b) Series B Redemption. This Corporation shall redeem, from any source
-------------------
of funds legally available therefor, the Series B Convertible Preferred in four
annual installments beginning on March 13, 2003, and continuing thereafter each
year until March 13, 2006 (each a "Series B Redemption Date"). The Corporation
shall effect such redemptions on the applicable Series B Redemption Date by
paying in cash in exchange for
-14-
the shares of Series B Convertible Preferred to be redeemed a sum of $1.63 per
share of Series B Convertible Preferred (as adjusted for any Recapitalization)
plus all declared or accumulated but unpaid dividends on such shares (the
"Series B Redemption Price"). The number of shares of Series B Convertible
Preferred that the Corporation shall be required under this Section 7(b) to
redeem on any one Series B Redemption Date shall be equal to the amount
determined by dividing (i) the aggregate number of shares of Series B
Convertible Preferred outstanding immediately prior to the Series B Redemption
Date by (ii) the number of remaining Series B Redemption Dates (including the
Series B Redemption Date to which such calculation applies). Any redemption
effectuated pursuant to this Section 7(b) shall be made on a pro rata basis
among the holders of Series B Convertible Preferred in proportion to the number
of shares of Series B Convertible Preferred then by held by such holders.
Notwithstanding anything to the contrary set forth above, this redemption
provision with respect to Series B Convertible Preferred shall terminate upon
the closing of an Initial Public Offering.
(c) Redemption Mechanics. At least fifteen (15) days prior to each
--------------------
Series A Redemption Date or Series B Redemption Date (in either case, a
"Redemption Date"), written notice shall be mailed, first class postage prepaid,
to each holder of record (at the close of business on the business day next
preceding the day on which notice is given) of Series A Convertible Preferred
and Series B Convertible Preferred (collectively, the "Redeemable Preferred"),
at the address last shown on the records of the Corporation for such holder,
notifying such holder of the redemption to be effected, specifying the number of
shares to be redeemed from such holder, the Redemption Date, the Series A
Redemption Price or Series B Redemption Price (in either case, the "Redemption
Price"), the place at which payment may be obtained and calling upon such holder
to surrender to the Corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed (the
"Redemption Notice"). Except as provided in Section 7(d) hereof, on or after
the Redemption Date, each holder of the Redeemable Preferred shall surrender to
this Corporation the certificate or certificates representing such shares, in
the manner and at the place designated in the Redemption Notice, and thereupon
the Redemption Price for 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 any such certificate are redeemed, a new certificate shall
be issued representing the unredeemed shares. Nothing herein shall be deemed to
prevent a holder of the Redeemable Preferred from converting all or part of such
holder's Preferred Stock into Common Stock in accordance with the terms of
Section 4 hereof at any time prior to a Redemption Date covering such shares,
and the provisions of this Section 7 shall not apply to any shares so converted.
(d) Insufficient Funds for Redemption. From and after the Redemption
---------------------------------
Date, unless there shall have been a default in payment of the Redemption Price,
all rights of the holders of shares of Redeemable Preferred designated for
redemption in the Redemption Notice (except the right to receive the Redemption
Price without interest upon surrender of their certificate or certificates),
shall cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the Corporation or be deemed to be outstanding for
any purpose whatsoever. If the funds of the Corporation legally available for
redemption
-15-
of all shares of Redeemable Preferred on any Redemption Date are insufficient to
redeem the total number of shares of Redeemable Preferred to be redeemed on such
date, those funds which are legally available will be used to redeem the maximum
possible number of such shares from holders of Series A Convertible Preferred
and from holders of Series B Convertible Preferred having an aggregate
Redemption Price equal to the total amount of funds which are legally available
for redemption multiplied by a fraction, which
(i) in the case of Series A Convertible Preferred, shall have a
numerator determined by multiplying the number of shares of Series A Convertible
Preferred then held by such holder by the Series A Redemption Price, and a
denominator consisting of the sum of (A) the total number of shares of Series A
Convertible Preferred then outstanding multiplied by the Series A Redemption
Price and (B) the total number of shares of Series B Convertible Preferred then
outstanding multiplied by the Series B Redemption Price; and
(ii) in the case of Series B Convertible Preferred, shall have a
numerator determined by multiplying the number of shares of Series B Convertible
Preferred then held by such holder by the Series B Redemption Price, and a
denominator consisting of the sum of (A) the total number of shares of Series A
Convertible Preferred then outstanding multiplied by the Series A Redemption
Price and (B) the total number of shares of Series B Convertible Preferred then
outstanding multiplied by the Series B Redemption Price.
The shares of Series A Convertible Preferred or Series B Convertible Preferred,
as the case may be, not redeemed shall remain outstanding and entitled to all
the rights and preferences provided herein, including the rights of conversion
set forth in Section 4 hereof. At any time thereafter when additional funds of
the Corporation are legally available for the redemption of shares of Redeemable
Preferred, such funds will immediately be used to redeem the balance of the
shares which the Corporation has become obliged to redeem on any Redemption Date
but which it has not redeemed in accordance with the foregoing procedures."
[intentionally left blank]
-16-
3. The foregoing amendment of Articles of Incorporation has been duly approved
by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly approved
by the required vote of shareholders in accordance with Sections 902 and
903 of the Corporations Code. The total number of outstanding shares of
the Corporation is 18,866,348 shares of Common Stock, 1,510,533 shares of
Series A Convertible Preferred Stock, 6,316,705 shares of Series B
Convertible Preferred Stock and 4,819,538 shares of Series C Convertible
Preferred Stock. The number of shares voting in favor of the amendment
equaled or exceeded the vote required. The percentage vote required was
(i) more than fifty percent (50%) of the Common Stock and the Preferred
Stock voting together as a single class, (ii) more than fifty percent (50%)
of the Common Stock voting as a single class, (iii) more than fifty percent
(50%) of the Preferred Stock voting as a single class, (iv) more than fifty
percent (50%) of the Series A Convertible Preferred Stock voting as a
single class, and (v) more than fifty percent (50%) of the Series B
Convertible Preferred Stock voting as a single class.
_______________________________
Stephen G. Perlman
President
_______________________________
Bruce A. Leak
Secretary
The undersigned declare under penalty of perjury that the matters set forth in
the foregoing certificate are true and correct of our own knowledge.
Executed in Palo Alto, California, on February ___, 1997.
______________________________
Stephen G. Perlman
_____________________________
Bruce A. Leak
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