CERTIFICATE OF DESIGNATION,
PREFERENCES AND RIGHTS OF
SERIES A PREFERRED STOCK OF
TELCO-TECHNOLOGY, INC.
Pursuant to the provisions and subject to the requirements of the laws
of the State of Delaware (particularly Chapter 1, Title 8 of the
Delaware Code and the acts amendatory thereof and supplemental thereto,
and known, identified, and referred to as the "General Corporation Law
of the State of Delaware"), the undersigned officer does hereby
certify:
FIRST: That by the certificate of incorporation duly filed in the
State of Delaware, as amended January 8, 2003, the total number of
shares which this corporation may issue is stated to be as follows:
"FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 220,000,000, of which 200,000,000
shares with a par value of $0.001 each shall be Common Stock and of
which 20,000,000 shares with a par value of $0.001 each shall be
Preferred Stock. The Board of Directors of the Corporation is
authorized to the full extent now or hereafter permitted by the laws
of the State of Delaware to provide for the issuance from time to
time in one or more series of any number of shares of Preferred
Stock, and, by filing a certificate pursuant to the Delaware General
Corporate Law, to establish the number of shares to be included in
each such series, and to fix the designations, powers, preferences,
and rights, and the qualifications, limitations and restrictions of
each such series."
SECOND: That pursuant to the authority so vested in the Board of
Directors of the Corporation by the provisions of the Corporation's
Certificate of Incorporation, the Board of Directors, at a meeting duly
convened and held on October 20, 2004, adopted the following
resolutions:
RESOLVED: That pursuant to the authority vested in the Board of
Directors of the Corporation by the Corporation's Certificate of
Incorporation, as amended, a series of Preferred Stock of the
Corporation be, and it hereby is, created out of the authorized but
unissued shares of the capital stock of the Corporation, such series
to be designated Series A Preferred Stock, to consist of One Million
(1,000,000) shares, par value $0.001 per share, which shall have the
following designations, preferences, rights, qualifications,
limitations and restrictions:
1. Voting. Unless otherwise required by law, the
holder of shares of Series A Preferred Stock shall be entitled to
vote at any meeting of stockholders of the Corporation (or in any
written action of stockholders in lieu of a meeting) with respect to
any matters presented to the stockholders of the Corporation for
their action or consideration. The number of votes which may be cast
by a holder of shares of Series A Preferred Stock will equal to the
number of shares of the Corporation's Common Stock into which that
holder's Series A Preferred Stock could be converted on the record
date for the meeting or action (assuming that the Corporation waived
the limitation on conversion prior to December 31, 2005, if
applicable). The Corporation shall provide each holder of record of
Series A Preferred Stock with timely notice of every meeting of
stockholders of the Corporation and shall provide each holder with
copies of all proxy materials distributed in connection therewith.
2. Dividends. In the event that the Corporation's
Board of Directors declares a dividend payable to holders of any
class of stock, the holder of each share of Series A Preferred Stock
shall be entitled to receive a dividend equal in amount and kind to
that payable to the holder of the number of shares of the
Corporation's Common Stock into which that holder's Series A
Preferred Stock could be converted on the record date for the
dividend (assuming that the Corporation waived the limitation on
conversion prior to December 31, 2005, if applicable).
3. Liquidation. Upon the liquidation,
dissolution and winding up of the Corporation, the holders of the
Series A Preferred Stock shall be entitled to receive in cash out of
the assets of the Corporation, whether from capital or from earnings
available for distribution to its stockholders, before any amount
shall be paid to the holders of common stock, the sum of one tenth
of One Cent ($0.001) per share, after which the holders of Series A
Preferred Stock shall share in the distribution with the holders of
the Common Stock on a pari passu basis, except that in determining
the appropriate distribution of available cash among the
shareholders, each share of Series A Preferred Stock shall be deemed
to have been converted into the number of shares of the
Corporation's Common Stock into which that holder's Series A
Preferred Stock could be converted on the record date for the
distribution (assuming that the Corporation waived the limitation on
conversion prior to December 31, 2005, if applicable).
4. Conversion. At any time from and after
December 31, 2005, the holder of each share of Series A Preferred
Stock shall have the right to convert that share of Series A
Preferred Stock into one hundred (100) fully-paid and nonassessable
shares of Common Stock. The ratio of one hundred (100) shares of
Common Stock for one (1) share of Series A Preferred Stock, as
adjusted pursuant to Subsection 4.4 below, is referred to herein as
the "Conversion Ratio."
4.1 Conversion Notice. The Holder of a share of
Series A Preferred Stock may exercise its conversion right by giving
a written conversion notice in the form of Exhibit A hereto (the
"Conversion Notice") (x) by facsimile to the Corporation confirmed
by a telephone call or (y) by overnight delivery service, with a
copy by facsimile to the Corporation's transfer agent for its Common
Stock, as designated by the Corporation from time to time (the
"Transfer Agent") and to its counsel, as designated by the
Corporation from time to time. If such conversion will result in
the conversion of all of such Holder's Series A Preferred Stock, the
Holder shall also surrender the certificate for the Series A
Preferred Stock to the Corporation at its principal office (or such
other office or agency of the Corporation may designate by notice in
writing to the Holder) at any time during its usual business hours
on the date set forth in the Conversion Notice.
4.2 Issuance of Certificates; Time Conversion Effected.
4.2.1 Promptly, but in no event more than three
(3) Trading Days, after the receipt of the Conversion Notice
referred to in Subsection 4.1 and surrender of the Series A
Preferred Stock certificate (if required), the Corporation shall
issue and deliver, or the Corporation shall cause to be issued and
delivered, to the Holder, registered in such name or names as the
Holder may direct, a certificate or certificates for the number of
whole shares of Common Stock into which the Series A Preferred Stock
has been converted. In the alternative, if the Corporation's
Transfer Agent is a participant in the electronic book transfer
program, the Transfer Agent shall 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 The Depository Trust
Corporation. Such conversion shall be deemed to have been effected,
and the "Conversion Date" shall be deemed to have occurred, on the
date on which such Conversion Notice shall have been received by the
Corporation and at the time specified stated in such Conversion
Notice, which must be during the calendar day of such notice. The
rights of the Holder of the Series A Preferred Stock shall cease,
and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such
conversion shall be deemed to have become the holder or holders of
record of the shares represented thereby, on the Conversion Date.
Issuance of shares of Common Stock issuable upon conversion that are
requested to be registered in a name other than that of the
registered Holder shall be subject to compliance with all applicable
federal and state securities laws.
4.2.2 The Corporation understands that a delay
in the issuance of the shares of Common Stock beyond three (3)
Trading Days after the Conversion Date could result in economic loss
to the Holder of the Series A Preferred Stock. As compensation to
the Holder for such loss, the Corporation agrees to pay the Holder's
actual losses occasioned by any "buy-in" of Common Stock
necessitated by such late delivery. Furthermore, in addition to any
other remedies that may be available to the Holder, if the
Corporation fails for any reason to effect delivery of such shares
of Common Stock within five (5) Trading Days after the Conversion
Date, the Holder will be entitled to revoke the relevant Conversion
Notice by delivering a notice to such effect to the Corporation.
Upon delivery of such notice of revocation, the Corporation and the
Holder shall each be restored to their respective positions
immediately prior to delivery of such Conversion Notice, except that
the Holder shall retain the right to receive the actual cost of any
"buy-in."
4.3 Fractional Shares. The Corporation shall not,
nor shall it cause the Transfer Agent to, issue any fraction of a
share of Common Stock upon any conversion. All shares of Common
Stock (including fractions thereof) issuable upon conversion of
shares of Series A Preferred Stock by the Holder 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
such aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Corporation shall round, or
cause the Transfer Agent to round, such fraction of a share of
Common Stock up to the nearest whole share.
4.4 Adjustment to Conversion Ratio. In order to
prevent dilution of the rights granted under the Series A Preferred
Stock, the Conversion Ratio will be subject to adjustment from time
to time as provided in this Subsection 4.4.
4.4.1 Adjustment of Conversion Ratio upon
Subdivision or Combination of Common Stock. If the Corporation 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 Conversion Ratio in effect immediately prior to such subdivision
will be proportionately increased. If the Corporation 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 Conversion Ratio in effect immediately
prior to such combination will be proportionately decreased.
4.4.2 Reorganization, Reclassification,
Consolidation, Merger or Sale. Any recapitalization,
reorganization, reclassification, consolidation, merger, sale of all
or substantially all of the Corporation's assets 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 an "Organic
Change." Prior to the consummation of any Organic Change, the
Corporation will make appropriate provision (in form and substance
reasonably satisfactory to the Holder) to insure that the Holder
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
otherwise acquirable and receivable upon the conversion of this
Series A Preferred Stock, such shares of stock, securities or assets
as would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock
that would have been acquirable and receivable had this Series A
Preferred Stock been converted into shares of Common Stock
immediately prior to such Organic Change (without taking into
account any limitations or restrictions on the timing of
conversions). In any such case, the Corporation will make
appropriate provision (in form and substance reasonably satisfactory
to the Holder) with respect to the Holder's rights and interests to
insure that the provisions of this Section 4.4 will thereafter be
applicable to the Series A Preferred Stock. The Corporation will
not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the
Corporation) resulting from consolidation or merger or the entity
purchasing such assets assumes, by written instrument (in form and
substance reasonably satisfactory to the holders of a more than
sixty-six and two-thirds percent (66-2/3%) of Series A Preferred
Stock then outstanding), the obligation to deliver to each holder of
Series A Preferred Stock such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such holder may be
entitled to acquire.
4.4.3 Further Adjustment Upon Conversion.
Notwithstanding the adjustment provisions above, and as part of the
consideration for the restrictions on conversion, shares of Series A
Preferred Stock shall be subject to further adjustment upon
conversion such that the percentage of the Corporation's issued and
outstanding common stock represented by the shares of Series A
Preferred Stock, as if fully converted upon the issuance date of the
shares of Series A Preferred Stock, shall remain constant until the
first permissible date of conversion, December 31, 2005; provided,
however, that the operation of this provision shall not cause
additional shares of Series A Preferred Stock to be issued or adjust
the Conversion Rate. In the event that additional shares are due to
the holders of the Series A Preferred Stock, the Corporation shall,
upon conversion of the Series A Preferred Stock, cause to be issued
additional shares of the Corporation's common stock to each relevant
prior holder as necessary to comply with this provision.
4.5 No Reissuance of Series A Preferred Stock.
Shares of Series A Preferred Stock that are converted into shares of
Common Stock as provided herein shall not be reissued.
5. Vote to Change the Terms of or Issue Series A
Preferred Stock. 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 sixty-six and two-thirds percent (66 2/3%)
of the then outstanding shares of Series A Preferred Stock shall be
required for (i) any change to the Corporation's Certificate of
Incorporation that would amend, alter, change or repeal any of the
preferences, limitations or relative rights of the Series A
Preferred Stock, or (ii) any issuance of additional shares of Series
A Preferred Stock.
6. Notices. In case at any time:
(a) the Corporation shall declare any dividend upon
its Common Stock payable in cash or stock or make any other pro rata
distribution to the holders of its Common Stock; or
(b) the Corporation shall offer for subscription
pro rata to the holders of its Common Stock any additional shares of
stock of any class or other rights; or
(c) there shall be any Organic Change;
then, in any one or more of such cases, the Corporation shall give,
by first class mail, postage prepaid, or by facsimile or by
recognized overnight delivery service to non-U.S. residents,
addressed to the Registered Holders of the Series A Preferred Stock
at the address of each such Holder as shown on the books of the
Corporation, (i) at least twenty (20) Trading Days' prior written
notice of the date on which the books of the Corporation shall close
or a record shall be taken for such dividend, distribution or
subscription rights or for determining rights to vote in respect of
any such Organic Change and (ii) in the case of any such Organic
Change, at least twenty (20) Trading Days' prior written notice of
the date when the same shall take place. Such notice in accordance
with the foregoing clause (i) shall also specify, in the case of any
such dividend, distribution or subscription rights, the date on
which the holders of Common Stock shall be entitled thereto, and
such notice in accordance with clause (ii) shall also specify the
date on which the holders of Common Stock shall be entitled to
exchange their Common Stock for securities or other property
deliverable upon such Organic Change.
7. Record Owner. The Corporation may deem the person in
whose name shares of Series A Preferred Stock shall be registered
upon the registry books of the Corporation to be, and may treat him
as, the absolute owner of the Series A Preferred Stock for the
purposes of conversion or redemption and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary.
All such payments and such conversion shall be valid and effective
to satisfy and discharge the liabilities arising under this
Certificate of Designations to the extent of the sum or sums so paid
or the conversion so made.
THIRD: That the said resolution of the Board of Directors, and the
creation and authorization of issuance thereby of said series of
preferred stock and determination thereby of the voting rights,
dividend rate, liquidation preference and conversion right, were duly
made by the Board of Directors pursuant to authority as aforesaid and
in accordance with the General Corporation Law of the State of
Delaware.
Signed on October 20, 2004
TELCO-TECHNOLOGY, INC.
By: /s/Donald McKelvey
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Donald McKelvey
Chairman and Chief Executive Officer