EXHIBIT 3.2
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS OF
SERIES B CONVERTIBLE PREFERRED STOCK OF
AVTEL COMMUNICATIONS, INC.
PURSUANT TO SECTION 151 OF THE DELAWARE
GENERAL CORPORATION LAW
The undersigned, being the Chief Executive Officer of AvTel
Communications, Inc., a corporation organized and existing under and by virtue
of the laws of the State of Delaware (hereinafter the "Corporation"), DO HEREBY
CERTIFY:
FIRST: That pursuant to authority expressly granted and vested in the
Board of Directors of said Corporation by the provisions of Article IV of the
Corporation's Certificate of Incorporation, said Board of Directors adopted the
following resolution on March 31, 1999 determining the designations, preferences
and rights of its Series B Convertible Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of Directors
of the Corporation by Article IV of the Corporation's Certificate of
Incorporation (the "Certificate of Incorporation"), 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 B Convertible Preferred Stock (the "Series B Convertible
Preferred Stock"), to consist of 1,500 shares, par value $.01 per share, of
which the preferences and relative and other rights, and the qualifications,
limitations or restrictions thereof, shall be as set forth in the Certificate of
Designations annexed hereto:
1. NUMBER OF SHARES OF SERIES B CONVERTIBLE PREFERRED STOCK. Of the
750,000 shares of authorized but undesignated Preferred Stock, $.01 par value
("Preferred Stock") of the Corporation, one thousand five hundred (1,500) shares
shall be designated and known as Series B Convertible Preferred Stock, par value
$.01 per share ("Series B Convertible Preferred Stock").
2. VOTING.
(a) Unless required by law, no holder of any shares of Series B
Convertible Preferred Stock shall be entitled to vote at any meeting of
stockholders of the Corporation (or
any written actions of stockholders in lieu of meetings) with respect to any
matters presented to the stockholders of the Corporation for their action or
consideration. Notwithstanding the foregoing, the Corporation shall provide each
holder of record of Series B Convertible 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.
(b) So long as shares of Series B Convertible Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval (by
vote or written consent, as provided by the Delaware General Corporation Law) of
the holders of at least 85% in interest of the then outstanding shares of Series
B Convertible Preferred Stock:
(i) alter or change the rights, preferences or privileges of
the Series B Convertible Preferred Stock;
(ii) create any new class or series of capital stock having
parity with or a preference over the Series B Convertible Preferred Stock as to
distribution of assets upon liquidation, dissolution or winding up of the
Corporation ("Senior Securities") or alter or change the rights, preferences or
privileges of any Senior Securities so as to affect adversely the Series B
Convertible Preferred Stock;
(iii) increase the authorized number of shares of Series B
Convertible Preferred Stock; or
(iv) do any act or thing not authorized or contemplated by
this Certificate of Designations which would result in taxation of the holders
of shares of the Series B Convertible Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
In the event holders of at least 85% in interest of the then
outstanding shares of Series B Convertible Preferred Stock agree to allow the
Corporation to alter or change the rights, preferences or privileges of the
shares of Series B Convertible Preferred Stock, pursuant to subsection (b)
above, so as to affect the Series B Convertible Preferred Stock, then the
Corporation will deliver notice of such approved change to the holders of the
Series B Convertible Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert any and all shares of then held
Series B Convertible Preferred Stock pursuant to the terms of this Certificate
of Designation as in effect prior to such alteration or change, or else to
continue to hold their shares of Series B Convertible Preferred Stock.
3. DIVIDENDS.
The holders of shares of Series B Convertible Preferred Stock shall
be entitled to receive, before any cash dividend shall be declared and paid upon
or set aside for the Common Stock in any fiscal year of the Corporation, out of
funds legally available for that purpose,
cumulative dividends payable in cash in an amount per share for such fiscal year
equal to $30.00. Such dividends shall accrue daily and be payable quarterly on
March 31, June 30, September 30 and December 31 of each year, commencing June
30, 1999. In the event that the Corporation's Common Stock shall cease for any
reason to be listed on The Nasdaq Stock Market or any national securities
exchange, the cash dividend from such date forward shall be at the rate of
$60.00 per share. The Corporation may pay any such dividend in the form of
Common Stock, valued at the closing bid price for the Common Stock on the
Principal Market on the day prior to the dividend payment date.
4. LIQUIDATION. (a) If the Corporation shall commence a voluntary case
under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or State bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidating Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation other than Senior Securities (as defined
below) upon liquidation, dissolution or winding up unless prior thereto, the
holders of shares of Series B Convertible Preferred Stock shall have received
the Liquidation Preference (as defined in Section 4(c)) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series B Convertible
Preferred Stock and holders of securities ranking pari passu as to preference
upon liquidation with the Series B Convertible Preferred Stock shall be
insufficient to permit the payment to such holders of the preferential amounts
payable thereon, then the entire assets and funds of the Corporation legally
available for distribution to the Series B Convertible Preferred Stock and such
pari passu securities shall be distributed ratably among such shares in
proportion to the ratio that that Liquidation Preference payable on each such
share bears to the aggregate Liquidation Preference payable on all such shares.
(b) At the option of each holder, the sale, conveyance of
disposition of all or substantially all of the assets of the Corporation, the
effectuation by the Corporation of a transaction or series or related
transactions in which more than 50% of the voting power of the Corporation is
disposed of, or the consolidation, merger or other business combination of the
Corporation with or into any other person or persons when the Corporation is not
the survivor shall be deemed to be a liquidation, dissolution or winding up of
the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to such transaction an
amount equal to the Liquidation Preference with respect to each
outstanding share of Series B Convertible Preferred Stock held by such holder in
accordance with and subject to the terms of this Section 4.
(c) The Liquidation Preference shall be the Stated Value of $1,000
per share of Series B Convertible Preferred Stock plus all accrued but unpaid
dividends. The Corporation's Series A Preferred Stock shall constitute Senior
Securities and shall be ranked senior to the Series B Convertible Preferred
Stock in respect of the distribution of assets upon a Liquidating Event and for
purposes of receiving cash dividends.
5. OPTIONAL CONVERSION. The holders of shares of Series B Convertible
Preferred Stock shall have the following conversion rights:
(a) RIGHT TO CONVERT; CONVERSION PRICE. Subject to the terms,
conditions, and restrictions of this Section 5, the holder of any shares of
Series B Convertible Preferred Stock shall have the right to convert each such
share of Series B Convertible Preferred Stock (except that upon any liquidation
of the Corporation, the right of conversion shall terminate at the close of
business on the business day fixed for payment of the amount distributable on
the Series B Convertible Preferred Stock) into an amount of shares of Common
Stock equal to the Stated Value of such share or shares of Series B Convertible
Preferred Stock divided by (i) the lowest closing bid price, as reported by
Bloomberg L.P., on the principal market for the Corporation's Common Stock based
on trading volume (the "Principal Market") during the period of five consecutive
trading days ending with the last trading day prior to the date of conversion
(the "Conversion Date") (the "Market Price"), after (ii) discounting the Market
Price by 11% to determine the conversion price (the "Conversion Price"). To
illustrate, if the Market Price as of the Conversion Date is $1.00 and 100
shares of Series B Convertible Preferred Stock are being converted, the Stated
Value for which would be $100,000, then the Conversion Price shall be $0.89 per
share of Common Stock ($1.00 x .89), whereupon the Stated Value of $100,000 of
Series B Convertible Preferred Stock would entitle the holder thereof to convert
the 100 shares of Series B Convertible Preferred Stock into 112,359 shares of
Common Stock ($100,000 divided by $0.89 equals 112,359). However, in no event
shall the Conversion Price be greater than 100% of the closing bid price of the
Common Stock on the Principal Market on the Original Issuance Date, as defined
in the next paragraph (the "Maximum Conversion Price") nor less than three
dollars ($3.00) prior to 180 days from the Original Issuance Date, as defined in
the next paragraph, or less than two dollars ($2.00) at any time thereafter (the
"Minimum Conversion Price") except that there shall be no Minimum Conversion
Price if (i) the Corporation shall report on its Form 10-Q or QSB or 10-K or KSB
for the applicable quarter gross revenues of less than (w) $8,200,000 for the
quarter ended March 31, 1999, (x) $10,000,000 for the quarter ended June 30,
1999, (y) $12,000,000 for the quarter ended September 30, 1999 or (z)
$15,000,000 for the quarter ended December 31, 1999. In addition, there shall be
no Minimum Conversion Price if the Corporation shall report EBITDA for the month
ending December 31, 1999 of less than zero dollars. The Corporation covenants
that it shall report such month-end EBITDA on a Form 8-K report no later than
February 28, 2000. In addition, if the Conversion Price on any Conversion Date
is less than $4.00, then the Corporation shall have the option, prior to or
within two business hours (which may carry over to the next business day if
after 4:00 p.m. Eastern time at the Corporation) of receipt of a Conversion
Notice from a holder and upon prior written notice to the holder, to pay the
holder in shares of Common Stock as set forth above, or else in cash in an
amount equal to (i) the closing ask price on the Principal Market on the
Conversion
Date multiplied by (ii) the number of shares of Common Stock which would
otherwise be issuable to the holder upon such conversion, or any combination of
cash and Common Stock. If notice of the Corporation's election to pay the holder
in cash is not received by the holder prior to or within two business hours of
the receipt by the Corporation of a Conversion Notice, the Corporation shall
issue the holder shares of Common Stock unless otherwise consented to by the
holder. Any conversion which is paid in cash shall be paid within three (3)
business days of the Conversion Date, or else the late delivery payments set
forth in Section 5(d)(ii) hereof shall apply to such late payment, and, upon
demand of the holder in such event of late delivery, the holder may require the
Corporation to deliver the shares otherwise issuable upon such conversion.
Unless the Corporation shall have obtained the approval of its voting
stockholders to such issuance in accordance with the applicable rules of the
Principal Market, if any, the Corporation shall not issue shares of Common Stock
upon conversion of any shares of Series B Convertible Preferred Stock if such
issuance of Common Stock, when added to the number of shares of Common Stock
previously issued by the Corporation upon conversion of or as dividends on
shares of the Series B Convertible Preferred Stock, or issued upon exercise of
the Stock Purchase Warrants issued in conjunction with the issuance of shares of
Series B Convertible Preferred Stock, would exceed 19.9% of the number of shares
of the Corporation's Common Stock which were issued and outstanding on the
Original Issuance Date. The right to convert shares of Series B Convertible
Preferred Stock shall be pro rated among the original purchasers of such shares
and their respective subsequent transferees, if any, in order to comply with the
aforesaid overall limitation. In the event that the Corporation has not obtained
stockholder approval of such issuance prior to receipt of a Conversion Notice
which would otherwise violate this provision, the Corporation shall honor such
conversion request (resulting in an issuance in excess of 19.9%) in cash in an
amount equal to (i) the closing ask price on the Principal Market on the day
prior to the Conversion Date multiplied by (ii) the number of shares of Common
Stock which would otherwise be issuable to the holder upon such conversion.
(b) CONVERSION DATE. (i) The holder of any shares of Series B
Convertible Preferred Stock may convert the shares of Series B Convertible
Preferred Stock purchased by such holder from the Company 90 days from the
Original Issuance Date, or if the holder accepts the Maximum Conversion Price at
the Conversion Price, then such shares shall be convertible at any time after
the Original Issuance Date; provided, that the Corporation shall have the right,
on no more than three (3) occasions during the life of the Series B Convertible
Preferred Stock, by at least three (3) trading days' prior written notice to the
holders, to refuse to honor any Exchange Notice delivered during any specified
seven (7) calendar day period.
(ii) In no event shall a holder be permitted to convert any shares
of Series B Convertible Preferred Stock in excess of the number of such
shares upon the conversion of which, (x) the number of shares of Common
Stock owned by such holder (other than shares of Common Stock issuable
upon conversion of shares of Series B Convertible Preferred Stock) plus
(y) the number of shares of Common Stock issuable upon such conversion of
such shares of Series B Convertible Preferred Stock, would be equal to or
exceed 9.9% of the number of shares of Common Stock then issued and
outstanding, including shares issuable upon conversion of the Series B
Convertible Preferred Stock held by such holder after application of this
Section 5(b)(ii). As used herein, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and the rules and regulations
thereunder. To the extent that the limitation contained in this Section
5(b)(ii) applies, the determination of whether shares of Series B
Convertible Preferred Stock are convertible (in relation to other
securities owned by holder) and of which shares of Series B Convertible
Preferred Stock are convertible shall be in the sole discretion of such
holder, and the submission of shares of Series B Convertible Preferred
Stock for conversion shall be deemed to be such holder's determination of
whether such shares of Series B Convertible Preferred Stock are
convertible (in relation to other securities owned by such holder) and of
which shares of Series B Convertible Preferred Stock are convertible, in
each case subject to such aggregate percentage limitation, and the
Corporation shall have no obligation to verify or confirm the accuracy of
such determination. Nothing contained herein shall be deemed to restrict
the right of a holder to convert such shares of Series B Convertible
Preferred Stock at such time as such conversion will not violate the
provisions of this paragraph. The provisions of this Section 5(b)(ii) may
be waived by a holder of Series B Convertible Preferred Stock as to itself
(and solely as to itself) upon not less than 75 days' prior notice to the
Corporation, and the provisions of this Section 5(b)(ii) shall continue to
apply until such 75th day (or such later date as may be specified in such
notice of waiver). No conversion in violation of this paragraph but
otherwise in accordance with this Certificate of Designation shall affect
the status of the Common Stock issued upon such conversion as validly
issued, fully-paid and nonassessable.
(c) NOTICE OF CONVERSION. The right of conversion shall be exercised
by the holder thereof by giving written notice (the "Conversion Notice") to the
Corporation, by facsimile or by registered mail or overnight delivery service,
with a copy by facsimile to the Corporation's then transfer agent for its Common
Stock, as designated by the Corporation from time to time, that the holder
elects to convert a specified number of shares of Series B Convertible Preferred
Stock representing a specified Stated Value thereof into Common Stock and, if
such conversion will result in the conversion of all of such holder's shares of
Series B Convertible Preferred Stock, by surrender of a certificate or
certificates for the shares so to be converted to the Corporation at its
principal office (or such other office or agency of the Corporation as the
Corporation may designate by notice in writing to the holders of the Series B
Convertible Preferred Stock) at any time during its usual business hours on the
date set forth in the Conversion Notice, together with a statement of the name
or names (with address) in which the certificate or certificates for shares of
Common Stock shall be issued. The Conversion Notice shall include therein the
Stated Value of shares of Series B Convertible Preferred Stock to be converted,
and a calculation (i) of the Market Price, (ii) the Conversion Price, and (iii)
the number of shares of Common Stock to be issued in connection with such
conversion.
(d) ISSUANCE OF CERTIFICATES; TIME CONVERSION EFFECTED. (i)
Promptly, but in no event more than three business days, after the receipt of
the Conversion Notice referred to in Section 5(c) and surrender of the
certificate or certificates for the share or shares of Series B Convertible
Preferred Stock to be converted (if required), the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Common Stock into which such shares of Series B
Convertible Preferred Stock are converted. To the extent permitted by law, such
conversion shall be deemed to have been effected 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, and at such time the rights of the holder of such
share or shares of Series B Convertible 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.
Issuance of shares of Common Stock issuable upon conversion which 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.
(ii) The Corporation understands that a delay in the issuance
of the shares of Common Stock beyond three business days could result in
economic loss to the holder. As compensation to the holder for such loss, the
Corporation agrees to pay late payments to the holder for late issuance of
shares of Common Stock upon conversion in accordance with the following schedule
(where "NO. BUSINESS DAYS LATE" is defined as the number of business days beyond
three (3) business days from the date of receipt by the Corporation of the
Conversion Notice):
Late Payment For Each
$5,000 of Stated Value
No. Business Days Late Amount Being Converted
- ----------------------------- ----------------------------------------------
1 $100
2 $200
3 $300
4 $400
5 $500
6 $600
7 $700
8 $800
9 $900
10 $1,000
>10 $1,000 + $200 for each Business Day
Late beyond 10 days
The Corporation shall pay any payments incurred under this Section in
immediately available funds upon demand. Nothing herein shall limit holder's
right to pursue injunctive relief and/or actual damages for the Corporation's
failure to issue and deliver Common Stock to the holder, including, without
limitation, 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 which may be available to the holder, in the event that the Corporation
fails for any reason to effect delivery of such shares of Common Stock within
five business days the date of receipt of the Conversion Notice, the holder will
be entitled to revoke the relevant Conversion Notice by
delivering a notice to such effect to the Corporation whereupon the Corporation
and the holder shall each be restored to their respective positions immediately
prior to delivery of such Conversion Notice.
(iii) If, at any time (a) the Corporation challenges, disputes
or denies the right of the holder to effect the conversion of the Series B
Convertible Preferred Stock into Common Shares or otherwise dishonors or rejects
any Conversion Notice delivered in accordance with this Section 5 or (b) any
third party who is not and has never been an Affiliate (as defined in Rule 405
under the Securities Act of 1933, as amended) of the holder obtains a judgment
or order from any court or public or governmental authority which denies,
enjoins, limits, modifies, or delays the right of the holder hereof to effect
the conversion of the Series B Convertible Preferred Stock into Common Shares,
then the holder shall have the right, by written notice to the Corporation, to
require the Corporation to promptly redeem the Series B Convertible Preferred
Stock for cash at a redemption price equal to one hundred twenty percent (120%)
of the Stated Value thereof (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall indemnify and hold harmless
the holder and be responsible for the payment of all costs and expenses of the
holder, including its reasonable legal fees and expenses, as and when incurred
in disputing any such action or pursuing its rights hereunder (in addition to
any other rights of the holder). The Corporation shall not refuse to honor any
Conversion Notice unless its has actually been enjoined by a court of competent
jurisdiction from doing so, and if so enjoined, the Corporation shall post with
such court a performance bond equal to 120% of the Stated Value of the shares
sought to be converted by the holder which are the subject of such injunction.
(iv) The holder shall be entitled to exercise its conversion
privilege notwithstanding the commencement of any case under 11 U.S.C. Section
101 ET SEQ. (the "Bankruptcy Code"). In the event the Corporation is a debtor
under the Bankruptcy Code, the Corporation hereby waives to the fullest extent
permitted any rights to relief it may have under 11 U.S.C. Section 362 in
respect of the holder's conversion privilege. The Corporation hereby waives to
the fullest extent permitted any rights to relief it may have under 11 U.S.C.
Section 362 in respect of the conversion of the Series B Convertible Preferred
Stock. The Corporation agrees, without cost or expense the holder, to take or
consent to any and all action necessary to effectuate relief under 11 U.S.C.
Section 362.
(e) FRACTIONAL SHARES. No fractional shares shall be issued upon
conversion of Series B Convertible Preferred Stock into Common Stock. All
fractional shares shall be rounded up to the nearest whole share.
(f) REORGANIZATION OR RECLASSIFICATION. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or assets with respect to or in exchange for Common
Stock, or, in the case of any consolidation, merger or mandatory share exchange
of the Corporation into any other company, then, as a condition of such
reorganization, reclassification or exchange, lawful and adequate provisions
shall be made whereby each holder of a share or shares of Series B Convertible
Preferred Stock shall thereupon have the right to
receive, upon the basis and upon the terms and conditions specified herein and
in lieu of the shares of Common Stock immediately theretofore receivable upon
the conversion of such share or shares of Series B Convertible Preferred Stock,
such shares of stock, securities or assets as may be issued or payable with
respect to or in exchange for a number of outstanding shares of such Common
Stock equal to the number of shares of such Common Stock immediately theretofore
receivable upon such conversion had such reorganization, reclassification or
exchange not taken place, and in any such case appropriate provisions shall be
made with respect to the rights and interests of such holder to the end that the
provisions hereof (including without limitation provisions for adjustments of
the conversion rights and the fixing of the Conversion Price) shall thereafter
be applicable, as nearly as may be, in relation to any shares of stock,
securities or assets thereafter deliverable upon the exercise of such conversion
rights. For clarity, it is the intention of the Corporation that the conversion
rights of the holders of the Series B Convertible Preferred Stock shall survive
any consolidation, merger or mandatory share exchange and that the conversion
rights granted hereunder shall be exercisable against any such successor
corporation, and shall not be terminated or fixed upon the consummation of any
such transaction.
(g) ADJUSTMENTS FOR SPLITS, COMBINATIONS, ETC. The Conversion Price
and the number of shares of Common Stock into which the Series B Convertible
Preferred Stock shall be convertible shall be adjusted for stock splits, stock
dividends, combinations or other similar events. No adjustment to the Conversion
Price will be made for dividends (other than stock dividends), if any, paid on
the Common Stock or for securities issued pursuant to exercise for fair value of
options, warrants or restricted stock.
6. MANDATORY CONVERSION.
(a) MANDATORY CONVERSION DATE. If on or after March 31, 2002 (such
date as selected by the Corporation being the "Mandatory Conversion Date"),
there remain issued and outstanding any shares of Series B Convertible Preferred
Stock, then the Corporation shall be entitled to require all (but not less than
all) holders of shares of Series B Convertible Preferred Stock then outstanding
to convert their shares of Series B Convertible Preferred Stock into shares of
Common Stock or, at the option of the Corporation, to buy out all such holders
in cash, at the then effective Conversion Price pursuant to Section 5(a). The
Corporation shall provide written notice (the "Mandatory Conversion Notice") to
the holders of shares of Series B Convertible Preferred Stock of such mandatory
conversion or such mandatory buy-out. The Mandatory Conversion Notice shall
include (i) the Stated Value of the shares of Series B Convertible Preferred
Stock to be converted or bought out, (ii) the Conversion Price at the Mandatory
Conversion Date (which may refer to a formula for determining such price), and
(iii) the number of shares of the Corporation's Common Stock to be issued (or
the amount of cash to be paid in the event of a buy-out) upon such mandatory
conversion or such mandatory buy-out at the then applicable Conversion Price.
Notwithstanding the foregoing, in no event shall the Corporation convert that
portion of the Series B Convertible Preferred Stock to the extent that the
issuance of Common Stock upon the conversion of such Series B Convertible
Preferred Stock, when combined with shares of Common Stock received upon other
conversions of Series B Convertible Preferred Stock by such holder and any other
holders of Series B Convertible Preferred Stock or upon exercise of the Stock
Purchase Warrants referred to in Section 5(a), would exceed 19.9% of the Common
Stock outstanding on the Original Issuance Date (unless
stockholder approval has been obtained as described in Section 5(a), if
necessary) , or as to any individual holder, make such holder the beneficial
owner of 9.9% or more of the Company's then-outstanding Common Stock.
(b) SURRENDER OF CERTIFICATES. On or before the Mandatory Conversion
Date, each holder of shares of Series B Convertible Preferred Stock shall
surrender his or its certificate or certificates for all such shares to the
Corporation at the place designated in such Mandatory Conversion Notice (or an
affidavit of lost certificate in form and content reasonably satisfactory to the
Corporation), and shall thereafter receive certificates for the number of shares
of Common Stock to which such holder is entitled or, in the event of a buy-out
by the Corporation, the amount of cash such holder is entitled within three
business days. On the Mandatory Conversion Date, all rights with respect to the
Series B Convertible Preferred Stock so converted, including the rights, if any,
to receive notices and vote, will terminate. All certificates evidencing shares
of Series B Convertible Preferred Stock that are required to be surrendered for
conversion in accordance with the provisions hereof, from and after the
Mandatory Conversion Date, shall be deemed to have been retired and cancelled,
notwithstanding the failure of the holder or holders thereof to surrender such
certificates on or prior to such date. The Corporation may thereafter take such
appropriate action as may be necessary to reduce the authorized Series B
Convertible Preferred Stock accordingly.
7. REDEMPTION OF SERIES B CONVERTIBLE PREFERRED STOCK.
(a) RIGHT TO REDEEM SERIES B CONVERTIBLE PREFERRED STOCK. At any
time after the earlier of (i) the closing of a firm-commitment underwritten
public offering of its Common Stock or (ii) the date which is six months after
the Original Issuance Date, the Corporation may, in its sole discretion, but
shall not be obligated to, redeem, in whole but not in part, the then issued and
outstanding shares of Series B Convertible Preferred Stock, at a price equal to
130% of the Stated Value, plus all accrued but unpaid dividends, provided that a
registration statement permitting resale of any shares of Common Stock issuable
upon conversion by the holder is then effective. Each holder shall have five (5)
business days after receipt of the Redemption Notice to elect instead to convert
such shares pursuant to Section 5 hereof, notwithstanding that less than 90 days
may have elapsed from the Original Issuance Date or that the registration
statement is not then effective. Any such conversions made pursuant to this
Section 7 shall be made at the Conversion Price established pursuant to Section
5(a).
(b) NOTICE OF REDEMPTION. The Corporation shall provide each holder
of record of the Series B Convertible Preferred Stock being redeemed with
written notice of redemption (the "Redemption Notice") not less than 10 days
prior to any date stipulated by the Corporation for the redemption of the Series
B Convertible Preferred Stock (the "Redemption Date"). The Redemption Notice
shall contain (i) the Redemption Date, (ii) the number of shares of Series B
Convertible Preferred Stock to be redeemed from the holder to whom the
Redemption Notice is delivered, and (iii) instructions for surrender to the
Corporation of the certificate or certificates representing the shares of Series
B Convertible Preferred Stock to be redeemed.
(c) SURRENDER OF CERTIFICATES; PAYMENT OF REDEMPTION PRICE. On or
before the Redemption Date, each holder of the shares of Series B Convertible
Preferred Stock to be redeemed shall surrender the required certificate or
certificates representing such shares to the
Corporation, in the manner and at the place designated in the Redemption Notice,
and upon payment to the holder of the Redemption Price, each such surrendered
certificate shall be cancelled and retired. If payment of such redemption price
is not made in full by the Redemption Date the Holder shall again have the right
to convert the Series B Convertible Preferred Stock as provided in Section 5
hereof, and the Company shall thereafter be precluded from exercising its rights
under this Section 7. If a certificate is surrendered and all the shares
evidenced thereby are not being redeemed, the Corporation shall issue new
certificates to be registered in the names of the person(s) whose name(s)
appear(s) as the owners on the respective surrendered certificates and deliver
such certificate to such person(s).
8. 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 capital reorganization or reclassification of
the capital stock of the Corporation, or a consolidation or merger of the
Corporation with or into, or a sale of all or substantially all its assets to,
another entity or entities; or
(d) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation;
then, in any one or more of said cases, the Corporation shall give, by first
class mail, postage prepaid, or by telex or facsimile or by recognized overnight
delivery service to non-U.S. residents, addressed to each holder of any shares
of Series B Convertible Preferred Stock at the address of such holder as shown
on the books of the Corporation, (i) at least twenty (20) business 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 reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up and (ii) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, at least
twenty (20) business 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 (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 reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up, as the case may be.
9. STOCK TO BE RESERVED. The Corporation, upon the effective date of this
Certificate of Designations, has a sufficient number of shares of Common Stock
available to reserve for
issuance upon the conversion of all outstanding shares of Series B Convertible
Preferred Stock, assuming immediate conversion. The Corporation will at all
times reserve and keep available out of its authorized Common Stock, solely for
the purpose of issuance upon the conversion of Series B Convertible Preferred
Stock as herein provided, such number of shares of Common Stock as shall then be
issuable upon the conversion of all outstanding shares of Series B Convertible
Preferred. The Corporation covenants that all shares of Common Stock which shall
be so issued shall be duly and validly issued, fully paid and non-assessable.
The Corporation will take all such action as may be so taken without violation
of any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Common Stock may be listed to have a
sufficient number of authorized but unissued shares of Common Stock to issue
upon conversion of the Series B Convertible Preferred Stock. The Corporation
will not take any action which results in any adjustment of the conversion
rights if the total number of shares of Common Stock issued and issuable after
such action upon conversion of the Series B Convertible Preferred Stock would
exceed the total number of shares of Common Stock then authorized by the
Corporation's Certificate of Incorporation, as amended.
10. NO REISSUANCE OF SERIES B CONVERTIBLE PREFERRED STOCK. Shares of
Series B Convertible Preferred Stock which are converted into shares of Common
Stock as provided herein shall not be reissued.
11. ISSUE TAX. The issuance of certificates for shares of Common Stock
upon conversion of Series B Convertible Preferred Stock shall be made without
charge to the holder for any United States issuance tax in respect thereof,
provided that the Corporation shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Series B Convertible
Preferred Stock which is being converted.
12. CLOSING OF BOOKS. The Corporation will at no time close its transfer
books against the transfer of any Series B Convertible Preferred Stock or of any
shares of Common Stock issued or issuable upon the conversion of any shares of
Series B Convertible Preferred Stock in any manner which interferes with the
timely conversion of such Series B Convertible Preferred Stock, except as may
otherwise be required to comply with applicable securities laws.
13. DEFINITIONS. As used in this Certificate of Designations, the term
"Common Stock" shall mean and include the Corporation's authorized Common Stock,
$0.01 par value, as constituted on the date of filing of these terms of the
Series B Convertible Preferred Stock, and shall also include any capital stock
of any class of the Corporation thereafter authorized which shall neither be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Common
Stock receivable upon conversion of shares of Series B Convertible Preferred
Stock shall include only shares designated as Common Stock of the Corporation on
the date of filing of this instrument, or in case of any reorganization,
reclassification, or stock split of the outstanding shares thereof, the stock,
securities or assets
provided for in Subparagraph 5(f) and (g). Any capitalized terms used in this
Certificate of Designations but not defined herein shall have the meanings set
forth in that certain Convertible Preferred Stock and Warrant Purchase Agreement
dated as of April 5, 1999 among the Corporation and the other persons signatory
thereto, a copy of which will be provided to any stockholder of the Corporation
upon request to the Secretary of the Corporation, without charge.
14. LOSS, THEFT, DESTRUCTION OF PREFERRED STOCK. Upon receipt of evidence
satisfactory to the Corporation of the loss, theft, destruction or mutilation of
certificates representing shares of Series B Convertible Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series B Convertible
Preferred Stock certificate, the Corporation shall make, issue and deliver, in
lieu of such lost, stolen, destroyed or mutilated certificates for Series B
Convertible Preferred Stock, new certificates for Series B Convertible Preferred
Stock of like tenor. The Series B Convertible Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 14 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series B Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statue existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
15. WHO DEEMED ABSOLUTE OWNER. The Corporation may deem the person in
whose name the Series B Convertible Preferred Stock shall be registered upon the
registry books of the Corporation to be, and may treat it as, the absolute owner
of the Series B Convertible Preferred Stock for the purpose of conversion of the
Series B Convertible Preferred Stock 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 effectual to satisfy and
discharge the liability upon the Series B Convertible Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
16. REGISTER. The Corporation shall maintain a transfer agent, which may
be the transfer agent for the Common Stock or the Corporation itself, for the
registration of the Series B Convertible Preferred Stock. Upon any transfer of
the Series B Convertible Preferred Stock in accordance with the provisions
hereof, the Corporation shall register or cause the transfer agent to register
such transfer on the Series B Convertible Preferred Stock register.
17. WITHHOLDING. To the extent required by applicable law, the Corporation
may withhold amounts for or on account of any taxes imposed or levied by or on
behalf of any taxing authority in the United States having jurisdiction over the
Corporation from any payments made pursuant to the Series B Convertible
Preferred Stock.
18. HEADINGS. The headings of the Sections of this Certificate of
Designations are inserted for convenience only and do not constitute a part of
this Certificate of Designations.
IN WITNESS WHEREOF, Anthony E. Papa, Chief Executive Officer of the
Corporation, under penalties of perjury, does hereby declare and certify that
this is the act and deed of the Corporation and the facts stated herein are true
and accordingly has signed this Certificate of Designations as of this 13th day
of April, 1999.
AvTEL COMMUNICATIONS, INC.
By: /S/ ANTHONY E. PAPA
------------------------
Anthony E. Papa,
Chief Executive Officer