Exhibit 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
LOG ON AMERICA, INC.
Log on America, Inc. (the "Company"), a corporation organized and
existing under the General Corporation Law of the State of Delaware, does hereby
certify that, pursuant to authority conferred upon the Board of Directors of the
Company by the Certificate of Incorporation, as amended, of the Company, and
pursuant to Section 151 of the General Corporation Law of the State of Delaware,
the Board of Directors of the Company at a meeting duly held, adopted
resolutions (i) authorizing a series of the Company's previously authorized
preferred stock, par value $0.01 per share, and (ii) providing for the
designations, preferences and relative, participating, optional or other rights,
and the qualifications, limitations or restrictions thereof, of Thirty Five
Thousand (35,000) shares of Series A Convertible Preferred Stock of the Company,
as follows:
RESOLVED, that the Company is authorized to issue 35,000
shares of Series A Convertible Preferred Stock (the "Preferred
Shares"), par value $0.01 per share, which shall have the following
powers, designations, preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear any
dividends.
(2) Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of the Company's common stock, par value $0.01 per share
(the "Common Stock"), on the terms and conditions set forth in this Section 2.
(a) Certain Defined Terms. For purposes of this
Certificate of Designations, the following terms shall have the following
meanings:
(i) "Additional Amount" means, on a per share basis,
the result of the following formula: (0.08)(N/365)($1,000).
(ii) "Business Day" means any day other than Saturday,
Sunday or other day on which commercial banks in the city of New York are
authorized or required by law to remain closed.
(iii) "Closing Bid Price" means, for any security as
of any date, the last closing bid price for such security on the Principal
Market (as defined below) as reported by Bloomberg Financial Markets
("Bloomberg"), or, if the foregoing does not apply, the last closing bid price
of such security in the over-the-counter market on the electronic bulletin board
for such
security as reported by Bloomberg, or, if no closing bid price is reported for
such security by Bloomberg, the last closing trade price of such security as
reported by Bloomberg, or, if no last closing trade price is reported for such
security by Bloomberg, the average of the bid prices of any market makers for
such security as reported in the "pink sheets" by the National Quotation Bureau,
Inc. If the Closing Bid Price cannot be calculated for such security on such
date on any of the foregoing bases, the Closing Bid Price of such security on
such date shall be the fair market value as mutually determined by the Company
and the holders of Preferred Shares. If the Company and the holders of Preferred
Shares are unable to agree upon the fair market value of the Common Stock, then
such dispute shall be resolved pursuant to Section 2(d)(iii) below with the term
"Closing Bid Price" being substituted for the term "Market Price." (All such
determinations to be appropriately adjusted for any stock dividend, stock split
or other similar transaction during such period).
(iv) "Closing Price" means, (A) with respect to any
Preferred Shares issued on the Initial Issuance Date, $16.41 (subject to
adjustment for stock slits, stock dividends, stock combinations and other
similar transactions) and (B) with respect to any Preferred Share issued after
the Initial Issuance Date, the Market Price of the Common Stock on such Issuance
Date of such Preferred Share, provided that in no event shall the Closing Price
be greater than $24.13 (subject to adjustment for stock splits, stock dividends,
stock combinations and other similar transactions).
(v) "Conversion Amount" means, the sum of (1) the
Additional Amount and (2) the Stated Value (as defined below).
(vi) "Conversion Price" means, as of any Conversion
Date (as defined below) or other date of determination, the lower of the Fixed
Conversion Price and the Floating Conversion Price, each in effect as of such
date and subject to adjustment as provided herein.
(vii) "Conversion Percentage" means 90%, subject to
adjustment as provided herein.
(viii) "Designated Senior Debt" means any and all
indebtedness, liabilities and/or obligations of the Company outstanding (whether
or not due and payable) under the Nortel Networks Credit Facility.
(ix) "Designated Senior Debt Representative" means,
with respect to the Nortel Networks Credit Agreement, the "Administrative Agent"
as such term is defined in the Nortel Networks Credit Agreement.
(x) "Fixed Conversion Price" means, with respect to
any Preferred Share, as of any Conversion Date or other date of determination
(A) prior to the date which is 182 days after the applicable Issuance Date, 150%
of the Closing Price on the applicable Issuance Date and (B) on and after the
date which is 182 days after the applicable Issuance Date, the lower of (I) the
Fixed Conversion Price in effect on the date immediately preceding the date
which is 182 days after the applicable Issuance Date and (II) 120% of the
arithmetic average of the Closing Bid Price of the Common Stock on the 10
consecutive trading days immediately preceding the date
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which is 182 days after the applicable Issuance Date, in each case subject to
adjustment as provided herein.
(xi) "Floating Conversion Price" means, as of any date
of determination, the product of (A) the Conversion Percentage multiplied by (B)
the lowest Closing Bid Price of the Common Stock during the three (3)
consecutive trading days ending on and including such date of determination. All
such determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
(xii) "Initial Issuance Date" means the first date on
which the Company issues Preferred Shares pursuant to the Securities Purchase
Agreement.
(xiii) "Initial Preferred Shares" means Preferred
Shares which are issued on the Initial Issuance Date.
(xiv) "Issuance Date" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(xv) "Maturity Date" means the date which is three (3)
years after the applicable Issuance Date, unless extended pursuant to Section
2(d)(vii) or pursuant to Section 3(t) of the Registration Rights Agreement (as
defined below), which extension shall be equal to two times the aggregate number
of days of all Grace Periods (as defined in Section 3(u) of the Registration
Rights Agreement).
(xvi) "Market Price" means, with respect to any
security for any period, that price which shall be computed as the arithmetic
average of the Weighted Average Price for such security on each of the 5
consecutive trading days immediately preceding such date of determination. All
such determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period.
(xvii) "N" means the number of days from, but
excluding, the last Dividend Date with respect to which dividends, along with
any Default Interest, has been paid by the Company on the applicable Preferred
Share, or the Issuance Date if no Dividend Date has occurred, through and
including the Conversion Date, the Maturity Date or other date of determination
for such Preferred Share, as the case may be, for which such determination is
being made.
(xviii) "Nortel Networks Credit Agreement" means that
certain Credit Agreement dated as of January 31, 2000 among the Company, Nortel
Networks Inc. and the other lenders parties thereto from time to time (the
"Lenders") and Nortel Networks Inc. as administrative agent for the Lenders, as
such credit agreement may be amended, modified, increased, supplemented,
renewed, extended, restated or refinanced from time to time, but only to the
extent that such amendment, modification, increase, supplement, renewal,
extension, restatement or refinancing does not (A) amend Section 9.4(d), Section
9.4(e), Section 9.4(f), Section 9.4(g) or Section 9.4(h) of the Nortel Networks
Credit Agreement (or the analogous provisions of any refinancing agreement) in
any manner that would adversely affect the rights of the holders of the
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Preferred Shares to receive Restricted Payments (as defined in the Nortel
Networks Credit Agreement) pursuant to any such Section (or the analogous
provisions of any refinancing agreement) or otherwise amend the Nortel Networks
Credit Agreement in any manner that would effectively accomplish any of the
foregoing referred to in this clause (A), or (B) amend Section 11.1(q), Section
11.1(t) or Section 11.1(u) of the Nortel Networks Credit Agreement (or the
analogous provisions of any refinancing agreement) in any manner that would
allow the Designated Senior Debt Representative or any of the Lenders (as
defined in the Nortel Networks Credit Agreement) to claim that an Event of
Default (as defined in Section 11.1 of the Nortel Networks Credit Agreement (or
the analogous provisions of any refinancing agreement)) has occurred under any
such Section (or the analogous provisions of any refinancing agreement) which
such Person would not have, absent such amendment, been able to claim prior to
such amendment or otherwise amend the Nortel Networks Credit Agreement in any
manner that would effectively accomplish any of the foregoing referred to in
this clause (B).
(xix) "Nortel Networks Credit Facility" means the
Nortel Networks Credit Agreement and the Credit Facility evidenced and/or
governed by the Nortel Networks Credit Agreement.
(xx) "Owed Designated Senior Debt" means, as of any
date of determination, all Designated Senior Debt which is then due and owing by
the Company.
(xxi) "Person" means an individual, a limited
liability company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or agency
thereof.
(xxii) "Principal Market" means the Nasdaq National
Market or if the Common Stock is not traded on the Nasdaq National Market, then
the principal securities exchange or trading market for the Common Stock.
(xxiii) "Registration Rights Agreement" means that
certain registration rights agreement between the Company and the initial
holders of the Preferred Shares relating to the filing of a registration
statement covering the resale of the shares of Common Stock issuable upon
conversion of the Preferred Shares.
(xxiv) "SEC" means the United States Securities and
Exchange Commission.
(xxv) "Securities Purchase Agreement" means that
certain securities purchase agreement between the Company and the initial
holders of the Preferred Shares.
(xxvi) "Stated Value" means $1,000.
(xxvii) "Warrants" means warrants to acquire shares of
Common Stock issued pursuant to the Securities Purchase Agreement.
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(xxviii) "Weighted Average Price" means, for any
security as of any date, the dollar volume-weighted average price for such
security on the Principal Market as reported by Bloomberg through its "Volume at
Price" function or, if the foregoing does not apply, the dollar volume-weighted
average price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no dollar
volume-weighted average price is reported for such security by Bloomberg, the
average of the bid prices of each of the market makers for such security as
reported in the "pink sheets" by the National Quotation Bureau, Inc. If the
Weighted Average Price cannot be calculated for such security on such date on
any of the foregoing bases, the Weighted Average Price of such security on such
date shall be the fair market value as mutually determined by the Company and
the holders of the Preferred Shares. If the Company and the holders of the
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(d)(iii) below
with the term "Weighted Average Price" being substituted for the term "Market
Price." All such determinations to be appropriately adjusted for any stock
dividend, stock split or other similar transaction during such period.
(b) Holder's Conversion Right; Mandatory Conversion.
Subject to the provisions of Section 5, at any time or times on or after the
applicable Issuance Date, any holder of Preferred Shares shall be entitled to
convert any whole or fractional number of Preferred Shares into fully paid and
nonassessable shares of Common Stock in accordance with Section 2(d), at the
Conversion Rate (as defined below). If any Preferred Shares remain outstanding
on the Maturity Date, then all such Preferred Shares shall be converted at the
Conversion Rate as of such date in accordance with Section 2(d). The Company
shall not issue any fraction of a share of Common Stock upon any conversion. All
shares of Common Stock (including fractions thereof) issuable upon conversion of
more than one Preferred Share by a holder thereof shall be aggregated for
purposes of determining whether the conversion would result in the issuance of a
fraction of a share of Common Stock. If, after the aforementioned aggregation,
the issuance would result in the issuance of a fraction of a share of Common
Stock, the Company shall round such fraction of a share of Common Stock up or
down to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 2(b) shall
be determined according to the following formula (the "Conversion Rate"):
Conversion Amount
-----------------
Conversion Price
(d) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert
Preferred Shares into shares of Common Stock on any date (the "Conversion
Date"), the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Time on such date, a
copy of a fully executed notice of conversion in the form attached hereto as
Exhibit I (the "Conversion Notice") to the Company and (B) if required by
Section 2(d)(viii), surrender to a common carrier for delivery to the Company as
soon as practicable following such date the original
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certificates representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "Preferred Stock Certificates").
(ii) Company's Response. Upon receipt by the Company
of a copy of a Conversion Notice, the Company (I) shall immediately send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder
and the Company's designated transfer agent (the "Transfer Agent"), which
confirmation shall constitute an instruction to the Transfer Agent to process
such Conversion Notice in accordance with the terms herein and (II) on or before
the second Business Day following the date of receipt by the Company of the
facsimile or other copy of such Conversion Notice (the "Share Delivery Date"),
(A) issue and deliver to the address as specified in the Conversion Notice, a
certificate, registered in the name of the holder or its designee, for the
number of shares of Common Stock to which the holder shall be entitled, or (B)
provided the Transfer Agent is participating in The Depository Trust Company
("DTC") Fast Automated Securities Transfer Program, upon the request of the
holder, credit such aggregate number of shares of Common Stock to which the
holder shall be entitled to the holder's or its designee's balance account with
DTC through its Deposit Withdrawal Agent Commission system. If the number of
Preferred Shares represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being converted, then
the Company shall, as soon as practicable and in no event later than three
Business Days after receipt of the Preferred Stock Certificate(s) (the
"Preferred Stock Delivery Date") and at its own expense, issue and deliver to
the holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as
to the determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall instruct the Transfer Agent to issue to the
holder the number of shares of Common Stock that is not disputed and shall
submit the disputed determinations or arithmetic calculations to the holder via
facsimile within one (1) Business Day of receipt of such holder's Conversion
Notice. If such holder and the Company are unable to agree upon the
determination of the Market Price or arithmetic calculation of the Conversion
Rate within three (3) Business Days of such disputed determination or arithmetic
calculation being submitted to the holder, then the Company shall within one (1)
Business Day submit via facsimile (A) the disputed determination of the Market
Price to an independent, reputable investment bank selected by the Company and
approved by the holders of at least two-thirds of the Preferred Shares then
outstanding or (B) the disputed arithmetic calculation of the Conversion Rate to
the Company's independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than three (3) Business Days from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert.
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(A) Cash Damages. If within three (3) Business
Days after the Company's receipt of the facsimile copy of a Conversion Notice
the Company shall fail to issue a certificate (which certificate, to the extent
set forth in Section 2(g) of the Securities Purchase Agreement, does not have
any restrictive legend) to a holder or credit such holder's balance account with
DTC for the number of shares of Common Stock to which such holder is entitled
upon such holder's conversion of Preferred Shares or to issue a new Preferred
Stock Certificate representing the number of Preferred Shares to which such
holder is entitled pursuant to Section 2(d)(ii), in addition to all other
available remedies which such holder may pursue hereunder and under the
Securities Purchase Agreement (including indemnification pursuant to Section 8
thereof), the Company shall pay additional damages to such holder for each date
after the Share Delivery Date such conversion is not timely effected and/or each
date after the Preferred Stock Delivery Date such Preferred Stock Certificate is
not delivered in an amount equal to 0.5% of the sum of (a) the product of (I)
the number of shares of Common Stock not issued to the holder on or prior to the
Share Delivery Date and to which such holder is entitled and (II) the Closing
Bid Price of the Common Stock on the Share Delivery Date, and (b) in the event
the Company has failed to deliver a Preferred Stock Certificate to the holder on
or prior to the Preferred Stock Delivery Date, the product of (y) the number of
shares of Common Stock issuable upon conversion of the Preferred Shares
represented by such Preferred Stock Certificate, as of the Preferred Stock
Delivery Date and (z) the Closing Bid Price of the Common Stock on the Preferred
Stock Delivery Date. If the Company fails to pay the additional damages set
forth in this Section 2(d)(v) within five Business Days of the date incurred,
then the holder entitled to such payments shall have the right at any time, so
long as the Company continues to fail to make such payments, to require the
Company, upon written notice, to immediately issue, in lieu of such cash
damages, the number of shares of Common Stock equal to the quotient of (X) the
aggregate amount of the damages payments described herein divided by (Y) the
Conversion Price in effect on such Conversion Date as specified by the holder in
the Conversion Notice. The foregoing notwithstanding, the damages set forth in
this Section 2(d)(v)(A) shall be stayed with respect to the number of shares of
Common Stock and, if applicable, the Preferred Stock Certificate for which there
is a good faith dispute being resolved pursuant to, and within the time periods
provided for in Section 2(d)(iii), pending the resolution of such dispute.
Notwithstanding the foregoing, the Company shall not be obligated to make
payments pursuant to this Section 2(d)(v)(A) in excess of $500,000 (the "Cash
Cap Amount"). Each Purchaser (as defined in Section 15 below) shall not be
entitled to receive cash damages pursuant to this Section 2(d)(v)(A) in excess
of the product of (A) the Cash Cap Amount and (B) a fraction, the numerator of
which is the number of Initial Preferred Shares and Mandatory Preferred Shares
(each as defined in the Securities Purchase Agreement) issued to such Purchaser
pursuant to the Securities Purchase Agreement and the denominator of which is
the aggregate amount of all the Initial Preferred Shares and the Mandatory
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cash Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cash
Allocation Amount. In the event that any holder of Preferred Shares shall have
converted all of such holder's Preferred Shares and received the Common Stock
issuable upon such conversions prior to such holder receiving all of its Cash
Allocation Amount, then the difference between such holder's Cash Allocation
Amount and the cash damages actually paid to such holder pursuant to this
Section 2(d)(v)(A) shall be allocated to the respective Cash Allocation Amounts
of the remaining holders of Preferred Shares on a pro rata basis in proportion
to the number of Preferred Shares then held by each such holder.
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(B) Void Conversion Notice; Adjustment to
Conversion Price. If for any reason a holder has not received all of the shares
of Common Stock prior to the tenth (10th) Business Day after the Share Delivery
Date with respect to a conversion of Preferred Shares, then the holder, upon
written notice to the Company, with a copy to the Transfer Agent, may void its
Conversion Notice with respect to, and retain or have returned, as the case may
be, any Preferred Shares that have not been converted pursuant to such holder's
Conversion Notice; provided that the voiding of a holder's Conversion Notice
shall not effect the Company's obligations to make any payments which have
accrued prior to the date of such notice pursuant to Section 2(d)(v)(A) or
otherwise. Thereafter, the Fixed Conversion Price of any Preferred Shares
returned or retained by the holder for failure to timely convert shall be
adjusted to the lesser of (I) the Fixed Conversion Price as in effect on the
date on which the holder voided the Conversion Notice and (II) the lowest
Closing Bid Price during the period beginning on the Conversion Date and ending
on the date such holder voided the Conversion Notice.
(C) Redemption. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) Business
Day after the Share Delivery Date with respect to a conversion of Preferred
Shares (a "Conversion Failure"), then the holder, upon written notice to the
Company, may require that the Company redeem, subject to and in accordance with
Section 3, all Preferred Shares held by such holder, including the Preferred
Shares previously submitted for conversion and with respect to which the Company
has not delivered shares of Common Stock.
(vi) Pro Rata Conversion. In the event the Company
receives a Conversion Notice from more than one holder of Preferred Shares for
the same Conversion Date and the Company can convert some, but not all, of such
Preferred Shares, the Company shall convert from each holder of Preferred Shares
electing to have Preferred Shares converted at such time a pro rata amount of
such holder's Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such holder relative
to the number of Preferred Shares submitted for conversion on such date.
(vii) Mandatory Conversion or Redemption at Maturity.
If any Preferred Shares remain outstanding on the Maturity Date, then all such
Preferred Shares, at the Company's option, either (i) shall be converted at the
Maturity Date Conversion Price (as defined below) for such Preferred Shares as
of such date without the holders of such Preferred Shares being required to give
a Conversion Notice on the Maturity Date (a "Maturity Date Mandatory
Conversion"), or (ii) shall be redeemed as of such date for an amount in cash
per Preferred Share (the "Maturity Date Redemption Price") equal to the
Liquidation Preference (as defined in Section 11) (a "Maturity Date Mandatory
Redemption"). The Company shall be deemed to have elected a Maturity Date
Mandatory Redemption unless it delivers written notice to each holder of
Preferred Shares at least 20 Business Days prior to the Maturity Date of its
election to effect a Maturity Date Mandatory Conversion. If the Company elects a
Maturity Date Mandatory Redemption, then on the Maturity Date the Company shall
pay to each holder of Preferred Shares outstanding on the Maturity Date, by wire
transfer of immediately available funds, an amount per Preferred Share equal to
the Maturity Date Redemption Price. If the Company elects a Maturity Date
Mandatory Redemption and fails to redeem all of the Preferred Shares outstanding
on the Maturity Date by payment of the
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Maturity Date Redemption Price, then in addition to any remedy such holder of
Preferred Shares may have under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement, (X) the applicable
Maturity Date Redemption Price payable in respect of such unredeemed Preferred
Shares shall bear interest at the rate of 2.0% per month, prorated for partial
months, until paid in full, and (Y) any holder of Preferred Shares shall have
the option to require the Company to convert any or all of such holder's
Preferred Shares that the Company elected (or is deemed to have elected) to
redeem under this Section 2(d)(vii) and for which the Maturity Date Redemption
Price (together with any interest thereon) has not been paid into the number of
shares of Common Stock such holder would have received if such holder had given
a Conversion Notice for such Preferred Shares on the Maturity Date. On the
Maturity Date, all holders of Preferred Shares shall surrender all Preferred
Stock Certificates, duly endorsed for cancellation, to the Company or the
Transfer Agent. If the Company has elected a Maturity Date Mandatory Conversion
or has failed to pay the Maturity Date Redemption Price in a timely manner as
described above, then the Maturity Date shall be extended for any Preferred
Shares for as long as (A) the conversion of such Preferred Shares would violate
the provisions of Section 5, (B) a Triggering Event or a Liquidity Default shall
have occurred and be continuing, or (C) an event shall have occurred and be
continuing which with the passage of time and the failure to cure would result
in a Triggering Event or a Liquidity Default. In addition to the extension
described in the foregoing sentence, the Maturity Date shall be extended by two
(2) days for each day during a Grace Period (as defined in Section 3(u) of the
Registration Rights Agreement). For purposes of this Section 2(d)(vii),
"Maturity Date Conversion Price" means 95% of the arithmetic average of the
Closing Bid Prices of the Common Stock on the 15 consecutive trading days
immediately preceding the Maturity Date.
(viii) Book-Entry. Notwithstanding anything to the
contrary set forth herein, upon conversion of Preferred Shares in accordance
with the terms hereof, the holder thereof shall not be required to physically
surrender the certificate representing the Preferred Shares to the Company
unless the full number of Preferred Shares represented by the certificate are
being converted. The holder and the Company shall maintain records showing the
number of Preferred Shares so converted and the dates of such conversions or
shall use such other method, reasonably satisfactory to the holder and the
Company, so as not to require physical surrender of the certificate representing
the Preferred Shares upon each such conversion. In the event of any dispute or
discrepancy, such records of the Company shall be controlling and determinative
in the absence of manifest error. Notwithstanding the foregoing, if Preferred
Shares represented by a certificate are converted as aforesaid, the holder may
not transfer the certificate representing the Preferred Shares unless the holder
first physically surrenders the certificate representing the Preferred Shares to
the Company, whereupon the Company will forthwith issue and deliver upon the
order of the holder a new certificate of like tenor, registered as the holder
may request, representing in the aggregate the remaining number of Preferred
Shares represented by such certificate. The holder and any assignee, by
acceptance of a certificate, acknowledge and agree that, by reason of the
provisions of this paragraph, following conversion of any Preferred Shares, the
number of Preferred Shares represented by such certificate may be less than the
number of Preferred Shares stated of the face thereof. Each certificate for
Preferred Shares shall bear the following legend:
ANY TRANSFEREE OF THIS CERTIFICATE SHOULD CAREFULLY REVIEW THE TERMS OF
THE COMPANY'S CERTIFICATE OF DESIGNATIONS, PREFERENCES AND
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RIGHTS OF THE PREFERRED SHARES REPRESENTED BY THIS CERTIFICATE,
INCLUDING SECTION 2(d)(viii) THEREOF. THE NUMBER OF PREFERRED SHARES
REPRESENTED BY THIS CERTIFICATE MAY BE LESS THAN THE NUMBER OF
PREFERRED SHARES STATED ON THE FACE HEREOF PURSUANT TO SECTION
2(d)(viii) OF THE CERTIFICATE OF DESIGNATIONS, PREFERENCES AND RIGHTS.
(e) Taxes. The Company shall pay any and all taxes other
than capital gain taxes or other income taxes that may be payable with respect
to the issuance and delivery of Common Stock upon the conversion of Preferred
Shares.
(f) Adjustments to Conversion Price. The Conversion Price
will be subject to adjustment from time to time as provided in this Section
2(f).
(i) Adjustment of Fixed Conversion Price upon Issuance
of Common Stock. If and whenever on or after the date of issuance of the
Preferred Shares, the Company issues or sells, or in accordance with this
Section 2(f) is deemed to have issued or sold, any shares of Common Stock
(including the issuance or sale of shares of Common Stock owned or held by or
for the account of the Company, but excluding (a) the Excluded Securities (as
defined below) and (b) shares of Common Stock deemed to have been issued by the
Company in connection with an Approved Stock Plan (as defined below) or upon
conversion of the Preferred Shares or exercise of the Warrants) for a
consideration per share less than a price (the "Applicable Price") equal to the
Fixed Conversion Price in effect immediately prior to such time, then
immediately after such issue or sale, the Fixed Conversion Price then in effect
shall be reduced to an amount equal to such consideration per share. For
purposes of determining the adjusted Fixed Conversion Price under this Section
2(f)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any
manner grants or sells any Options (as defined below) and the lowest price per
share for which one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange of any Convertible Securities (as
defined below) issuable upon exercise of such Option is less than the Applicable
Price, then such share of Common Stock shall be deemed to be outstanding and to
have been issued and sold by the Company at the time of the granting or sale of
such Option for such price per share. For purposes of this Section 2(f)(i)(A),
the "lowest price per share for which one share of Common Stock is issuable upon
the exercise of any such Option or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Option" shall be equal to
the sum of the lowest amounts of consideration (if any) received or receivable
by the Company with respect to any one share of Common Stock upon granting or
sale of the Option, upon exercise of the Option and upon conversion or exchange
of any Convertible Security issuable upon exercise of such Option. No further
adjustment of the Fixed Conversion Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
10
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible Securities and the lowest
price per share for which one share of Common Stock is issuable upon such
conversion or exchange thereof is less than the Applicable Price, then such
share of Common Stock shall be deemed to be outstanding and to have been issued
and sold by the Company at the time of the issuance of sale of such Convertible
Securities for such price per share. For the purposes of this Section
2(f)(i)(B), the "lowest price per share for which one share of Common Stock is
issuable upon such conversion or exchange" shall be equal to the sum of the
lowest amounts of consideration (if any) received or receivable by the Company
with respect to any one share of Common Stock upon the issuance or sale of the
Convertible Security and upon the conversion or exchange of such Convertible
Security. No further adjustment of the Fixed Conversion Price shall be made upon
the actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issue or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Fixed Conversion Price had been or are to be made pursuant to other provisions
of this Section 2(f)(i), no further adjustment of the Fixed Conversion Price
shall be made by reason of such issue or sale.
(C) Change in Option Price or Rate of Conversion.
If the purchase or exercise price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock changes at any time, the Fixed
Conversion Price in effect at the time of such change shall be adjusted to the
Fixed Conversion Price which would have been in effect at such time had such
Options or Convertible Securities provided for such changed purchase price,
additional consideration or changed conversion rate, as the case may be, at the
time initially granted, issued or sold. For purposes of this Section 2(f)(i)(C),
if the terms of any Option or Convertible Security that was outstanding as of
the date of issuance of the Preferred Shares are changed in the manner described
in the immediately preceding sentence, then such Option or Convertible Security
and the Common Stock deemed issuable upon exercise, conversion or exchange
thereof shall be deemed to have been issued as of the date of such change. No
adjustment shall be made if such adjustment would result in an increase of the
Fixed Conversion Price then in effect.
(D) Calculation of Consideration Received. In case
any Option is issued in connection with the issue or sale of other securities of
the Company, together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $0.01. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the net amount received by the Company therefor. If any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company will be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company will be the Market Price of such
securities on the date of receipt. If any Common Stock, Options or Convertible
11
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving entity, the amount of
consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
jointly by the Company and the holders of a majority of the Preferred Shares
then outstanding. If such parties are unable to reach agreement within 10 days
after the occurrence of an event requiring valuation (the "Valuation Event"),
the fair value of such consideration will be determined within five Business
Days after the tenth (10th) day following the Valuation Event by an independent,
reputable appraiser jointly selected by the Company and the holders of a
majority of the Preferred Shares then outstanding. The determination of such
appraiser shall be deemed binding upon all parties absent manifest error and the
fees and expenses of such appraiser shall be borne equally by the Company and
the holders of the Preferred Shares.
(E) Record Date. If the Company takes a record of
the holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities or (2) to subscribe for or purchase Common Stock, Options
or Convertible Securities, then such record date will be deemed to be the date
of the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(F) Certain Definitions. For purposes of this
Section 2(f)(i), the following terms have the respective meanings set forth
below:
(I) "Approved Stock Plan" shall mean any
employee benefit plan which has been approved by the Board of Directors of the
Company, pursuant to which the Company's securities may be issued to any
employee, officer or director for services provided to the Company.
(II) "Common Stock Deemed Outstanding" means,
at any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 2(f)(i)(A) and 2(f)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion of the Preferred Shares or exercise of the
Warrants.
(III) "Convertible Securities" means any stock
or securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(IV) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(V) "Excluded Securities" means (A) provided
such security is issued at a price which is greater than or equal to the
arithmetic average of the Closing Bid Prices of the Common Stock for the ten
(10) consecutive trading days immediately preceding the date of issuance, any of
the following (i) any issuance by the Company of securities in connection with a
strategic partnership or a joint venture (the primary purpose of which is not to
12
raise equity capital) and (ii) any issuance by the Company of securities as
consideration for a merger or consolidation or the acquisition of a business,
product, license, or other assets of another person or entity, (B) any warrants
or options outstanding as of the Initial Issuance Date which have not been
modified or amended since such Initial Issuance Date and (C) options to purchase
shares of Common Stock, provided (I) such options are issued after the Initial
Issuance Date to employees of the Company within 30 days of such employee
starting their employment with the Company, (II) an aggregate of no more than
1,000,000 options are issued in reliance on this exclusion and (III) the
exercise price of such options is not less than 75% of the market price of the
Common Stock on the date of issuance of such options..
(ii) Adjustment of the Fixed Conversion Price upon
Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
one or more classes of its outstanding shares of Common Stock into a greater
number of shares, the Fixed Conversion Price in effect immediately prior to such
subdivision will be proportionately reduced. If the Company at any time combines
(by combination, reverse stock split or otherwise) one or more classes of its
outstanding shares of Common Stock into a smaller number of shares, the Fixed
Conversion Price in effect immediately prior to such combination will be
proportionately increased.
(iii) Holder's Right of Alternative Floating
Conversion Price Following Issuance of Convertible Securities. If the Company in
any manner issues or sells any Options or Convertible Securities after the
applicable Issuance Date that are convertible into or exchangeable or
exercisable for Common Stock at a price which may vary with the market price of
the Common Stock, including by way of one or more resets to the conversion,
exchange or exercise price of such Convertible Security or Option (the
formulation for such variable price being herein referred to as, the "Variable
Price"), the Company shall provide written notice thereof via facsimile and
overnight courier to each holder of the Preferred Shares ("Variable Notice") on
the date of issuance of such Convertible Securities. From and after the date the
Company issues any such Convertible Securities with a Variable Price, a holder
of Preferred Shares shall have the right, but not the obligation, in its sole
discretion to substitute the Variable Price for the Floating Conversion Price
upon conversion of any Preferred Shares by designating in the Conversion Notice
delivered upon conversion of such Preferred Shares that solely for purposes of
such conversion the holder is relying on the Variable Price rather than the
Floating Conversion Price then in effect. A holder's election to rely on a
Variable Price for a particular conversion of Preferred Shares shall not
obligate the holder to rely on a Variable Price for any future conversions of
Preferred Shares.
(iv) Adjustment of the Conversion Price Upon Major
Corporate Event Announcement. In the event (A) the Company makes a public
announcement that it proposes or intends to consolidate or merge with or into
another Person or engage in a business combination involving the issuance or
exchange of more than 30% of the Company's outstanding Common Stock, (B) the
Company makes a public announcement that it intends to sell or transfer all or
substantially all of the Company's assets, or (C) any Person (including the
Company) publicly announces a purchase, tender or exchange offer for more than
30% of the Company's outstanding Common Stock (the transactions described in
clauses (A), (B) and (C) above are hereinafter referred to as "Major Corporate
Events" and the date of the announcement referred to in clause (A), (B) or (C)
is hereinafter referred to as the "Announcement Date"), then the Fixed
Conversion Price shall,
13
effective upon the Announcement Date and continuing through and including the
Adjusted Conversion Price Termination Date (as defined below), be equal to the
Conversion Price which would have been applicable for a conversion by the holder
on the Announcement Date. From and after the Adjusted Conversion Price
Termination Date, the Fixed Conversion Price shall be determined as set forth in
Section 2. For purposes hereof, "Adjusted Conversion Price Termination Date"
shall mean, with respect to any proposed Major Corporate Event for which a
public announcement as contemplated by this Section 2(f)(iv) has been made, the
date upon which the Company or other Person (in the case of clause (C) above)
consummates or publicly announces the termination or abandonment of the proposed
Major Corporate Event which was the subject of the previous public announcement.
(v) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 2(f) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion Price as
otherwise determined pursuant to this Section 2(f).
(vi) Notices.
(A) Immediately upon any adjustment of the
Conversion Price, the Company will give written notice thereof to each holder of
Preferred Shares, setting forth in reasonable detail, and certifying, the
calculation of such adjustment.
(B) The Company will give written notice to each
holder of Preferred Shares at least ten (10) Business Days prior to the date on
which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock or (III) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
(C) The Company will also give written notice to
each holder of Preferred Shares at least ten (10) Business Days prior to the
date on which any Organic Change, dissolution or liquidation will take place,
provided that such information shall be made known to the public prior to or in
conjunction with such notice being provided to such holder.
14
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event. In addition
to all other rights of the holders of Preferred Shares contained herein, after a
Triggering Event (as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to the greater of (i) 125% of the Liquidation Preference and (ii) the product of
(A) the Conversion Rate in effect at such time as such holder delivers a Notice
of Redemption at Option of Buyer (as defined below) and (B) the Closing Bid
Price of the Common Stock on the date immediately preceding such Triggering
Event on which the Principal Market is open for trading ("Redemption Price"),
which redemption shall be subject to and in accordance with the provisions of
this Section 3.
(b) "Triggering Event". A "Triggering Event" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the applicable Registration
Statement (as defined in the Registration Rights Agreement) to be declared
effective by the SEC on or prior to the date that is 20 days after the
applicable Effectiveness Deadline (as defined in the Registration Rights
Agreement), provided that such Triggering Event occurs on or prior to November
30, 2000;
(ii) while the Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Preferred Shares for sale of all of the Registrable
Securities (as defined in the Registration Rights Agreement) in accordance with
the terms of the Registration Rights Agreement, and such lapse or unavailability
continues for a period of five consecutive trading days or for more than an
aggregate of 10 trading days in any 365-day period, excluding days during an
Allowable Grace Period (as defined in the Registration Rights Agreement),
provided that such Triggering Event occurs on or prior to November 30, 2000;
(iii) the Company's notice or the Transfer Agent's
notice, at the Company's direction to any holder of Preferred Shares, including
by way of public announcement, at any time, of its intention not to comply with
a request for conversion of any Preferred Shares into shares of Common Stock
that is tendered in accordance with the provisions of this Certificate of
Designations, excluding, however, notices that relate solely to a dispute under
resolution pursuant to Section 2(d)(iii), provided that such dispute has not
been publicly disclosed, provided that such Triggering Event occurs on or prior
to June 30, 2001;
(iv) a Conversion Failure (as defined in Section
2(d)(v)(C)) other than a Conversion Failure which results solely from the
Company not being obligated to issue shares of Common Stock upon the conversion
of Preferred Shares due to the provisions of Section 15, provided that such
Triggering Event occurs on or prior to June 30, 2001;
(v) the Company shall have failed to receive the
Stockholder Approval (as defined in the Securities Purchase Agreement) on or
prior to the Stockholder Meeting
15
Deadline (as defined in the Securities Purchase
Agreement) in accordance with Section 4(m) of the Securities Purchase Agreement,
provided that such Triggering Event occurs on or before November 30, 2000; or
(vi) the Company breaches any representation,
warranty, covenant or other term or condition of the Securities Purchase
Agreement, the Registration Rights Agreement, the Warrants or this Certificate
of Designations, except to the extent that such breach would not have a Material
Adverse Effect (as defined in Section 3(a) of the Securities Purchase Agreement)
and except, in the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least 10 days, provided that such Triggering
Event occurs on or before June 30, 2001.
(c) Mechanics of Redemption at Option of Buyer. Within one
(1) Business Day after the occurrence of a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier ("Notice of
Triggering Event") to each holder of Preferred Shares and to the Designated
Senior Debt Representative. In addition, within one (1) Business Day after the
occurrence of a Triggering Event described in Section 3(b)(v), the Company shall
notify each holder of Preferred Shares and to the Designated Senior Debt
Representative by facsimile of the Company's irrevocable election to either (i)
redeem all Preferred Shares submitted for redemption pursuant to this Section
3(c) based on the Triggering Event described in Section 3(b)(v), or (ii) to
delist from the Principal Market within five Business Days of the occurrence of
such Triggering Event described in Section 3(b)(v) so that the Exchange Cap no
longer applies and is of no force or effect after such fifth Business Day. If
the Company fails to deliver written notice pursuant to the preceding sentence
within one (1) Business Day of the occurrence of such Triggering Event or if the
Company elects to delist the Common Stock from the Principal Market pursuant to
the preceding sentence but fails to delist the Common Stock from the Principal
Market such that the Exchange Cap no longer applies and is of no force or effect
on or prior to such fifth Business Day, then the Company shall be deemed to have
irrevocably elected to redeem all Preferred Shares submitted for redemption
pursuant to this Section 3(c) based on the Triggering Event described in Section
3(b)(v). Except as otherwise described in the two preceding sentences, at any
time after the earlier of a holder's receipt of a Notice of Triggering Event and
such holder becoming aware of a Triggering Event, any holder of Preferred Shares
then outstanding may require the Company to redeem up to all of such holder's
Preferred Shares by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer") to the Company and
the Designated Senior Debt Representative provided that such Notice of
Redemption at Option of Buyer upon Triggering Event may only be sent during the
period beginning on and including the date of the occurrence of the Triggering
Event and ending on and including the later of the date which is (a) 30 days
after the date on which such holder of the Preferred Shares receives a Notice of
Triggering Event from the Company with respect to such Triggering Event and (b)
the date on which such Triggering Event is cured and such holder receives
written notice from the Company confirming such Triggering Event has been cured
and, provided further, that any notice required to be delivered to the
Designated Senior Debt Representative by the holders of the Preferred Shares
pursuant to this Section 3(c) shall be delivered to Nortel Networks Inc., GMS
991 15 A40, 2221 Lakeside Blvd., Richardson, Texas 75082-4399, Attention Paul D.
Day, Vice President, Customer Finance North America and Charles M. Helm, Esq.
(Telephone: 972-684-2271, Facsimile: 972-684-3679), and Mail Stop 468/05/B40,
2100 Lakeside Blvd., Richardson, Texas 75083-3858, Attention: Kimberly Poe,
Director, Loan Administration (Telephone: 972-684-7687, Facsimile: 972-685-3255)
or such other
16
address or facsimile number as may be specified in writing from time to time by
the Designated Senior Debt Representative and provided to each holder of
Preferred Shares at least five (5) Business Days prior to the date on which a
holder sends a Notice of Redemption at Option of Buyer. A Notice of Redemption
at Option of Buyer shall indicate (i) the number of Preferred Shares that such
holder is electing to redeem and (ii) the applicable Redemption Price, as
calculated pursuant to Section 3(a) above. Notwithstanding the foregoing, no
holder of Preferred Shares shall be entitled to deliver a Notice of Redemption
at Option of Buyer after (i) with respect to a Triggering Event described in
Section 3(b)(i), Section 3(b)(ii) or Section 3(b)(v), November 30, 2000, or (ii)
with respect to a Triggering Event described in Section 3(b)(iii), Section
3(b)(iv) or Section 3(b)(vi), June 30, 2001.
(d) Payment of Redemption Price. Upon the Company's
receipt of a Notice(s) of Redemption at Option of Buyer from any holder of
Preferred Shares, the Company shall immediately notify each other holder of
Preferred Shares and the Designated Senior Debt Representative by facsimile of
the Company's receipt of such notices. Each holder which has sent such a notice
shall, if required pursuant to Section 2(d)(viii), promptly submit to the
Transfer Agent such holder's Preferred Stock Certificates which such holder has
elected to have redeemed. Subject to Section 3(i), the Company shall deliver the
applicable Redemption Price to such holder on the date which is ten (10)
Business Days after the Company's and the Designated Senior Debt
Representative's receipt of a Notice of Redemption at Option of Buyer (such
notice shall be deemed to have been received by the Company and the Designated
Senior Debt Representative if delivered in accordance with Section 9(f) of the
Securities Purchase Agreement to the address set forth in Section 3(c) above or
pursuant to an effective subsequent notice of change of address); provided that
a holder's Preferred Stock Certificates shall have been so delivered to the
Transfer Agent. Subject to Section 3(i), if the Company is unable to redeem all
of the Preferred Shares submitted for redemption, the Company shall (i) redeem a
pro rata amount from each holder of Preferred Shares based on the number of
Preferred Shares submitted for redemption by such holder relative to the total
number of Preferred Shares submitted for redemption by all holders of Preferred
Shares and (ii) in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations and the Securities Purchase
Agreement, pay to each holder interest at the rate of 2.0% per month (prorated
for partial months) in respect of each unredeemed Preferred Share until paid in
full.
(e) Void Redemption. In the event that the Company does
not pay the Redemption Price within the time period set forth in Section 3(d),
at any time thereafter and until the Company pays such unpaid applicable
Redemption Price in full, a holder of Preferred Shares shall have the option
(the "Voidable Redemption Option") to, in lieu of redemption, require the
Company to promptly return to such holder any or all of the Preferred Shares
that were submitted for redemption by such holder under this Section 3 and for
which the applicable Redemption Price (together with any interest thereon) has
not been paid, by sending written notice thereof to the Company via facsimile
(the "Voidable Redemption Notice"). Upon the Company's receipt of such Voidable
Redemption Notice, (i) the Notice of Redemption at Option of Buyer shall be null
and void with respect to those Preferred Shares subject to the Voidable
Redemption Notice, and (ii) the Company shall immediately return any Preferred
Shares subject to the Voidable Redemption Notice, and (iii) the delivery of the
Voidable Redemption Notice shall constitute a Liquidity Default described in
Section 3(g)(vii) with respect to the returned Preferred Shares.
17
(f) Disputes; Miscellaneous. In the event of a dispute as
to the determination of the Closing Bid Price or the arithmetic calculation of
the Redemption Price, such dispute shall be resolved pursuant to Section
2(d)(iii) above with the term "Closing Bid Price" being substituted for the term
"Market Price" and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Voidable Redemption Notice and
exercise of its rights following such notice shall not effect the Company's
obligations to make any payments which have accrued prior to the date of such
notice. In the event of a redemption pursuant to this Section 3 of less than all
of the Preferred Shares represented by a particular Preferred Stock Certificate,
the Company shall promptly cause to be issued and delivered to the holder of
such Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been redeemed.
(g) Liquidity Defaults. A "Liquidity Default" shall be
deemed to have occurred at such time as any of the following events:
(i) the failure of the applicable Registration
Statement to be declared effective by the SEC on or prior to the date that is 20
days after the applicable Effectiveness Deadline, provided that with respect to
a particular holder of Preferred Shares, such holder has not delivered a Notice
of Redemption at Option of Holder pursuant to Section 3(b)(i) with respect to
such event on or before November 30, 2000;
(ii) while any Registration Statement is required to
be maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of such Registration Statement lapses for any
reason (including, without limitation, the issuance of a stop order) or is
unavailable to the holder of the Preferred Shares for sale of all of the
Registrable Securities in accordance with the terms of the Registration Rights
Agreement, and such lapse or unavailability continues for a period of five
consecutive trading days or for more than an aggregate of 10 trading days in any
365-day period, excluding days during an Allowable Grace Period, provided that
with respect to a particular holder of Preferred Shares, such holder has not
delivered a Notice of Redemption at Option of Holder pursuant to Section
3(b)(ii) with respect to such event on or before November 30, 2000;
(iii) the Company's notice or the Transfer Agent's
notice, at the Company's direction, to any holder of Preferred Shares, including
by way of public announcement, at any time, of its intention not to comply with
a request for conversion of any Preferred Shares into shares of Common Stock
that is tendered in accordance with the provisions of this Certificate of
Designations, excluding, however, notices that relate solely to a dispute under
resolution pursuant to Section 2(d)(iii), provided that such dispute has not
been publicly disclosed, and further provided that with respect to a particular
holder of Preferred Shares, such holder has not delivered a Notice of Redemption
at Option of Holder pursuant to Section 3(b)(iii) with respect to such event on
or before June 30, 2001;
(iv) a Conversion Failure other than a Conversion
Failure which results from the Company not being obligated to issue shares of
Common Stock upon the conversion of Preferred Shares due to the provisions of
Section 15, provided that with respect to a particular
18
holder of Preferred Shares, such holder has not delivered a Notice of Redemption
at Option of Holder pursuant to Section 3(b)(iv) with respect to such event on
or before June 30, 2001;
(v) the suspension from trading or failure of the
Common Stock to be listed on the Nasdaq National Market or The New York Stock
Exchange, Inc. for a period of five (5) consecutive trading days or for more
than an aggregate of 10 trading days in any 365-day period; or
(vi) with respect to a particular holder of Preferred
Shares, such holder's delivery of a Voidable Redemption Notice to the Company.
As soon as practicable but in no event later than one (1) day after the
occurrence of a Liquidity Default, the Company shall deliver written notice
thereof via facsimile and overnight courier (a "Company's Liquidity Default
Notice") to each holder of Preferred Shares.
(h) Rights of the Holders of the Preferred Shares upon the
Occurrence of a Liquidity Default. In addition to any other remedies the holders
of the Preferred Shares may have at law or in equity, if a Liquidity Default
occurs then:
(i) if the Liquidity Default is pursuant to Section
3(g)(i), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage of the Preferred
Shares relating to the Registration Statement which is the subject of such
Liquidity Default and in effect immediately prior to such Liquidity Default
shall be permanently reduced (subject to further reduction pursuant to this
Certificate of Designations subsequent to such reduction) by 25 percentage
points and (z) the Fixed Conversion Price of the Preferred Shares relating to
the Registration Statement which is the subject of such Liquidity Default shall
be permanently adjusted (subject to further adjustment pursuant to this
Certificate of Designations subsequent to such adjustment) to equal the lesser
of (I) the Fixed Conversion Price in effect for such Preferred Shares on the
date which is 15 days after the applicable Effectiveness Deadline or (II) the
product of (a) 0.68 multiplied by (b) the lowest Unadjusted Floating Conversion
Price (as defined below) during the period beginning on and including the
applicable Effectiveness Deadline and ending on and including ((alpha)) on any
date prior to the date the Registration Statement is declared effective by the
SEC, the Conversion Date or other date of determination with respect to which
the determination is being made with respect to this Section 3(h)(i) and
((beta)) on any date on or after the date the Registration Statement is declared
effective by the SEC, the date the Registration Statement was declared effective
by the SEC;
(ii) if the Liquidity Default is pursuant to Section
3(g)(ii), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage of the Preferred
Shares relating to the Registration Statement which is the subject of such
Liquidity Default and in effect immediately prior to such Liquidity Default
shall be permanently reduced (subject to further reduction pursuant to this
Certificate of Designations subsequent to such reduction) by 25 percentage
points and (z) the Fixed Conversion Price of the Preferred Shares of the
Preferred Shares relating to the Registration Statement which is the subject of
such Liquidity Default shall be permanently adjusted (subject to further
adjustment pursuant to this Certificate of Designations subsequent to such
adjustment) to equal the lesser of (I)
19
the Fixed Conversion Price in effect for such Preferred Shares on the date of
the initial occurrence of such Liquidity Default or (II) the product of (a) 0.68
multiplied by (b) the lowest Unadjusted Floating Conversion Price during the
period beginning on and including the date of the initial occurrence of such
Liquidity Default and ending on and including ((alpha)) on any date prior to the
date on which the Company cures such Liquidity Default and delivers written
notice to each holder of Preferred Shares stating that such Liquidity Default
has been cured, the Conversion Date or other date of determination with respect
to which the determination is being made with respect to this Section 3(h)(ii)
and ((beta)) on any date on or after the date on which the Company cures such
Liquidity Default and delivers written notice to each holder of Preferred Shares
stating that such Liquidity Default has been cured, the date on which the
Company cured such Liquidity Default and delivered written notice to each holder
of Preferred Shares stating that such Liquidity Default had been cured;
(iii) if the Liquidity Default is pursuant to Section
3(g)(iii), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage in effect
immediately prior to such Liquidity Default shall be permanently reduced
(subject to further reduction pursuant to this Certificate of Designations
subsequent to such reduction) by 25 percentage points and (z) the Fixed
Conversion Price of the Preferred Shares shall be permanently adjusted (subject
to further adjustment pursuant to this Certificate of Designations subsequent to
such adjustment) to equal the lesser of (I) the Fixed Conversion Price in effect
for such Preferred Shares on the date of the initial occurrence of such
Liquidity Default or (II) the product of (a) 0.68 multiplied by (b) the lowest
Unadjusted Floating Conversion Price during the period beginning on and
including the date of the initial occurrence of such Liquidity Default and
ending on and including ((alpha)) on any date prior to the date on which the
Company announces that it is resuming, and in fact resumes, honoring conversions
of the Preferred Shares in compliance with this Certificate of Designations, the
Conversion Date or other date of determination with respect to which the
determination is being made with respect to this Section 3(h)(iii) and ((beta))
on any date on or after the date on which the Company announces that it was
resuming, and it in fact resumed, honoring conversions of the Preferred Shares
in compliance with this Certificate of Designations, the date on which the
Company announced that it was resuming, and it in fact resumed, honoring resumed
conversions of the Preferred Shares in compliance with this Certificate of
Designations;
(iv) if the Liquidity Default is pursuant to clause
(iv) or (v) of Section 3(g), then immediately upon the occurrence of such a
Liquidity Default (and from time to time as applicable), (y) the Conversion
Percentage in effect immediately prior to such Liquidity Default shall be
permanently reduced (subject to further reduction pursuant to this Certificate
of Designations subsequent to such reduction) by 25 percentage points and (z)
the Fixed Conversion Price of the Preferred Shares shall be permanently adjusted
(subject to further adjustment pursuant to this Certificate of Designations
subsequent to such adjustment) to equal the lesser of (I) the Fixed Conversion
Price in effect for such Preferred Shares on the date of the initial occurrence
of such Liquidity Default or (II) the product of (a) 0.68 multiplied by (b) the
lowest Unadjusted Floating Conversion Price during the period beginning on and
including the date of the initial occurrence of such Liquidity Default and
ending on and including ((alpha)) on any date prior to the date on which the
Company cures such Liquidity Default and delivers written notice to each holder
of Preferred Shares stating that such Liquidity Default has been cured, the
Conversion Date or other date of determination with respect to which the
determination is being made with respect to this Section
20
3(h)(iv) and ((beta)) on any date on or after the date on which the Company
cures such Liquidity Default and delivers written notice to each holder of
Preferred Shares stating that such Liquidity Default has been cured, the date on
which the Company cured such Liquidity Default and delivered written notice to
each holder of Preferred Shares stating that such Liquidity Default had been
cured;
(v) if the Liquidity Default is pursuant to Section
3(g)(vi), then immediately upon the occurrence of such a Liquidity Default (and
from time to time as applicable), (y) the Conversion Percentage in effect
immediately prior to such Liquidity Default shall be permanently reduced
(subject to further reduction pursuant to this Certificate of Designations
subsequent to such reduction) by 25 percentage points and (z) the Fixed
Conversion Price of the Preferred Shares shall be permanently adjusted (subject
to further adjustment pursuant to this Certificate of Designations subsequent to
such adjustment) to equal the lesser of (I) the Fixed Conversion Price in effect
for such Preferred Shares on the date of such Liquidity Default or (II) the
product of (a) 0.68 multiplied by (b) the lowest Unadjusted Floating Conversion
Price during the period beginning on and including the date of the initial
occurrence of the Triggering Event with respect to which the holder delivered
the Voidable Redemption Notice resulting in such Liquidity Default and ending on
and including the date the holder delivered the Voidable Redemption Notice
resulting in such Liquidity Default.
"Unadjusted Floating Conversion Price" means, with respect to any Liquidity
Default, the Floating Conversion Price of the applicable Preferred Shares prior
to adjustment for the change in Conversion Percentage pursuant to clause (y) of
the applicable provision of this Section 3(h) which resulted from the Liquidity
Default with respect to which an adjustment is being determined under this
Section 3(h).
(i) Subordinations of Payments and Rights. The Company and each holder
of Preferred Shares hereby agree that, notwithstanding anything to the contrary
contained in this Certificate of Designations, those present or future rights or
claims of such holder of Preferred Shares to require the Company to repurchase,
redeem or otherwise make payments, or to pay dividends, distributions, penalties
or other payments with respect to or in connection with the Preferred Shares
pursuant to Section 2(d)(v)(C), Section 3 and Section 4(b) hereof and Section 8
of the Securities Purchase Agreement now or hereafter owned by such holder or
any purchaser, transferee or assignee of such holder with respect to any
Preferred Shares (the "Subordinated Claims") shall be subordinate and junior in
right of payment to the payment in full of all Owed Designated Senior Debt.
Furthermore, the Company will not directly or indirectly make or pay, and
neither shall any holder of Preferred Shares take, accept or receive, any
payment or other amounts (except payments or amounts made in shares of Common
Stock or pursuant to Sections 4(c) or 13) with respect to or in connection with
the Subordinated Claims of such Person unless and until all Owed Designated
Senior Debt has been paid in full. Furthermore, in the event that any payment or
other amounts (except payments or amounts made in shares of Common Stock or
pursuant to Sections 4(c) or 13) with respect to or in connection with the
Subordinated Claims of any such holder of Preferred Shares is received by such
holder in contravention of this Section 3(i), then such holder of Preferred
Shares will forthwith deliver the same to the Designated Senior Debt
Representative and, until so delivered, the same shall be held in trust by such
holder for the benefit of the holders of the Designated Senior Debt. All
covenants and agreements contained in this Section 3(i) shall bind the Company,
the holders of the Preferred Shares and their successors and
21
assigns and shall inure to the benefit of the holders of the Designated Senior
Debt, the Designated Senior Debt Representatives and their respective successors
and assigns.
(4) Other Rights of Holders.
(a) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as "Organic Change." Prior to
the consummation of any (i) sale of all or substantially all of the Company's
assets to an acquiring Person or (ii) other Organic Change following which the
Company is not a surviving entity, the Company will secure from the Person
purchasing such assets or the successor resulting from such Organic Change (in
each case, the "Acquiring Entity") a written agreement (in form and substance
satisfactory to the holders of at least two-thirds (2/3) of the Preferred Shares
then outstanding) to deliver to each holder of Preferred Shares in exchange for
such shares, a security of the Acquiring Entity evidenced by a written
instrument substantially similar in form and substance to the Preferred Shares,
including, without limitation, having a stated value and liquidation preference
equal to the Stated Value and the Liquidation Preference of the Preferred Shares
held by such holder, and satisfactory to the holders of a at least two-thirds
(2/3) of the Preferred Shares then outstanding. Prior to the consummation of any
other Organic Change, the Company shall make appropriate provision (in form and
substance satisfactory to the holders of at least two-thirds (2/3) of the
Preferred Shares then outstanding) to insure that each of the holders of the
Preferred Shares will thereafter have the right to acquire and receive in lieu
of or in addition to (as the case may be) the shares of Common Stock immediately
theretofore acquirable and receivable upon the conversion of such holder's
Preferred Shares such shares of stock, securities or assets that would have been
issued or payable in such Organic Change with respect to or in exchange for the
number of shares of Common Stock which would have been acquirable and receivable
upon the conversion of such holder's Preferred Shares as of the date of such
Organic Change (without taking into account any limitations or restrictions on
the convertibility of the Preferred Shares).
(b) Optional Redemption Upon Change of Control. In
addition to the rights of the holders of Preferred Shares under Section 4(a),
upon a Change of Control (as defined below) of the Company each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to the greater of (A) 125% of the Liquidation
Preference and (B) the Product of (I) the Conversion Rate on the date the holder
of Preferred Shares gives a Notice of Redemption upon Change of Control and (II)
the arithmetic average of the Closing Bid Prices of the Common Stock during the
five trading days immediately preceding such date ("Change of Control Redemption
Price"). At least 20 Business Days prior to the consummation of a Change of
Control, the Company shall deliver written notice thereof via facsimile and
overnight courier (a "Notice of Change of Control") to each holder of Preferred
Shares and the Designated Senior Debt Representative. The Company shall
publically announce such Change of Control on or prior to the date the Company
provides a Notice of Change of Control, which public announcement shall include
all information included in the Notice of Change of Control. At any time during
the period beginning
22
after receipt of a Notice of Change of Control (or, in the event a Notice of
Change of Control is not delivered at least 20 Business Days prior to a Change
of Control, at any time on or after the date which is 20 Business Days prior to
the Change of Control) and ending on and including the date which is 10 Business
Days prior to the date of such Change of Control, any holder of the Preferred
Shares then outstanding may require the Company to redeem all or a portion of
the holder's Preferred Shares then outstanding by delivering written notice
thereof via facsimile and overnight courier (a "Notice of Redemption Upon Change
of Control") to the Company and the Designated Senior Debt Representative, which
Notice of Redemption Upon Change of Control shall indicate (i) the number of
Preferred Shares that such holder is submitting for redemption, and (ii) the
applicable Change of Control Redemption Price, as calculated pursuant to this
Section 4(b). Upon the Company's receipt of a Notice(s) of Redemption Upon
Change of Control from any holder of Preferred Shares, the Company shall
promptly, but in no event later than one (1) Business Day following such
receipt, notify each holder of Preferred Shares by facsimile of the Company's
receipt of such Notice(s) of Redemption Upon Change of Control. Subject to
Section 3(i), the Company shall deliver the applicable Change of Control
Redemption Price simultaneous with the consummation of the Change of Control;
provided that, if required by Section 2(d)(viii), a holder's Preferred Stock
Certificates shall have been so delivered to the Company. Notwithstanding
anything to the contrary in this Section 4(b) or Section 3(i), after June 30,
2001, the Company will not directly or indirectly make or pay, and neither shall
any holder of Preferred Shares take, accept or receive, any payment or other
amounts pursuant to this Section 4(b) with respect to or in connection with a
Change of Control that is consummated after June 30, 2001 unless and until
either (i) all Designated Senior Debt has been paid in full and the Company has
terminated the Nortel Networks Credit Agreement or (ii) the Designated Senior
Debt Representative consents to such payments in writing. In the event that the
Company receives a Notice of Redemption Upon Change of Control with respect to a
Change of Control to be consummated after June 30, 2001, the Company shall pay
down all Designated Senior Debt and terminate the Nortel Networks Credit
Agreement with ten (10) Business Days of the Company's receipt of such Notice of
Redemption Upon Change of Control. Furthermore, in the event that any payment or
other amounts paid by the Company pursuant to this Section 4(b) with respect to
or in connection with a Change of Control which is consummated after June 30,
2001 is received by a holder of Preferred Shares in contravention of this
Section 4(b), then such holder of Preferred Shares will forthwith deliver the
same to the Designated Senior Debt Representative and, until so delivered, the
same shall be held in trust by such holder for the benefit of the holders of the
Designated Senior Debt. All covenants and agreements contained in this Section
4(b) shall bind the Company, the holders of the Preferred Shares and their
successors and assigns and shall inure to the benefit of the holders of the
Designated Senior Debt, the Designated Senior Debt Representatives and their
respective successors and assigns. Payments provided for in this Section 4(b)
shall have priority to payments to other stockholders in connection with a
Change of Control. Notwithstanding the above, but subject to Section 5, any
holder of Preferred Shares may convert any Preferred Shares (including any
Preferred Share designated for redemption) into Common Stock pursuant to Section
2 at any time prior to such Change of Control. Notwithstanding anything to the
contrary in this Section 4(b), at any time prior to a Change of Control, a
holder of Preferred Shares shall have the option (the "Change of Control
Voidable Redemption Option") to require the Company to promptly return to such
holder any or all of the Preferred Shares that were submitted for redemption by
such holder under this Section 4(b) by sending written notice thereof to the
Company and the Designated Senior Debt Representative via facsimile (the "Change
of Control Voidable Redemption Notice"). Upon the Company's receipt of such
Change of Control
23
Voidable Redemption Notice, (i) the Notice of Redemption upon Change of Control
shall be null and void with respect to those Preferred Shares subject to the
Change of Control Voidable Redemption Notice, and (ii) the Company shall
immediately return any Preferred Shares subject to the Change of Control
Voidable Redemption Notice. For purposes of this Section 4(b), "Change of
Control" means (i) the consolidation, merger or other business combination of
the Company with or into another Person (other than (A) a consolidation, merger
or other business combination in which holders of the Company's voting power
immediately prior to the transaction continue after the transaction to hold,
directly or indirectly, the voting power of the surviving entity or entities
necessary to elect a majority of the members of the board of directors (or their
equivalent if other than a corporation) of such entity or entities, or (B)
pursuant to a migratory merger effected solely for the purpose of changing the
jurisdiction of incorporation of the Company), (ii) the sale or transfer of all
or substantially all of the Company's assets, or (iii) a purchase, tender or
exchange offer made to and accepted by the holders of more than the 50% of the
outstanding shares of Common Stock.
(c) Purchase Rights. If at any time the Company grants,
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Preferred Shares (without taking into account any
limitations or restrictions on the convertibility of the Preferred Shares)
immediately before the date on which a record is taken for the grant, issuance
or sale of such Purchase Rights, or, if no such record is taken, the date as of
which the record holders of Common Stock are to be determined for the grant,
issue or sale of such Purchase Rights.
(5) Limitations on Conversion.
(a) Limitation on Beneficial Ownership. The Company shall
not effect any conversion of Preferred Shares and no holder of Preferred Shares
shall have the right to convert Preferred Shares in excess of that number of
Preferred Shares which, upon giving effect to such conversion, would cause the
aggregate number of shares of Common Stock beneficially owned by the holder and
its affiliates to exceed 4.99% of the total outstanding shares of Common Stock
following such conversion. For purposes of the foregoing proviso, the aggregate
number of shares of Common Stock beneficially owned by the holder and its
affiliates shall include the number of shares of Common Stock issuable upon
conversion of the Preferred Shares with respect to which the determination of
such proviso is being made, but shall exclude the number of shares of Common
Stock which would be issuable upon (i) conversion of the remaining, nonconverted
Preferred Shares beneficially owned by the holder and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any other
securities of the Company (including, without limitation, any warrants or
convertible preferred stock) subject to a limitation on conversion or exercise
analogous to the limitation contained herein beneficially owned by the holder
and its affiliates. Except as set forth in the preceding sentence, for purposes
of this Section 2(a), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended. For
purposes of this Section 2(a), in determining the number of outstanding shares
Common Stock a holder may rely on the number of outstanding shares of Common
Stock as reflected in (1) the Company's most recent Form 10-Q or Form 10-K, as
the case may be, (2) a more recent public
24
announcement by the Company or (3) any other notice by the Company or its
transfer agent setting forth the number of shares of Common Stock outstanding.
Upon the written request of any holder, the Company shall promptly, but in no
event later than one (1) Business Day following the receipt of such request,
confirm in writing to any such holder the number of shares Common Stock then
outstanding. In any case, the number of outstanding shares of Common Stock shall
be determined after giving effect to conversions of Preferred Shares and
exercise of Warrants (as defined below) by such holder and its affiliates since
the date as of which such number of outstanding shares of Common Stock was
reported.
(b) Conversion Restrictions. The right of a holder of
Preferred Shares to convert Preferred Shares pursuant to Section 2(b) shall be
limited as set forth below. Subject to the exceptions described below, without
the prior consent of the Company, no holder of Preferred Shares shall be
entitled to convert any Preferred Shares during the period beginning on the
Issuance Date of such Preferred Shares and ending on and including the date
which is 182 days after such Issuance Date. Notwithstanding the foregoing, the
conversion restrictions set forth in this Section 5(b) shall not apply: (a) with
respect to any conversion of Preferred Shares at a price equal to the Fixed
Conversion Price then in effect; (b) at any time after the first date after the
applicable Issuance Date on which the Closing Bid Price of the Common Stock is
less than 50% of applicable Closing Price (equitably adjusted for stock splits,
stock dividends, stock combinations and other similar transactions) for any 10
trading days during the 12 consecutive trading days immediately preceding such
date of determination; (c) on and after any date on which the Common Stock is
not listed or quoted on the Nasdaq National Market or The New York Stock
Exchange, Inc. or has been suspended from trading on any such exchange
(excluding suspensions of not more than one day resulting from business
announcements by the Company), or any such delisting or suspension is threatened
or pending either (I) in writing by such exchanges or (II) by falling below the
minimum listing maintenance requirements of such exchanges; (d) on or after any
date on which there shall have occurred an event constituting a Change of
Control or a Triggering Event or a Liquidity Default or an event that with the
passage of time and without being cured would constitute a Triggering Event or a
Liquidity Default; (e) on or after any date on which there shall have been an
announcement of a pending, proposed or intended Change of Control; (f) on or
after any date on which the Company issues or sells or is deemed to have issued
or sold any Convertible Securities or Options that are convertible into or
exercisable or exchangeable for shares of Common Stock at a conversion or
exercise price which varies or may vary with the market price of the Common
Stock, including by way of one or more reset(s) to a fixed price; (g) on or
after the Stockholder Meeting Deadline if the Company fails to receive the
Stockholder Approval (as defined in Section 4(m) of the Securities Purchase
Agreement) on or before the Stockholder Meeting Deadline; (h) on or after the
date the Company delivers a First Company's Election Conversion Notice (as
defined in Section 7) to a holder of Preferred Shares, with respect to a number
of Preferred Shares equal to such holder's First Required Conversion Amount (as
defined in Section 7); or (i) on or after the date the Company delivers a Second
Company's Election Conversion Notice (as defined in Section 8) to a holder of
Preferred Shares, with respect to a number of Preferred Shares equal to such
holder's Second Required Conversion Amount (as defined in Section 8).
(6) Company Redemptions.
(a) Redemption at the Company's Election. At any time
during the period beginning on the applicable Issuance Date and ending on and
including the date which is 182
25
days after such Issuance Date, the Company shall have the right, in its sole
discretion, to require that some or all of the outstanding Preferred Shares
issued on such Issuance Date be redeemed ("Redemption at Company's Election"),
for consideration per Preferred Share equal to 110% of the Liquidation
Preference for such Preferred Share (the "Company's Election Redemption Price");
provided that the Conditions to Redemption at the Company's Election (as set
forth below) are satisfied as of the Company's Election Redemption Date (as
defined below). The Company may exercise its right to Redemption at Company's
Election only by providing each holder of Preferred Shares issued on such
Issuance Date written notice ("Notice of Redemption at Company's Election") at
least 10 but not more than 30 days prior to the date of consummation of such
redemption ("Company's Election Redemption Date"). If the Company elects to
require redemption of some, but not all, of the Preferred Shares issued on such
Issuance Date then outstanding, the Company shall require redemption of the pro
rata amount from each holder of such Preferred Shares based on the number of
Preferred Shares purchased by such holder on such Issuance Date relative to the
total number of Preferred Shares purchased on such Issuance Date (such amount
with respect to each holder being referred to herein as its "Pro Rata Redemption
Amount"). The Company's Notice of Redemption at Company's Election shall
indicate (x) the aggregate number of Preferred Shares the Company has elected to
redeem from all holders of Preferred Shares, (y) the date selected by the
Company for the Company's Election Redemption Date, and (z) each holder's Pro
Rata Redemption Amount of the Preferred Shares selected for redemption. If the
Company has exercised its right of Redemption at Company's Election and the
conditions of this Section 6(a), including the Conditions to Redemption at
Company's Election, have been satisfied, then each holder's Pro Rata Redemption
Amount of the Preferred Shares selected for redemption which remain outstanding
on the Company's Election Redemption Date shall be redeemed as of the Company's
Election Redemption Date by payment by the Company to each such holder of
Preferred Shares of the Company's Election Redemption Price. If required by
Section 2(d)(viii), all such holders of the Preferred Shares being redeemed
shall thereupon and within two (2) Business Days after the Company's Election
Redemption Date, or such earlier date as the Company and each such holder of
Preferred Shares mutually agree, surrender all Preferred Shares being redeemed
on such date to the Company. If the Company fails to pay the full Company's
Election Redemption Price on the Company's Election Redemption Date with respect
to a Preferred Share selected for redemption, then the Redemption at Company's
Election shall be null and void with respect to such Preferred Share and the
Holder shall be entitled to all the rights of a holder of outstanding Preferred
Shares. "Conditions to Redemption at the Company's Election" means the following
conditions: (i) during the period beginning on the applicable Issuance Date and
ending on and including the Company's Election Redemption Date, the Company
shall have delivered Conversion Shares upon conversion of the Preferred Shares
to the holders of the Preferred Shares on a timely basis as set forth in Section
2(d)(ii); (ii) on each day during the period beginning 30 days prior to the date
of Notice of Redemption at Company's Election and ending on and including the
Company's Election Redemption Date the Registration Statement shall be effective
and available for the sale of at least all of the Registrable Securities (as
defined in the Registration Rights Agreement); (iii) on each day during the
period beginning 30 days prior to the date of Notice of Redemption at Company's
Election and ending on and including the Company's Election Redemption Date, the
Common Stock is designated for quotation on the Nasdaq National Market or listed
on The New York Stock Exchange, Inc. and is not suspended from trading
(excluding suspensions of not more than one day resulting from business
announcements by the Company); (iv) during the period beginning on and including
the Issuance Date and ending on and including the Company's Election Redemption
Date, there shall
26
not have occurred a Triggering Event or a Liquidity Default or an event that
with the passage of time and without being cured would constitute a Triggering
Event or a Liquidity Default; (v) during the period beginning on the applicable
Issuance Date and ending on and including the Company's Election Redemption
Date, there shall not have occurred the consummation of a Change of Control or
the public announcement of a pending, proposed or intended Change of Control;
(vi) the Company otherwise shall have been in compliance in all material
respects with this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement and shall not have
breached in any material respect any provision of this Certificate of
Designations, the Securities Purchase Agreement, the Warrants or the
Registration Rights Agreement; (vii) the Company's Election Redemption Date is
not later than the date which is 182 days after the applicable Issuance Date;
and (xiii) if the Company's Election Redemption Date occurs after the
Stockholder Meeting Deadline, then the Company shall have received the
Stockholder Approval. Notwithstanding the above, but subject to Section 5, any
holder of Preferred Shares may convert any Preferred Shares (including Preferred
Shares selected for redemption) into Common Stock pursuant to Section 2 on or
prior to the date immediately preceding the Company's Election Redemption Date.
If the Company fails to timely pay any Company's Election Redemption Price in
accordance with this Section 6(a), then the Company shall not be permitted to
submit another Notice of Redemption at Company's Election without the prior
written consent of the holders of at least two-thirds (2/3) of the Preferred
Shares then outstanding.
(b) Redemption at the Company's Election Upon a Qualified
Offering. At any time during the period beginning on the Initial Issuance Date
and ending on and including the date which is 180 days after the Initial
Issuance Date, the Company shall have the right, in its sole discretion, to
require that all of the Preferred Shares outstanding on the Company's Offering
Redemption Date (as defined below) be redeemed ("Company's Offering Redemption")
concurrent with the closing of a Qualified Offering (as defined below); provided
that the Conditions to a Company's Offering Redemption (as set forth below) are
satisfied as of the Company's Offering Redemption Date (as defined below). The
redemption price per Preferred Share upon a Company's Offering Redemption shall
be equal to the Company's Offering Redemption Price (as defined below). The
Company shall exercise its right to Company's Offering Redemption by providing
each holder of Preferred Shares written notice ("Notice of Company's Offering
Redemption") at least 20 days prior to the Company's Offering Redemption Date
but not prior to the filing with the SEC of the registration statement for the
Qualified Offering. The Notice of Company's Offering Redemption shall indicate
the anticipated Company's Redemption Date and the name of the managing
underwriters of the proposed Qualified Offering. The date of the consummation of
the Company's Offering Redemption (the "Company's Offering Redemption Date")
shall be the date of the closing of the Qualified Offering. If the Company has
exercised its right of Company's Offering Redemption and the conditions to such
Company's Offering Redemption have been satisfied, then all Preferred Shares
outstanding at the time of the consummation of the Qualified Offering shall be
redeemed as of the Company's Offering Redemption Date by payment by the Company
to each holder of Preferred Shares then outstanding of the Company's Offering
Redemption Price concurrent with the closing of the Qualified Offering. All
holders of Preferred Shares shall thereupon and within two (2) Business Days
after the Company's Offering Redemption Date, or such earlier date as the
Company and each holder of Preferred Shares mutually agree, surrender all
outstanding Preferred Stock Certificates, duly endorsed for cancellation, to the
Company. If the Company fails to pay the full Company's Offering Redemption
Price with respect
27
to any Preferred Shares concurrently with the closing of the Qualified Offering,
then the Company's Offering Redemption shall be null and void with respect to
such Preferred Shares and the holder of such Preferred Shares shall be entitled
to all the rights of a holder of outstanding Preferred Shares set forth in this
Certificate of Designations. "Conditions to Company's Offering Redemption" means
the following conditions: (i) on each day during the period beginning 30 days
prior to the date of the Company's Notice of Company's Offering Redemption and
ending on and including the Company's Offering Redemption Date, the Common Stock
is designated for quotation on the Nasdaq National Market or The New York Stock
Exchange, Inc. and is not suspended from trading; (ii) during the period
beginning on the Initial Issuance Date and ending on and including the Company's
Offering Redemption Date, there shall not have occurred a Triggering Event or a
Liquidity Default or an event that with the passage of time and without being
cured would constitute a Triggering Event or a Liquidity Default; (iii) during
the period beginning on the Initial Issuance Date and ending on and including
the Company's Offering Redemption Date, there shall not have occurred the
consummation of a Change of Control or the public announcement of a pending,
proposed or intended Change of Control; and (iv) the Company has satisfied its
obligations in all material respects and is not in default in any material
respect under this Certificate of Designations, the Securities Purchase
Agreement, the Warrants and the Registration Rights Agreement. For purposes of
this Section 9, "Qualified Offering" means a firm commitment, underwritten
public offering , or "Rule 144A" offering, of Common Stock by the Company which
(a) is an offering which generates aggregate gross proceeds to the Company (as
reflected in the preliminary prospectus and the final prospectus for such
offering) of at least $25,000,000 and (b) is completed at a price per share to
the public of at least $20.00 (subject to adjustment for stock splits, stock
dividends, stock combinations and other similar transactions) as reflected in
the preliminary prospectus or other offering document and the final prospectus
or offering document for such Qualified Offering. For purposes of this Section
9, "Company's Offering Redemption Price" means the greater of (a) the product of
(i) the Liquidation Preference, multiplied by (ii) 1.20, (b) the product of (i)
the Conversion Rate in effect on the date immediately preceding the Company's
Offering Redemption Date and (ii) the Closing Bid Price of the Common Stock on
the trading day immediately preceding the Company's Offering Redemption Date on
which the Principal Market is open for trading, and (c) the product of (i) the
Conversion Rate in effect on the date immediately preceding the Company's
Offering Redemption Date and (ii) the price per share to the public of the
Common Stock as reflected in the final prospectus for such Qualified Offering.
(7) First Conversion at the Company's Election. On the date
which is 30 days after the Initial Registration Statement (as defined in the
Registration Rights Agreement) has been declared effective by the SEC ("First
Company's Election Conversion Date"), the Company shall have the right, in its
sole discretion, to require that 25% of the Initial Preferred Shares which are
convertible into shares of Common Stock covered by such Registration Statement
shall have been converted ("First Company's Conversion Election") at the
applicable Conversion Price on or prior to the First Company's Election
Conversion Date; provided that the Conditions to First Conversion at the
Company's Election (as set forth below) are satisfied as of the First Company's
Election Conversion Date. The Company shall exercise its right to First
Company's Conversion Election by providing each holder of Initial Preferred
Shares covered by such Registration Statement written notice ("First Company's
Conversion Election Notice") by facsimile and overnight courier at least 10
trading days prior to the First Company's Election Conversion Date. The date on
which each of such holders of the Initial Preferred Shares actually receives the
First Company's Conversion
28
Election Notice is referred to herein as the "First Company's Conversion
Election Notice Date." The First Company's Conversion Election Notice shall
indicate (x) confirmation of the First Company's Election Conversion Date, which
date shall be the date which is 30 days after the applicable Registration
Statement is declared effective by the SEC, and (z) confirmation of the number
of Initial Preferred Shares that each holder is required to have converted on or
prior to the First Company's Election Conversion Date, which number shall be 25%
of the Initial Preferred Shares such holder purchased on the applicable Issuance
Date (each such number of Initial Preferred Shares being referred to as a
holder's "First Required Conversion Amount"). Subject to the satisfaction of all
the conditions of this Section 7 and except to the extent restricted by Section
5(a), on the First Company's Election Conversion Date each holder of Initial
Preferred Shares selected for conversion will be deemed to have submitted a
Conversion Notice in accordance with Section 2(d)(i) for a number of Preferred
Shares equal to the result of (a) such holder's First Required Conversion
Amount, minus (b) the number of such Initial Preferred Shares converted by such
holder during the period beginning on the applicable Issuance Date and ending on
and including the date immediately preceding the First Company's Election
Conversion Date. "Conditions to First Conversion at the Company's Election"
means the following conditions: (i) the Initial Registration Statement shall
have been declared effective by the SEC on or prior to the Initial Effectiveness
Deadline (as defined in the Registration Rights Agreement); (ii) on each day
during the period beginning on and including the date the Initial Registration
Statement is declared effective by the SEC and ending on and including the First
Company's Election Conversion Date, the Registration Statement which includes
the Registrable Securities relating to the Initial Preferred Shares selected for
conversion shall be effective and available for the sale of no less than all the
Registrable Securities required to be included in such Registration Statement;
(iii) on each day during the period beginning on the Initial Issuance Date and
ending on and including the First Company's Election Conversion Date, the Common
Stock is designated for quotation on the Nasdaq National Market or listed on The
New York Stock Exchange, Inc. and shall not have been suspended from trading on
such exchanges nor shall delisting or suspension by such exchanges (other than
suspensions of not more than one day and occurring prior to the First Company's
Conversion Election Notice Date due to business announcements by the Company)
have been threatened either (A) in writing by such exchanges or (B) by falling
below the minimum listing maintenance requirements of such exchanges; (iv)
during the period beginning on the Initial Issuance Date and ending on and
including the First Company's Election Conversion Date, there shall not have
occurred (A) an event constituting a Change of Control or a Triggering Event or
a Liquidity Default, (B) an event that with the passage of time and without
being cured would constitute a Triggering Event a Liquidity Default, or (C) the
public announcement of a pending, proposed or intended Change of Control; (v)
each holder of Initial Preferred Shares selected for conversion shall have
received the First Company's Election Conversion Notice at least 10 trading days
prior to the First Company's Election Conversion Date; (vi) during the period
beginning on the Initial Issuance Date and ending on and including the First
Company's Election Conversion Date, the Company shall have delivered shares of
Common Stock upon conversion of the Preferred Shares and upon exercise of the
Warrants to the holders on a timely basis as set forth in Section 2(d)(ii)
hereof and Sections 2(a) and 2(b) of the Warrants, respectively; (vii) the
Company otherwise shall have been in compliance in all material respects with
this Certificate of Designations, the Securities Purchase Agreement, the
Warrants and the Registration Rights Agreement and shall not have breached in
any material respect any provision of this Certificate of Designations, the
Securities Purchase Agreement, the Warrants or the Registration Rights
Agreement; (viii) the Company shall have received the Stockholder Approval on or
prior to
29
the Stockholder Meeting Deadline; and (ix) on each day during the period
beginning on and including the First Company's Election Conversion Notice Date
(which date shall be at least 10 trading days prior to the First Company's
Election Conversion Date) and ending on and including the First Company's
Election Conversion Date, Closing Bid Price of the Common Stock is greater than
125% of the Closing Price for such Preferred Share (appropriately adjusted for
stock splits, stock dividends, stock combinations and other similar events).
(8) Second Conversion at the Company's Election. On the date
which is 90 days after the Initial Registration Statement has been declared
effective by the SEC ("Second Company's Election Conversion Date"), the Company
shall have the right, in its sole discretion, to require that 25% (or in the
event that the Company previously delivered a First Company's Election
Conversion Notice and all of the Conditions to First Conversion at Company's
Election were satisfied as of the First Company's Election Conversion Date, then
50%) of the Initial Preferred Shares which are convertible into shares of Common
Stock covered by such Registration Statement shall have been converted ("Second
Company's Conversion Election") at the applicable Conversion Price on or prior
to the Second Company's Election Conversion Date; provided that the Conditions
to Second Conversion at the Company's Election (as set forth below) are
satisfied as of the Second Company's Election Conversion Date. The Company shall
exercise its right to Second Company's Conversion Election by providing each
holder of Initial Preferred Shares covered by such Registration Statement
written notice ("Second Company's Conversion Election Notice") by facsimile and
overnight courier at least 10 trading days prior to the Second Company's
Election Conversion Date. The date on which each of such holders of the Initial
Preferred Shares actually receives the Second Company's Conversion Election
Notice is referred to herein as the "Second Company's Conversion Election Notice
Date." The Second Company's Conversion Election Notice shall indicate (x)
confirmation of the Second Company's Election Conversion Date, which date shall
be the date which is 90 days after the applicable Registration Statement is
declared effective by the SEC, and (z) confirmation the number of Initial
Preferred Shares that each holder is required to have converted on or prior to
the Second Company's Election Conversion Date, which number shall be 25% (or in
the event that the Company previously delivered a First Company's Election
Conversion Notice and all of the Conditions to First Conversion at Company's
Election were satisfied as of the First Company's Election Conversion Date, then
50%) of the Initial Preferred Shares such holder purchased on the applicable
Issuance Date (each such number of Initial Preferred Shares being referred to as
a holder's "Second Required Conversion Amount"). Subject to the satisfaction of
all the conditions of this Section 8 and except to the extent restricted by
Section 5(a), on the Second Company's Election Conversion Date each holder of
Initial Preferred Shares selected for conversion will be deemed to have
submitted a Conversion Notice in accordance with Section 2(d)(i) for a number of
Initial Preferred Shares equal to the result of (a) such holder's Second
Required Conversion Amount, minus (b) the number of such Initial Preferred
Shares converted by such holder during the period beginning on the applicable
Issuance Date and ending on and including the date immediately preceding the
Second Company's Election Conversion Date. "Conditions to Second Conversion at
the Company's Election" means the following conditions: (i) the Initial
Registration Statement shall have been declared effective by the SEC on or prior
to the Initial Effectiveness Deadline (as defined in the Registration Rights
Agreement); (ii) on each day during the period beginning on and including the
date the Registration Statement is declared effective by the SEC and ending on
and including the Second Company's Election Conversion Date, the Initial
Registration Statement which includes the Registrable Securities relating to the
Initial Preferred Shares selected for conversion shall be
30
effective and available for the sale of no less than all the Registrable
Securities required to be included in such Registration Statement; (iii) on each
day during the period beginning on the Initial Issuance Date and ending on and
including the Second Company's Election Conversion Date, the Common Stock is
designated for quotation on the Nasdaq National Market or listed on The New York
Stock Exchange, Inc. and shall not have been suspended from trading on such
exchanges nor shall delisting or suspension by such exchanges (other than
suspensions of not more than one day and occurring prior to the Second Company's
Conversion Election Notice Date due to business announcements by the Company)
have been threatened either (A) in writing by such exchanges or (B) by falling
below the minimum listing maintenance requirements of such exchanges; (iv)
during the period beginning on the Initial Issuance Date and ending on and
including the Second Company's Election Conversion Date, there shall not have
occurred (A) an event constituting a Change of Control or a Triggering Event or
a Liquidity Default, (B) an event that with the passage of time and without
being cured would constitute a Triggering Event a Liquidity Default, or (C) the
public announcement of a pending, proposed or intended Change of Control; (v)
each holder of Initial Preferred Shares selected for conversion shall have
received the Second Company's Election Conversion Notice at least 10 trading
days prior to the Second Company's Election Conversion Date; (vi) during the
period beginning on the Initial Issuance Date and ending on and including the
Second Company's Election Conversion Date, the Company shall have delivered
shares of Common Stock upon conversion of the Preferred Shares and upon exercise
of the Warrants to the holders on a timely basis as set forth in Section
2(d)(ii) hereof and Sections 2(a) and 2(b) of the Warrants, respectively; (vii)
the Company otherwise shall have been in compliance in all material respects
with this Certificate of Designations, the Securities Purchase Agreement, the
Warrants and the Registration Rights Agreement and shall not have breached in
any material respect any provision of this Certificate of Designations, the
Securities Purchase Agreement, the Warrants or the Registration Rights
Agreement; (viii) the Company shall have received the Stockholder Approval on or
prior to the Stockholder Meeting Deadline; and (ix) on each day during the
period beginning on and including the Second Company's Election Conversion
Notice Date (which date shall be at least 10 trading days prior to the Second
Company's Election Conversion Date) and ending on and including the Second
Company's Election Conversion Date, Closing Bid Price of the Common Stock is
greater than 150% of the Closing Price for such Preferred Share (appropriately
adjusted for stock splits, stock dividends, stock combinations and other similar
events).
(9) Reservation of Shares.
(a) Reservation. The Company shall, so long as any of the
Preferred Shares are outstanding, take all action necessary to reserve and keep
available out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, such number of
shares of Common Stock as shall from time to time be sufficient to effect the
conversion of all of the Preferred Shares then outstanding; provided that the
number of shares of Common Stock so reserved shall at no time be less than 200%
of the number of shares of Common Stock for which the Preferred Shares are at
any time convertible (without regard to any limitations on conversions) (the
"Required Reserve Amount"). The initial number of shares of Common Stock
reserved for conversions of the Preferred Shares and each increase in the number
of shares so reserved shall be allocated pro rata among the holders of the
Preferred Shares based on the number of Preferred Shares held by each holder at
the time of issuance of the Preferred Shares or increase in the number of
reserved shares, as the case may be. In the event a holder shall sell or
31
otherwise transfer any of such holder's Preferred Shares, each transferee shall
be allocated a pro rata portion of the number of reserved shares of Common Stock
reserved for such transferor. Any shares of Common Stock reserved and allocated
to any Person which ceases to hold any Preferred Shares shall be allocated to
the remaining holders of Preferred Shares, pro rata based on the number of
Preferred Shares then held by such holders.
(b) Insufficient Authorized Shares. If at any time while
any of the Preferred Shares remain outstanding the Company does not have a
sufficient number of authorized and unreserved shares of Common Stock to satisfy
its obligation to reserve for issuance upon conversion of the Preferred Shares
at least a number of shares of Common Stock equal to the Required Reserve Amount
(an "Authorized Share Failure"), then the Company shall immediately take all
action necessary to increase the Company's authorized shares of Common Stock to
an amount sufficient to allow the Company to reserve the Required Reserve Amount
for the Preferred Shares then outstanding. Without limiting the generality of
the foregoing sentence, as soon as practicable after the date of the occurrence
of an Authorized Share Failure, but in no event later than 60 days after the
occurrence of such Authorized Share Failure, the Company shall hold a meeting of
its stockholders for the authorization of an increase in the number of
authorized shares of Common Stock. In connection with such meeting, the Company
shall provide each stockholder with a proxy statement and shall use its best
efforts to solicit its stockholders' approval of such increase in authorized
shares of Common Stock and to cause its board of directors to recommend to the
stockholders that they approve such proposal.
(10) Voting Rights. Holders of Preferred Shares shall have no
voting rights, except as required by law, including but not limited to the
General Corporation Law of the State of Delaware, and as expressly provided in
this Certificate of Designations.
(11) Liquidation, Dissolution, Winding-Up. In the event of any
voluntary or involuntary liquidation, dissolution or winding up of the Company,
the holders of the Preferred Shares shall be entitled to receive in cash out of
the assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (a) the Stated
Value and (b) the Additional Amount for such Preferred Share (such sum being
referred to as the "Liquidation Preference"); provided that, if the Liquidation
Funds are insufficient to pay the full amount due to the holders of Preferred
Shares and holders of shares of other classes or series of preferred stock of
the Company that are of equal rank with the Preferred Shares as to payments of
Liquidation Funds (the "Pari Passu Shares"), then each holder of Preferred
Shares and Pari Passu Shares shall receive a percentage of the Liquidation Funds
equal to the full amount of Liquidation Funds payable to such holder as a
liquidation preference, in accordance with their respective Certificate of
Designations, Preferences and Rights, as a percentage of the full amount of
Liquidation Funds payable to all holders of Preferred Shares and Pari Passu
Shares. In addition to the receipt of the Liquidation Preference, in the event
of any voluntary or involuntary liquidation, dissolution or winding up of the
Company, the holders of the Preferred Shares shall be entitled to receive
Liquidation Funds distributed to holders of Common Stock, after the Liquidation
Preference has been paid, to the same extent as if such holders of Preferred
Shares had converted the
32
Preferred Shares into Common Stock (without regard to any limitations on
conversions herein or elsewhere) and had held such shares of Common Stock on the
record date for such distribution of the remaining Liquidation Funds. The
purchase or redemption by the Company of stock of any class, in any manner
permitted by law, shall not, for the purposes hereof, be regarded as a
liquidation, dissolution or winding up of the Company. Neither the consolidation
or merger of the Company with or into any other Person, nor the sale or transfer
by the Company of less than substantially all of its assets, shall, for the
purposes hereof, be deemed to be a liquidation, dissolution or winding up of the
Company. No holder of Preferred Shares shall be entitled to receive any amounts
with respect thereto upon any liquidation, dissolution or winding up of the
Company other than the amounts provided for herein; provided that a holder of
Preferred Shares shall be entitled to all amounts previously accrued with
respect to amounts owed hereunder.
(12) Preferred Rank. All shares of Common Stock shall be of
junior rank to all Preferred Shares in respect to the preferences as to
distributions and payments upon the liquidation, dissolution and winding up of
the Company. The rights of the shares of Common Stock shall be subject to the
preferences and relative rights of the Preferred Shares. Without the prior
express written consent of the holders of not less than two-thirds (2/3) of the
then outstanding Preferred Shares, the Company shall not hereafter authorize or
issue additional or other capital stock that is of senior or equal rank to the
Preferred Shares in respect of the preferences as to distributions and payments
upon the liquidation, dissolution and winding up of the Company. Without the
prior express written consent of the holders of not less than two-thirds (2/3)
of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or make any amendment to the Company's Certificate of Incorporation or
bylaws, or file any resolution of the board of directors of the Company with the
Delaware Secretary of State or enter into any agreement containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock. In the
event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(13) Participation. Subject to the rights of the holders, if
any, of the Pari Passu Shares, the holders of the Preferred Shares shall, as
holders of Preferred Stock, be entitled to such dividends paid and distributions
made to the holders of Common Stock to the same extent as if such holders of
Preferred Shares had converted the Preferred Shares into Common Stock (without
regard to any limitations on conversion herein or elsewhere) and had held such
shares of Common Stock on the record date for such dividends and distributions.
Payments under the preceding sentence shall be made concurrently with the
dividend or distribution to the holders of Common Stock.
(14) Restriction on Redemption and Cash Dividends. Until all
of the Preferred Shares have been converted or redeemed as provided herein, the
Company shall not, directly or indirectly, redeem, or declare or pay any cash
dividend or distribution on, its capital stock (other than the Preferred Shares)
Common Stock without the prior express written consent of the holders of not
less than two-thirds (2/3) of the then outstanding Preferred Shares.
(15) Limitation on Number of Conversion Shares. The Company
shall not be obligated to issue any shares of Common Stock upon conversion of
the Preferred Shares if the
33
issuance of such shares of Common Stock would exceed that number of shares of
Common Stock which the Company may issue upon Conversion of the Preferred Shares
(the "Exchange Cap") without breaching the Company's obligations under the rules
or regulations of the Principal Market, except that such limitation shall not
apply in the event that the Company (a) obtains the approval of its stockholders
as required by the applicable rules of the Principal Market, (or any successor
rule or regulation) for issuances of Common Stock in excess of such amount or
(b) obtains a written opinion from outside counsel to the Company that such
approval is not required, which opinion shall be reasonably satisfactory to the
holders of at least two-thirds (2/3) of the Preferred Shares then outstanding.
Until such approval or written opinion is obtained, no purchaser of Preferred
Shares pursuant to the Securities Purchase Agreement (the "Purchasers") shall be
issued, upon conversion of Preferred Shares, shares of Common Stock in an amount
greater than the product of (i) the Exchange Cap amount multiplied by (ii) a
fraction, the numerator of which is the number of Preferred Shares issued to
such Purchaser pursuant to the Securities Purchase Agreement and the denominator
of which is the aggregate amount of all the Preferred Shares issued to the
Purchasers pursuant to the Securities Purchase Agreement (the "Cap Allocation
Amount"). In the event that any Purchaser shall sell or otherwise transfer any
of such Purchaser's Preferred Shares, the transferee shall be allocated a pro
rata portion of such Purchaser's Cap Allocation Amount. In the event that any
holder of Preferred Shares shall convert all of such holder's Preferred Shares
into a number of shares of Common Stock which, in the aggregate, is less than
such holder's Cap Allocation Amount, then the difference between such holder's
Cap Allocation Amount and the number of shares of Common Stock actually issued
to such holder shall be allocated to the respective Cap Allocation Amounts of
the remaining holders of Preferred Shares on a pro rata basis in proportion to
the number of Preferred Shares then held by each such holder.
(16) Vote to Change the Terms of Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares and (b) the issuance of Preferred
Shares other than pursuant to the Securities Purchase Agreement. So long as the
Nortel Networks Credit Agreement is in force, the Company and the requisite
holders of the Preferred Shares shall not be entitled to amend or modify this
Certificate of Designations unless either (i) the Designated Senior Debt
Representative consents in writing to such amendment or modification, or (ii)
such amendment or modification is not substantive or material and is not adverse
to the rights of the lenders under the Nortel Networks Credit Facility.
(17) Lost or Stolen Certificates. Upon receipt by the Company
of evidence reasonably satisfactory to the Company of the loss, theft,
destruction or mutilation of any Preferred Stock Certificates representing the
Preferred Shares, and, in the case of loss, theft or destruction, of any
indemnification undertaking by the holder to the Company in customary form and,
in the case of mutilation, upon surrender and cancellation of the Preferred
Stock Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
34
(18) Remedies, Characterizations, Other Obligations, Breaches
and Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
(19) Specific Shall Not Limit General; Construction. No
specific provision contained in this Certificate of Designations shall limit or
modify any more general provision contained herein. This Certificate of
Designations shall be deemed to be jointly drafted by the Company and all Buyers
and shall not be construed against any person as the drafter hereof.
(20) Failure or Indulgence Not Waiver. No failure or delay on
the part of a holder of Preferred Shares in the exercise of any power, right or
privilege hereunder shall operate as a waiver thereof, nor shall any single or
partial exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
(21) Notice. Whenever notice is required to be given pursuant
to this Certificate of Designations, unless otherwise provided herein, such
notice shall be given in accordance with Section 9(f) of the Securities Purchase
Agreement.
35
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by David Paolo, its President, as of the 23rd day of
February, 2000.
LOG ON AMERICA, INC.
By: /s/ David Paolo
-----------------------
Name: David Paolo
Its: President
36
EXHIBIT I
LOG ON AMERICA, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Log On America, Inc. for its Series A Convertible Preferred Stock (the
"Certificate of Designations"). In accordance with and pursuant to the
Certificate of Designations, the undersigned hereby elects to convert the number
of shares of Series A Convertible Preferred Stock, par value $0.01 per share
(the "Preferred Shares"), of Log On America, Inc., a Delaware corporation (the
"Company"), indicated below into shares of Common Stock, par value $0.01 per
share (the "Common Stock"), of the Company, as of the date specified below.
Date of Conversion:
--------------------------------------------
Number of Preferred Shares to be converted:
-------
Stock certificate no(s). of Preferred Shares to be converted:
---------
Please confirm the following information:
Conversion Price:
--------------------------------------------
Number of shares of Common Stock to be issued:
-----------------------
Is the alternative Floating Conversion Price being relied on pursuant
to Section 2(f)(iii) of the Certificate of Designations? (check one)
YES ____ No ____
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to:
--------------------------------------------
Facsimile Number:
--------------------------------------------
Authorization:
--------------------------------------------
By:
----------------------------------------
Title:
--------------------------------------
Dated:
--------------------------------------------
Account Number (if electronic book entry transfer):
-------------------
Transaction Code Number (if electronic book entry transfer):
-----------
ACKNOWLEDGMENT
The Company hereby acknowledges this Conversion Notice and hereby
directs [TRANSFER AGENT] to issue the above indicated number of shares of Common
Stock in accordance with the Transfer Agent Instructions dated ___________ ___,
2000 from the Company and acknowledged and agreed to by [TRANSFER AGENT].
LOG ON AMERICA, INC.
By:
--------------------
Title:
--------------------