Exhibit 4.2
EXHIBIT A
CERTIFICATE TO SET FORTH DESIGNATIONS, VOTING POWERS,
PREFERENCES, LIMITATIONS, RESTRICTIONS, AND RELATIVE
RIGHTS OF SERIES A CONVERTIBLE
PREFERRED STOCK, $.001 PAR VALUE PER SHARE
Pursuant to Title 7, Chapter 78, Section 78.1955 of the Nevada Revised
Statutes
It is hereby certified that:
I. The name of the corporation is BestNet Communications Corp. (the
"CORPORATION"), a Nevada corporation.
II. The certificate of incorporation of the Corporation, as amended,
authorizes the issuance of Ten Million (10,000,000) shares of Preferred Stock,
$.001 par value per share, and expressly vests in the Board of Directors of the
Corporation the authority provided therein to issue all of said shares in one or
more series and by resolution or resolutions to establish the designation and
number and to fix the relative rights and preferences of each series to be
issued.
III. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it, has adopted the following resolutions creating a class
of Series A Convertible Preferred Stock:
RESOLVED, that a portion of the Ten Million (10,000,000) authorized shares
of Preferred Stock of the Corporation shall be designated as a separate series
possessing the rights and preferences set forth below:
1. DESIGNATION: NUMBER OF SHARES. The designation of said series of
Preferred Stock shall be Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK"). The number of shares of Series A Preferred Stock shall be
4,500,000. Each share of Series A Preferred Stock shall have a stated value
equal to $0.001 (as adjusted for any stock dividends, combinations or splits
with respect to such shares) (the "STATED VALUE"), and $.001 par value.
2. RANKING. The Series A Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.001 per share ("COMMON STOCK"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series A Preferred Stock
(which may be withheld in such holders' reasonable discretion), such class or
series of capital stock specifically, by its terms, ranks senior to or Pari
Passu with the Series A Preferred Stock); (iii) Pari Passu with any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of the Series A Preferred Stock (which may be withheld in such
holders' reasonable discretion) specifically ranking, by its terms, on parity
with the Series A Preferred Stock ("PARI PASSU SECURITIES"); and (iv) junior to
any class or series of capital stock of the Corporation hereafter created (with
the consent of the holders of Series A Preferred Stock (which may be withheld in
such holders' reasonable discretion) obtained in accordance with Section 8
hereof) specifically ranking, by its terms, senior to the Series A Preferred
Stock ("SENIOR Securities"), in each case as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary.
3. DIVIDENDS.
(a) The holders of shares of Series A Preferred Stock shall be
entitled to receive dividends payable out of funds legally available therefor.
Such dividends shall be payable only when, as, and if declared by the Board of
Directors and shall be noncumulative.
(b) No dividends shall be paid on any Common Stock of the Corporation
unless a dividend (including the amount of any dividends paid pursuant to the
above provisions of this section) is paid with respect to all outstanding shares
of Series A Preferred Stock in an amount for each such share of Series A
Preferred Stock equal to or greater than the aggregate amount of such dividends
for all shares of Common Stock into which each such share of Series A Preferred
Stock could then be converted.
(c) The Board of Directors may fix a record date for the
determination of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend or distribution declared thereon, which record
date shall be no more than 30 days prior to the date fixed for the payment
thereof.
4. LIQUIDATION RIGHTS.
(a) Upon the dissolution, liquidation or winding-up of the
Corporation, whether voluntary or involuntary, the Holders of the Series A
Preferred Stock shall be entitled to receive before any payment or distribution
shall be made on the Common Stock or any other capital stock hereafter
authorized that ranks junior to the Series A Preferred Stock (collectively, the
"JUNIOR STOCK"), out of the assets of the Corporation available for distribution
to stockholders, the Stated Value per share of Series A Preferred Stock and all
accrued and unpaid dividends, if any, to and including the date of payment
thereof. Upon the payment in full of all amounts due to Holders of the Series A
Preferred Stock the Holders of the Common Stock of the Corporation and any other
class of Junior Stock shall receive all remaining assets of the Corporation
legally available for distribution. If the assets of the Corporation available
for distribution to the Holders of the Series A Preferred Stock shall be
insufficient to permit payment in full of the amounts payable as aforesaid to
the Holders of Series A Preferred Stock upon such liquidation, dissolution or
winding-up, whether voluntary or involuntary, then all such assets of the
Corporation shall be distributed to the exclusion of the Holders of shares of
Junior Stock ratably among the Holders of the Series A Preferred Stock.
(b) Neither the purchase nor the redemption by the Corporation of
shares of any class of stock nor the merger or consolidation of the Corporation
with or into any other corporation or corporations nor the sale or transfer by
the Corporation of all or any part of its assets shall be deemed to be a
liquidation, dissolution or winding-up of the Corporation for the purposes of
this paragraph 4.
5. CONVERSION INTO COMMON STOCK. Shares of Series A Preferred Stock shall
have the following conversion rights and obligations:
(a) Subject to the further provisions and restrictions set forth in
this paragraph 5, each Holder of shares of Series A Preferred Stock shall have
the right at any time commencing after the issuance to the Holder of Series A
Preferred Stock and the Shareholder Approval (as defined below), to convert such
shares into fully paid and non-assessable shares of Common Stock of the
Corporation (as defined in paragraph 5(i) below) determined in accordance with
the Conversion Price provided in paragraph 5(b) below (the "CONVERSION PRICE")
by tendering to the Company the cash sum of $0.10 multiplied by the number of
shares of Common Stock into which such shares of Series A Preferred Stock are
then convertible. Such payment shall be made by certified check or wire transfer
of funds to an account designated by the Company. All issued or accrued but
unpaid dividends, if any, may be converted at the election of the Holder
simultaneously with the conversion of principal amount of Stated Value of Series
A Preferred Stock being converted.
Notwithstanding anything herein to the contrary, the Series A Preferred
Stock shall not be convertible into Common Stock until such time as there are
sufficient authorized but unissued shares of Common Stock of the Corporation for
such purpose. Promptly following the issuance of shares of Series A Preferred
Stock, the Corporation shall take such corporate action as may be reasonably
necessary to increase its authorized but unissued shares of Common Stock to such
number as shall be sufficient for such purpose, including engaging in
commercially reasonable efforts to obtain the requisite shareholder approval
(the "SHAREHOLDER APPROVAL"); provided, however, that the rights contained in
this Certificate shall constitute the Series A Preferred Stock holders' sole
remedy in the event that the Corporation fails to obtain the requisite
shareholder approval to increase the number of authorized but unissued shares of
Common Stock in a manner sufficient to effect the conversion of all outstanding
shares of Series A Preferred Stock.
(b) The number of shares of Common Stock issuable upon conversion of
each share of Series A Preferred Stock shall be two (2). The Conversion Price
per share shall be $0.10.
(c) Subject to the restrictions set forth in this Section 5, the
Holder of any certificate representing shares of Series A Preferred Stock
desiring to convert any of such shares may give notice of its decision to
convert the shares into Common Stock by delivering or telecopying an executed
and completed notice of conversion to the Corporation or the Corporation's
Transfer Agent and delivering within three business days thereafter, the
original certificate for the Preferred Stock properly endorsed for or
accompanied by duly executed instruments of transfer (and such other transfer
papers as said Transfer Agent may reasonably require) to the Corporation or the
Corporation's Transfer Agent, in addition to payment in full of the Conversion
Price multiplied by the number of shares of Common Stock to be issued upon
conversion. Each date on which a notice of conversion is delivered or telecopied
to the Corporation or the Corporation's Transfer Agent in accordance with the
provisions hereof shall be deemed a Conversion Date. A form of Notice of
Conversion that may be employed by a Holder is annexed hereto as Exhibit A. The
Corporation will transmit the certificates representing the shares of Common
Stock issuable upon conversion of any Series A Preferred Stock (together with
the Series A Preferred Stock representing the shares not converted) to the
Holder via express courier, by electronic transfer or otherwise, within four
business days after receipt by the Corporation of the original or telecopied
notice of conversion and the Series A Preferred Stock representing the shares to
be converted ("DELIVERY DATE"). The Holder of the shares so surrendered for
conversion shall be entitled to receive on or before the Delivery Date a
certificate or certificates that shall be expressed to be fully paid and
non-assessable for the number of shares of Common Stock to which such Holder
shall be entitled upon such conversion registered in the name of such Holder.
The Corporation is obligated to deliver to the Holder simultaneously with the
aforedescribed Common Stock, at the election of the Holder, additional Common
Stock representing the conversion at the Conversion Price, of dividends accrued
on the Series A Preferred Stock being converted. In the case of any Series A
Preferred Stock that is converted in part only the Holder of shares of Series A
Preferred Stock shall upon delivery of the certificate or certificates
representing Common Stock also receive a new share certificate representing the
unconverted portion of the shares of Series A Preferred Stock. Nothing herein
shall be construed to give any Holder of shares of Series A Preferred Stock
surrendering the same for conversion the right to receive any additional shares
of Common Stock or other property which results from an adjustment in conversion
rights under the provisions of paragraph (d) or (e) of this paragraph 5 until
Holders of Common Stock are entitled to receive the shares or other property
giving rise to the adjustment.
In the case of the exercise of the conversion rights set forth in paragraph
5(a) the conversion privilege shall be deemed to have been exercised and
the shares of Common Stock issuable upon such conversion shall be deemed to
have been issued upon the date of receipt by the Corporation or Transfer
Agent of the Notice of Conversion. The person or entity entitled to receive
Common Stock issuable upon such conversion shall, on the date such
conversion privilege is deemed to have been exercised and thereafter, be
treated for all purposes as the record Holder of such Common Stock and
shall on the same date cease to be treated for any purpose as the record
Holder of such shares of Series A Preferred Stock so converted.
Upon the conversion of any shares of Series A Preferred Stock no
adjustment or payment shall be made with respect to such converted shares on
account of any dividend on the Common Stock, except that the Holder of such
converted shares shall be entitled to be paid any dividends declared on shares
of Common Stock after conversion thereof.
The Corporation shall not be required, in connection with any
conversion of Series A Preferred Stock, and payment of dividends on Series A
Preferred Stock to issue a fraction of a share of its Series A Preferred Stock
and shall instead deliver a stock certificate representing the next whole
number.
The Corporation and Holder may not convert that amount of the
Series A Preferred Stock on a Conversion Date in amounts inconsistent with the
limitations set forth in the Subscription Agreement in connection with that
number of shares of Common Stock which would be in excess of the sum of (i) the
number of shares of Common Stock beneficially owned by the Subscriber and its
affiliates on such Conversion Date, and (ii) the number of shares of Common
Stock issuable upon the conversion of the Series A Preferred Stock with respect
to which the determination of this proviso is being made on such Conversion
Date, which would result in beneficial ownership by the Holder and its
affiliates of more than 4.99% of the outstanding shares of Common Stock of the
Corporation. For the purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13d-3
thereunder. The Holder may revoke the conversion limitation described in this
Paragraph upon 75 days prior notice to the Corporation or upon an Event of
Default hereunder. The Holder may allocate which of the equity of the
Corporation deemed beneficially owned by the Holder shall be included in the
4.99% amount described above and which shall be allocated to the excess above
4.99%.
(d) The Conversion Price determined pursuant to 4(b) shall be subject
to adjustment from time to time as follows:
(i) In case the Corporation shall at any time (A) declare any
dividend or distribution on its Common Stock or other securities of the
Corporation other than the Series A Preferred Stock, (B) split or subdivide the
outstanding Common Stock, (C) combine the outstanding Common Stock into a
smaller number of shares, or (D) issue by reclassification of its Common Stock
any shares or other securities of the Corporation, then in each such event the
Conversion Price shall be adjusted proportionately so that the Holders of Series
A Preferred Stock shall be entitled to receive the kind and number of shares or
other securities of the Corporation which such Holders would have owned or have
been entitled to receive after the happening of any of the events described
above had such shares of Series A Preferred Stock been converted immediately
prior to the happening of such event (or any record date with respect thereto).
Such adjustment shall be made whenever any of the events listed above shall
occur. An adjustment made to the Conversion pursuant to this paragraph 5(d)(i)
shall become effective immediately after the effective date of the event
retroactive to the record date, if any, for the event.
(e) (i) In case of any merger of the Corporation with or into any
other corporation (other than a merger in which the Corporation is the surviving
or continuing corporation and which does not result in any reclassification,
conversion, or change of the outstanding shares of Common Stock) then unless the
right to convert shares of Series A Preferred Stock shall have terminated, as
part of such merger lawful provision shall be made so that Holders of Series A
Preferred Stock shall thereafter have the right to convert each share of Series
A Preferred Stock into the kind and amount of shares of stock and/or other
securities or property receivable upon such merger by a Holder of the number of
shares of Common Stock into which such shares of Series A Preferred Stock might
have been converted immediately prior to such consolidation or merger. Such
provision shall also provide for adjustments that shall be as nearly equivalent
as may be practicable to the adjustments provided for in paragraph (d) of this
paragraph 5. The foregoing provisions of this paragraph 5(e) shall similarly
apply to successive mergers.
(ii) In case of any sale or conveyance to another person or
entity of the property of the Corporation as an entirety, or substantially as an
entirety, in connection with which shares or other securities or cash or other
property shall be issuable, distributable, payable, or deliverable for
outstanding shares of Common Stock, then, unless the right to convert such
shares shall have terminated, lawful provision shall be made so that the Holders
of Series A Preferred Stock shall thereafter have the right to convert each
share of the Series A Preferred Stock into the kind and amount of shares of
stock or other securities or property that shall be issuable, distributable,
payable, or deliverable upon such sale or conveyance with respect to each share
of Common Stock immediately prior to such conveyance.
(f) Whenever the number of shares to be issued upon conversion of the
Series A Preferred Stock is required to be adjusted as provided in this
paragraph 5, the Corporation shall forthwith compute the adjusted number of
shares to be so issued and prepare a certificate setting forth such adjusted
conversion amount and the facts upon which such adjustment is based, and such
certificate shall forthwith be filed with the Transfer Agent for the Series A
Preferred Stock and the Common Stock; and the Corporation shall mail to each
Holder of record of Series A Preferred Stock notice of such adjusted conversion
price.
(g) In case at any time the Corporation shall propose:
(i) to pay any dividend or distribution payable in shares upon
its Common Stock or make any distribution (other than cash dividends) to the
Holders of its Common Stock; or
(ii) to offer for subscription to the Holders of its Common Stock
any additional shares of any class or any other rights; or
(iii) any capital reorganization or reclassification of its
shares or the merger of the Corporation with another corporation (other than a
merger in which the Corporation is the surviving or continuing corporation and
which does not result in any reclassification, conversion, or change of the
outstanding shares of Common Stock); or
(iv) the voluntary dissolution, liquidation or winding-up of the
Corporation; then, and in any one or more of said cases, the Corporation shall
cause at least fifteen (15) days prior notice of the date on which (A) the books
of the Corporation shall close or a record be taken for such stock dividend,
distribution, or subscription rights, or (B) such capital reorganization,
reclassification, merger, dissolution, liquidation or winding-up shall take
place, as the case may be, to be mailed to the Transfer Agent for the Series A
Preferred Stock and for the Common Stock and to the Holders of record of the
Series A Preferred Stock.
(h) So long as any shares of Series A Preferred Stock shall remain
outstanding and the Holders thereof shall have the right to convert the same in
accordance with provisions of this paragraph 5 the Corporation shall at all
times reserve from the authorized and unissued shares of its Common Stock a
sufficient number of shares to provide for such conversions, subject to the
Corporation's obligation to seek shareholder approval to increase its authorized
but unissued Common Stock as set forth in paragraph 5(a).
(i) The term Common Stock as used in this paragraph 5 shall mean the
$.001 par value Common Stock of the Corporation as such stock is constituted at
the date of issuance thereof or as it may from time to time be changed or shares
of stock of any class of other securities and/or property into which the shares
of Series A Preferred Stock shall at any time become convertible pursuant to the
provisions of this paragraph 5.
(j) The Corporation shall pay the amount of any and all issue taxes
(but not income taxes) which may be imposed in respect of any issue or delivery
of stock upon the conversion of any shares of Series A Preferred Stock, but all
transfer taxes and income taxes that may be payable in respect of any change of
ownership of Series A Preferred Stock or any rights represented thereby or of
stock receivable upon conversion thereof shall be paid by the person or persons
surrendering such stock for conversion.
(k) In the event a Holder shall elect to convert any shares of Series
A Preferred Stock as provided herein, the Corporation may not refuse conversion
based on any claim that such Holder or any one associated or affiliated with
such Holder has been engaged in any violation of law, or for any other reason
unless, an injunction from a court, on notice, restraining and or enjoining
conversion of all or part of said shares of Series A Preferred Stock shall have
been issued and the Corporation posts a surety bond for the benefit of such
Holder in the amount of 150% of the Stated Value of the Series A Preferred Stock
and dividends sought to be converted, which is subject to the injunction, which
bond shall remain in effect until the completion of arbitration/litigation of
the dispute and the proceeds of which shall be payable to such Holder in the
event it obtains judgment.
6. MANDATORY CONVERSION. The shares of Series A Preferred Stock and
dividends may not be converted without the consent of the Holder.
7. VOTING RIGHTS. The shares of Series A Preferred Stock shall not have
voting rights.
8. STATUS OF CONVERTED OR REDEEMED STOCK. In case any shares of Series A
Preferred Stock shall be redeemed or otherwise repurchased or reacquired, the
shares so redeemed, converted, or reacquired shall resume the status of
authorized but unissued shares of Preferred Stock and shall no longer be
designated as Series A Preferred Stock.
Dated: ___________ ___, 2003
BESTNET COMMUNICATIONS CORP.
By: ____________________________________
EXHIBIT A
NOTICE OF CONVERSION
(To Be Executed By the Registered Holder in Order to Convert the Series A
Convertible Preferred Stock of BestNet Communications Corp.)
The undersigned hereby irrevocably elects to convert ______________ shares
of the above Series A Convertible Preferred Stock into shares of Common Stock of
BestNet Communications Corp. (the "Corporation") according to the conditions
hereof, as of the date written below.
Date of Conversion: ____________________________________________________________
Conversion Cost Per Share: $.10
Dollar Amount Paid to the Company for Conversion: ______________________________
Number of Common Shares Issuable Upon This Conversion: _________________________
Signature: _____________________________________________________________________
Print Name: ____________________________________________________________________
Address: _______________________________________________________________________
________________________________________________________________________________
Deliveries Pursuant to this Notice of Conversion Should Be Made to:
________________________________________________________________________________
________________________________________________________________________________