<PAGE>
Exhibit 10.2
CERTIFICATE OF
DESIGNATIONS, PREFERENCES AND RIGHTS
of
6% SERIES E CUMULATIVE CONVERTIBLE PREFERRED STOCK
of
AMERICAN TELESOURCE INTERNATIONAL, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
AMERICAN TELESOURCE INTERNATIONAL, INC., a corporation organized and
existing under the Delaware General Corporation Law (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on October 6, 2000 pursuant to authority of the Board of
Directors as required by Section 151 of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation, the Board
of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $.001 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
6% Series E Cumulative Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
----------------------
II. The designation of this series, which consists of 15,000 shares of
Preferred Stock, is 6% Series E Cumulative Convertible Preferred Stock (the
"Series E Preferred Stock") and the stated value shall be One Thousand Dollars
($1,000) per share (the "Stated Value").
III. RANK
----
The Series E Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.001 per share (the "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 E Preferred Stock obtained in
accordance with Article IX hereof, such class or series of capital
<PAGE>
stock specifically, by its terms, ranks senior to or pari passu with the Series
----------
E Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with (a) the Corporation's 10% Series A Cumulative Convertible
----------
Preferred Stock, 6% Series B Cumulative Preferred Stock, 10% Series C Cumulative
Convertible Preferred Stock and 6% Series D Cumulative Convertible Preferred
Stock and (b) any class or series of capital stock of the Corporation hereafter
created (with the consent of the holders of Series E Preferred Stock obtained in
accordance with Article IX hereof) specifically ranking, by its terms, on parity
with the Series E Preferred Stock (collectively the "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 E Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series E 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.
I. DIVIDENDS
---------
The Series E Preferred Stock shall not bear any dividends. In no
event, so long as any Series E Preferred Stock shall remain outstanding, shall
any dividend whatsoever be declared or paid upon, nor shall any distribution be
made upon, any Junior Securities, nor shall any shares of Junior Securities be
purchased or redeemed by the Corporation nor shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption of any Junior
Securities (other than a distribution of Junior Securities), without, in each
such case, the written consent of the holders of a majority of the outstanding
shares of Series E Preferred Stock, voting together as a class.
I. LIQUIDATION PREFERENCE
----------------------
A. Liquidation Event. 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
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series E Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference
<PAGE>
(as defined in Article IV.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 E Preferred Stock and holders of Pari Passu Securities
----------
(including any dividends or distribution paid on any Pari Passu Securities after
the date of filing of this Certificate of Designation) 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 E Preferred Stock and the Pari Passu Securities shall
----------
be distributed ratably among such shares in proportion to the ratio that the
Liquidation Preference payable on each such share bears to the aggregate
liquidation preference payable on all such shares. Any prior dividends or
distribution made after the date of filing of this Certificate of Designation
shall offset, dollar for dollar, the amount payable to the class or series to
which such distribution was made.
B. Certain Acts Deemed Liquidation Event. At the option of any holder of
-------------------------------------
Series E Preferred Stock, the sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of 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 (as defined below) or Persons when the Corporation is not
the survivor shall either: (i) 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 125% of the Liquidation Preference with respect
to each outstanding share of Series E Preferred Stock or (ii) be treated
pursuant to Article VI.C(ii) hereof. "Person" shall mean any individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.
C. Liquidation Preference. For purposes hereof, the "Liquidation Preference"
----------------------
with respect to a share of the Series E Preferred Stock shall mean an amount
equal to the sum of (i) the Stated Value thereof plus (ii) an amount equal to
six percent (6%) per annum of such Stated Value for the period beginning on the
date of issuance of the Series E Preferred Stock (the "Issue Date") and ending
on the date of final distribution to the holder thereof (prorated for any
portion of such period) plus (iii) all Conversion Default Payments (as defined
in Article VI.E below), Delivery Default Payments (as defined in Article VI.D
below) and any other amounts owed to such holder pursuant to Section 2(c) of the
Registration Rights Agreement. The liquidation preference with respect to any
Pari Passu Securities shall be as set forth in the Certificate of Designation
filed in respect thereof.
II. REDEMPTION
----------
A. Mandatory Redemption. If any of the following events (each, a "Mandatory
--------------------
Redemption Event") shall occur:
(i) The Corporation (a) fails to issue shares of Common Stock to the
holders of Series E Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of this Certificate of
Designation (including upon exercise of or otherwise pursuant to the Investment
Options (as defined in Article VI.E below)) (for a period of at least
<PAGE>
sixty (60) days if such failure is solely as a result of the circumstances
governed by the second paragraph of Article VI.F below and the Corporation is
using its best efforts to authorize a sufficient number of shares of Common
Stock as soon as practicable), (b) fails to transfer or to cause its transfer
agent to transfer (electronically or in certificated form) any certificate for
shares of Common Stock issued to the holders upon conversion of the Series E
Preferred Stock (or upon exercise of or otherwise pursuant to the Investment
Options) as and when required by this Certificate of Designation or the
Registration Rights Agreement, dated as of October 6, 2000, by and among the
Corporation and the other signatories thereto (the "Registration Rights
Agreement"), (c) fails to remove any restrictive legend (or to withdraw any stop
transfer instructions in respect thereof) on any certificate or any shares of
Common Stock issued to the holders of Series E Preferred Stock upon conversion
of the Series E Preferred Stock (or upon exercise of or otherwise pursuant to
the Investment Options) as and when required by this Certificate of Designation,
the Securities Purchase Agreement dated as of October 6, 2000, by and between
the Corporation and the other signatories thereto (the "Purchase Agreement") or
the Registration Rights Agreement, or (d) fails to fulfill its obligations
pursuant to Sections 4(c), 4(d), 4(e), 4(f), 4(g), 4(j), 4(k), 4(l), 4(n) or 5
of the Purchase Agreement (or makes any announcement, statement or threat that
it does not intend to honor the obligations described in this paragraph) and any
such failure shall continue uncured (or any announcement, statement or threat
not to honor its obligations shall not be rescinded in writing) for ten (10)
days after the Corporation shall have been notified thereof in writing by any
holder of Series E Preferred Stock;
(ii) The Corporation fails to obtain effectiveness with the Securities and
Exchange Commission (the "SEC"), prior to March 6, 2001 of the Registration
Statement (as defined in the Registration Rights Agreement, the "Registration
Statement") required to be filed pursuant to Section 2(a) of the Registration
Rights Agreement, or fails to obtain the effectiveness of any additional
Registration Statement (required to be filed pursuant to Section 3(b) of the
Registration Rights Agreement) within sixty (60) days after the Registration
Trigger Date (as defined in the Registration Rights Agreement), or any such
Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement, the "Registrable Securities") otherwise cannot be
made thereunder (whether by reason of the Corporation's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement, the Corporation's failure to file and obtain effectiveness
with the SEC of an additional Registration Statement required to be filed
pursuant to Section 3(b) of the Registration Rights Agreement or otherwise) for
more than thirty (30) consecutive days or more than sixty (60) days in any
twelve (12) month period after such Registration Statement becomes effective;
(iii) The Corporation or any subsidiary of the Corporation shall make an
assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for all or substantially all of
its property or business; or such a receiver or trustee shall otherwise be
appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation proceedings or
other proceedings for relief under any bankruptcy law or any law for the relief
of debtors shall be instituted by or against the Corporation or any subsidiary
of the Corporation;
<PAGE>
(v) The Corporation shall fail to maintain the listing of the Common Stock
on the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq
SmallCap"), the New York Stock Exchange ("NYSE") or the American Stock Exchange
("AMEX");
(vi) The Secretaria de Communcaciones y Transportes or other regulatory
authority of the Republic of Mexico shall terminate or limit the scope of the
Concession (as defined in the Securities Purchase Agreement) granted to the
Corporation to install, operate or work a public communications network in
Mexico, if such termination or limitation of the scope of the Concession would
have a Material Adverse Effect.
(vii) then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii), (v) or (vi), at the
option of the holders of at least 50% of the then outstanding shares of Series E
Preferred Stock exercisable by delivery of written notice (the "Mandatory
Redemption Notice") to the Corporation of such Mandatory Redemption Event, or
upon the occurrence of any Mandatory Redemption Event specified in subparagraphs
(iii) or (iv), the then outstanding shares of Series E Preferred Stock shall
become immediately redeemable and the Corporation shall purchase each holder's
outstanding shares of Series E Preferred Stock for an amount per share equal to
the greater of (1) 125% multiplied by the sum of (a) the Stated Value of the
shares to be redeemed plus (b) an amount equal to six percent (6%) per annum of
such Stated Value for the period beginning on the Issue Date and ending on the
date of payment of the Mandatory Redemption Amount (the "Mandatory Redemption
Date") plus (c) all Conversion Default Payments (as defined in Article VI.F
below), Delivery Default Payments (as defined in Article VI.D below) and any
other amounts owed to such holder pursuant to Section 2(c) of the Registration
Rights Agreement, and (2) the "parity value" of the shares to be redeemed, where
parity value means (a) the product of (x) the highest number of shares of Common
Stock issuable upon conversion of such shares of Series E Preferred Stock
(including upon exercise of the Investment Options) in accordance with Article
VI below (without giving any effect to any limitations on conversion of shares
contained herein, and treating the Trading Day (as defined in Article VI.B(i))
immediately preceding the Mandatory Redemption Date as the "Conversion Date" (as
defined in Article VI.D(iv)) for purposes of determining the lowest applicable
Conversion Price, unless the Mandatory Redemption Event arises as a result of a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (y) the highest Closing Price
(as defined below) for the Common Stock during the period beginning on the date
of first occurrence of the Mandatory Redemption Event and ending one day prior
to the Mandatory Redemption Date, less (b) the aggregate exercise price payable
upon full exercise of the Investment Options (the greater of such amounts set
forth in clause (1) and (2) being referred to as the "Mandatory Redemption
Amount"). "Closing Price," as of any date, means the last sale price of the
Common Stock on the AMEX as reported by Bloomberg Financial Markets or an
equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of a majority in interest of the shares of Series E
Preferred Stock and the Corporation ("Bloomberg") or, if the AMEX is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale 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
last sale price of such security is available in the over-the-counter market on
the electronic bulletin board for such security or in any of the foregoing
manners, the average of the
<PAGE>
bid prices of any market makers for such security that are listed in the "pink
sheets" by the National Quotation Bureau, Inc. If the Closing Price cannot be
calculated for such security on such date in the manner provided above, the
Closing Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series E
Preferred Stock for which the calculation of the Closing Price is required.
(viii)
B. Trading Market Redemption. If the Series E Preferred Stock ceases to be
-------------------------
convertible by any holder as a result of the limitations described in Article
VI.A(ii) below (a "Trading Market Redemption Event"), and the Corporation has
not, prior to, or within thirty (30) days of, the date that such Trading Market
Redemption Event arises, (i) obtained the Stockholder Approval (as defined in
Article VI.A(ii)) or (ii) eliminated any prohibitions under applicable law or
the rules or regulations of any stock exchange, interdealer quotation system or
other self-regulatory organization with jurisdiction over the Corporation or any
of its securities on the Corporation's ability to issue shares of Common Stock
in excess of the Maximum Share Amount (as defined in Article VI.A(ii)), then the
Corporation shall be obligated to redeem immediately all of the then outstanding
Series E Preferred Stock, in accordance with this Article V.B. An irrevocable
redemption notice (the "Trading Market Redemption Notice") shall be delivered
promptly to the holders of Series E Preferred Stock at their registered address
appearing on the records of the Corporation and shall state (i) that the Maximum
Share Amount (as defined in Article VI.A(ii)) has been issued upon exercise of
the Series E Preferred Stock, (ii) that the Corporation is obligated to redeem
all of the outstanding Series E Preferred Stock and (iii) the Mandatory
Redemption Date, which shall be a date within five (5) business days of the
earlier of (a) the date of the Trading Market Redemption Notice or (b) the date
on which the holders of the Series E Preferred Stock notify the Corporation of
the occurrence of a Trading Market Redemption Event. On the Mandatory Redemption
Date, the Corporation shall make payment of the Mandatory Redemption Amount (as
defined in Article V.A above) in cash.
C. Optional Redemption. Notwithstanding anything to the contrary contained in
-------------------
this Article V, so long as (i) no Mandatory Redemption Event or Trading Market
Redemption Event shall have occurred and be continuing, (ii) any Registration
Statement required to be filed and be effective pursuant to the Registration
Rights Agreement is then in effect and has been in effect and sales of all of
the Registrable Securities can be made thereunder for at least ninety (90) days
prior to the Optional Redemption Date (as defined below) and (iii) the
Corporation has a sufficient number of authorized shares of Common Stock
reserved for issuance upon full conversion of the Series E Preferred Stock, then
at any time after October 6, 2001, the Corporation shall have the right on any
Trading Day on which, and for a period of twenty (20) consecutive Trading Days
prior thereto, the Closing Bid Price (as defined in Article VI.B(i)) is less
than $1.41 (subject to equitable adjustments from time to time for stock splits,
stock dividends, combinations, capital reorganizations and similar events
relating to the Common Stock occurring after the Issue Date) to deliver written
notice to the holders of Series E Preferred Stock (which notice may not be sent
to the holders of the Series E Preferred Stock (a) until the Corporation is
permitted to redeem the Series E Preferred Stock pursuant to this Article V.C
and (b) during any period of time in which the Corporation is in possession of
any information the disclosure of which could cause a material increase in the
trading price of the Corporation's Common Stock, of its intention to redeem all
of the outstanding shares of Series E Preferred Stock in accordance with this
Article V.C. Any notice (the "Optional Redemption Notice") of
<PAGE>
redemption hereunder (an "Optional Redemption") shall be delivered to the
holders of Series E Preferred Stock at their registered addresses appearing on
the books and records of the Corporation and shall state (1) that the
Corporation is exercising its right to redeem all of the outstanding shares of
Series E Preferred Stock issued and (2) the date of redemption (the "Optional
Redemption Date"), which date shall be thirty (30) Trading Days after the date
of delivery of the Optional Redemption Notice. On the Optional Redemption Date,
the Corporation shall make payment of the Optional Redemption Amount (as defined
below) to or upon the order of the holders of the Series E Preferred Stock as
specified by the holders in writing to the Corporation at least one (1) business
day prior to the Optional Redemption Date. If the Corporation exercises its
right to redeem the Series E Preferred Stock, the Corporation shall make payment
to the holders of an amount in cash (the "Optional Redemption Amount") equal to
115% multiplied by the sum of (i) the Stated Value of the shares of Series E
Preferred Stock to be redeemed plus (ii) an amount equal to six percent (6%) per
annum of such Stated Value for the period beginning on the Issue Date and ending
on the Optional Redemption Date plus (iii) all Conversion Default Payments (as
defined in Article VI.F below), Delivery Default Payments (as defined in Article
VI.D below) and any other amounts owed to such holder pursuant to Section 2(c)
of the Registration Rights Agreement, for each share of Series E Preferred Stock
then held. Notwithstanding notice of an Optional Redemption, the holders shall
at all times prior to the Optional Redemption Date maintain the right to convert
all or any shares of Series E Preferred Stock in accordance with Article VI and
any shares of Series E Preferred Stock so converted after receipt of an Optional
Redemption Notice and prior to the Optional Redemption Date set forth in such
notice and payment of the aggregate Optional Redemption Amount shall be deducted
from the shares of Series E Preferred Stock which are otherwise subject to
redemption pursuant to such notice. If the Corporation delivers an Optional
Redemption Notice and fails to pay the Optional Redemption Amount due to the
holders of the Series E Preferred Stock within two (2) business days following
the Optional Redemption Date, the Corporation shall forever forfeit its right to
redeem the Series E Preferred Stock pursuant to this Article V.C.
D. Failure to Pay Redemption Amounts. In the case of a Mandatory
---------------------------------
Redemption Event or the delivery of an Optional Redemption Notice, if the
Corporation fails to pay the Mandatory Redemption Amount or Optional Redemption
Amount, as applicable, within five (5) business days of written notice that such
amount is due and payable, then (assuming there are sufficient authorized
shares) in addition to all other available remedies, each holder of Series E
Preferred Stock shall have the right at any time, so long as the Mandatory
Redemption Event continues or at any time after the Optional Redemption Date,
as applicable, to require the Corporation, upon written notice, to immediately
issue (in accordance with and subject to the terms of Article VI below), in lieu
of the Mandatory Redemption Amount or Optional Redemption Amount, as applicable,
the number of shares of Common Stock of the Corporation equal to such applicable
redemption amount divided by any Conversion Price (as defined below), as chosen
in the sole discretion of the holder of Series E Preferred Stock, in effect from
the date of the Mandatory Redemption Event (or the date of delivery of the
Optional Redemption Notice) until the date such holder elects to exercise its
rights pursuant to this Article V.D.
II. CONVERSION AT THE OPTION OF THE HOLDER
--------------------------------------
A. Optional Conversion
-------------------
<PAGE>
(i) Conversion Amount. Subject to Article VI.A(iii) below, each holder of
-----------------
shares of Series E Preferred Stock may, at its option at any time and from time
to time, upon surrender of the certificates therefor, convert any or all of its
shares of Series E Preferred Stock into Common Stock as set forth below (an
"Optional Conversion"). Each share of Series E Preferred Stock shall be
convertible into such number of fully paid and nonassessable shares of Common
Stock as such Common Stock exists on the Issue Date, or any other shares of
capital stock or other securities of the Corporation into which such Common
Stock is thereafter changed or reclassified, as is determined by dividing (1)
the sum of (a) the Stated Value thereof plus (b) the Premium Amount (as defined
below), by (2) the then effective Conversion Price (as defined below); provided,
--------
however, that in no event (other than pursuant to the Automatic Conversion (as
-------
defined in Article VIII)) shall a holder of shares of Series E Preferred Stock
be entitled to convert any such shares (or exercise Investment Options in
connection with any such conversion) in excess of that number of shares upon
conversion of which the sum of (x) the number of shares of Common Stock
beneficially owned by the holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unconverted portion of the shares of Series E Preferred Stock, the unexercised
Investment Options or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, the warrants
issued by the Corporation pursuant to the Securities Purchase Agreement (the
"Warrants")) subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series E Preferred Stock (and upon
the exercise, if any, of the Investment Options in connection therewith) with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by a holder and such holder's affiliates of more than
4.9% of the outstanding shares of Common Stock. For 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-G thereunder, except as otherwise provided in clause
(x) of such proviso. The "Premium Amount" means the product of the Stated Value,
multiplied by .06, multiplied by (N/365), where "N" equals the number of days
elapsed from the Issue Date to and including the Conversion Date (as defined in
Article VI.D(iv)).
(ii) Trading Market Limitation. Unless the Corporation either (a) is
-------------------------
permitted by the applicable rules and regulations of the principal securities
market on which the Common Stock is listed or traded to issue shares of Common
Stock upon conversion or otherwise pursuant to the Series E Preferred Stock and
upon exercise of or otherwise pursuant to the Investment Option in excess of the
Maximum Share Amount (as defined below) or (b) has obtained stockholder approval
of the issuance of the Common Stock upon conversion of or otherwise pursuant to
the Series E Preferred Stock and upon exercise of or otherwise pursuant to the
Investment Options in excess of the Maximum Share Amount in accordance with
applicable law and the rules and regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities (the "Stockholder Approval"), in no
event shall the total number of shares of Common Stock issued upon conversion of
or otherwise pursuant to the Series E Preferred Stock and upon exercise of or
otherwise pursuant to the Investment Options (including any shares of capital
stock or rights to acquire shares of capital stock issued by the Corporation
which are aggregated or integrated with the Common Stock issued or issuable upon
conversion of or otherwise pursuant to the Series E
<PAGE>
Preferred Stock and upon exercise of or otherwise pursuant to the Investment
Options for purposes of any such rule or regulation) exceed the maximum number
of shares of Common Stock that the Corporation can so issue pursuant to any rule
of the principal United States securities market on which the Common Stock
trades (including Section 713 of the AMEX Listing Standards, Policies and
Requirements or any successor rule) (the "Maximum Share Amount") which, as of
the Issue Date, shall be 13,552,454 (19.99% of the total shares of Common Stock
outstanding on the Issue Date), subject to equitable adjustments from time to
time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issue Date.
With respect to each holder of Series E Preferred Stock, the Maximum Share
Amount shall refer to such holder's pro rata share thereof determined in
--- ----
accordance with Article XI below. In the event that the sum of (x) the aggregate
number of shares of Common Stock actually issued upon conversion of or otherwise
pursuant to the outstanding Series E Preferred Stock and upon exercise of or
otherwise pursuant to the Investment Options plus (y) the aggregate number of
----
shares of Common Stock that remain issuable upon conversion of or otherwise
pursuant to the Series E Preferred Stock at the then effective Conversion Price
and upon exercise of or otherwise pursuant to the Investment Options,
represents at least one hundred percent (100%) of the Maximum Share Amount (the
"Triggering Event"), the Corporation will use its best efforts to seek and
obtain Stockholder Approval (or obtain such other relief as will allow
conversions hereunder in excess of the Maximum Share Amount) as soon as
practicable following the Triggering Event.
(iii) Conversion Restrictions. Prior to the date which is the later of (A)
-----------------------
four (4) months from the Issue Date and (B) the date the Registration Statement
is declared effective by the SEC (the later of (A) and (B) is referred to herein
as the "Reset Date") the holders of the Series E Preferred Stock may not convert
the Series E Preferred Stock at a Conversion Price which is less than the Fixed
Conversion Price (as defined in Article VI.B(i); provided, however that the
-------- -------
restriction on conversion of the Series E Preferred Stock set forth in this
Article VI.A(ii)) shall not apply to conversions taking place on any Conversion
Date (i) occurring on or after the date the Corporation makes a public
announcement that it intends to merge or consolidate with any other corporation
or sell or transfer substantially all of the assets of the Corporation, (ii)
occurring on or after the date any person, group or entity (including the
Corporation) publicly announces a tender offer to purchase 50% or more of the
Corporation's Common Stock (or any other takeover scheme), (iii) occurring on or
after the date on which there is a material adverse change in the business,
operation, assets, financial condition or prospects of the Corporation or its
subsidiaries, taken as a whole, or (iv) occurring on or after the occurrence of
any Mandatory Redemption Event or on or after the delivery of any Optional
Redemption Notice by the Corporation.
B. Conversion Price.
----------------
(i) Calculation of Conversion Price. Subject to subparagraph (ii) below,
the "Conversion Price" shall be the lesser of the Market Price (as defined
herein) and the Fixed Conversion Price (as defined herein), subject to
adjustments pursuant to the provisions of Article VI.C below; provided, however,
that the Conversion Price shall not be less than $1.41 (subject to equitable
adjustments from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the Issue Date) (the "Floor Price") unless at any time after the
Issue Date the Closing Bid Price of the Common Stock is less than Floor Price
for any ten (10) Trading Days during any
<PAGE>
twenty 20) consecutive Trading Day period (a "Floor Price Termination Event").
Upon the occurrence of a Floor Price Termination Event, the Floor Price will
permanently be eliminated and the limitations on the Conversion Price pursuant
to the proviso in the preceding sentence shall terminate. "Market Price" shall
mean the average of the five (5) lowest Closing Bid Prices (the "Market Price
Days"), during the ten (10) consecutive Trading Day period ending one (1)
Trading Day prior to the date the Notice of Conversion (as defined in Article
VI.D) is sent by a holder to the Corporation via facsimile (the "Pricing
Period"). The Market Price Days shall be designated by the converting holder
(from among the days comprising the Pricing Period) in the Notice of Conversion.
"Fixed Conversion Price" shall mean $2.25; provided, however, that if the
-------- -------
average of the Closing Bid Prices for the lowest five (5) consecutive Trading
Days during the twenty (20) consecutive Trading Day period ending (the "Reset
Price") on the Reset Date is less than the Fixed Conversion Price, at all times
after the Reset Date the Fixed Conversion Price shall equal the Reset Price;
provided further, however, that if the Corporation issues or sells any Equity
-------- ------- -------
Securities (as defined in the Securities Purchase Agreement) pursuant to the
Equity Line (as defined in the Securities Purchase Agreement), "Fixed Conversion
Price" shall mean, for all conversions following the closing date for such
issuance or sale, the lesser of (A) the Fixed Conversion Price otherwise in
effect on such closing date, (B) the average Closing Bid Price for the Common
Stock during the ten (10) consecutive Trading Day period immediately preceding
(but not including) such closing date and (C) the purchase price per share of
the Common Stock being issued pursuant to the Equity Line (an "Equity Line
Adjustment"). The Fixed Conversion Price shall be subject to an Equity Line
Adjustment each time that the Corporation issues or sells Equity Securities
pursuant to the Equity Line. "Closing Bid Price" means, for any security as of
any date, the closing bid price on the AMEX as reported by Bloomberg or, if the
AMEX is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the 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 of such security is available in the
over-the-counter market on the electronic bulletin board for such security or in
any of the foregoing manners, the average of the bid prices of any market makers
for such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Corporation and the holders of a
majority in interest of shares of Series E Preferred Stock being converted for
which the calculation of the Closing Bid Price is required in order to determine
the Conversion Price of such Series E Preferred Stock. "Trading Day" shall mean
any day on which the Common Stock is traded for any period on the AMEX, or on
the principal securities exchange or other securities market on which the Common
Stock is then being traded.
(ii) Conversion Price During Major Announcements. Notwithstanding anything
-------------------------------------------
contained in subparagraph (i) of this Paragraph B to the contrary, in the event
the Corporation (a) makes a public announcement that it intends to consolidate
or merge with any other corporation (other than a merger in which the
Corporation is the surviving or continuing corporation and its capital stock is
unchanged) or sell or transfer all or substantially all of the assets of the
Corporation or (b) any person, group or entity (including the Corporation)
publicly announces a tender offer to purchase 50% or more of the Corporation's
Common Stock (or any other takeover
<PAGE>
scheme) (the date of the announcement referred to in clause (a) or (b) is
hereinafter referred to as the "Announcement Date"), then the Conversion Price
shall, effective upon the Announcement Date and continuing through the Adjusted
Conversion Price Termination Date (as defined below), be equal, for each such
date, to the lower of (x) the Conversion Price which would have been applicable
for an Optional Conversion occurring on the Announcement Date and (y) the
Conversion Price that would otherwise be in effect. From and after the Adjusted
Conversion Price Termination Date, the Conversion Price shall be determined as
set forth in subparagraph (i) of this Article VI.B. For purposes hereof,
"Adjusted Conversion Price Termination Date" shall mean, with respect to any
proposed transaction or tender offer (or takeover scheme) for which a public
announcement as contemplated by this subparagraph (ii) has been made, the date
upon which the Corporation (in the case of clause (a) above) or the person,
group or entity (in the case of clause (b) above) consummates or publicly
announces the termination or abandonment of the proposed transaction or tender
offer (or takeover scheme) which caused this subparagraph (ii) to become
operative.
C. Adjustments to Conversion Price. The Conversion Price shall be subject to
-------------------------------
adjustment from time to time as follows:
(i) Adjustment to Conversion Price Due to Stock Split, Stock Dividend,
-----------------------------------------------------------------
Etc. If at any time when Series E Preferred Stock is issued and outstanding,
---
the number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, combination, reclassification, rights offering
below the Trading Price (as defined below) to all holders of Common Stock or
other similar event, which event shall have taken place during the reference
period for determination of the Conversion Price for any Optional Conversion or
Automatic Conversion of the Series E Preferred Stock, then the Conversion Price
shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event. In such event,
the Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. "Trading Price," which shall be measured as of the
record date in respect of the rights offering, means (i) the average of the last
reported sale prices for the shares of Common Stock on the AMEX as reported by
Bloomberg, as applicable, for the five (5) Trading Days immediately preceding
such date, or (ii) if the AMEX is not the principal trading market for the
shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Trading Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or, (b) at the option of a majority-in-interest of the holders of
the outstanding Series E Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
(ii) Adjustment Due to Merger, Consolidation, Etc. If, at any time when
--------------------------------------------
Series E Preferred Stock is issued and outstanding and prior to the conversion
of all Series E Preferred Stock, there shall be any merger, consolidation,
exchange of shares, recapitalization, reorganization, or other similar event, as
a result of which shares of Common Stock of the Corporation shall be changed
into the same or a different number of shares of another class or classes of
stock or securities of the Corporation or another entity, or in case of any sale
or conveyance of all or substantially all of the assets of the Corporation other
than in connection with a plan of complete liquidation of the Corporation (each,
a "Change of Control
<PAGE>
Transaction"), then the holders of Series E Preferred Stock shall thereafter
have the right to receive upon conversion of the Series E Preferred Stock (and
upon exercise of the Investment Options), upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion (and upon exercise of the
Investment Options), such stock, securities or assets which the holders of
Series E Preferred Stock would have been entitled to receive in such transaction
had the Series E Preferred Stock been converted (and had the Investment Options
been exercised) in full immediately prior to such transaction (without regard to
any limitations on conversion contained herein), and in any such case
appropriate provisions shall be made with respect to the rights and interests of
the holders of Series E Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the Conversion
Price and of the number of shares of Common Stock issuable upon conversion of
the Series E Preferred Stock (and upon exercise of the Investment Options))
shall thereafter be applicable, as nearly as may be practicable in relation to
any securities or assets thereafter deliverable upon the conversion of Series E
Preferred Stock (and upon exercise of the Investment Options). The Corporation
shall not effect any transaction described in this subsection (ii) unless (a) it
first gives, to the extent practical, thirty (30) days' prior written notice
(but in any event at least fifteen (15) business days prior written notice) of
the record date of the special meeting of stockholders to approve, or if there
is no such record date, the consummation of, such Change of Control Transaction
(during which time the holders of Series E Preferred Stock shall be entitled to
convert the Series E Preferred Stock (and exercise the Investment Options)) and
(b) the resulting successor or acquiring entity (if not the Corporation) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock are entitled to receive
as a result of such Change of Control Transaction, assumes by written instrument
the obligations of this Certificate of Designation (including this subsection
(ii)). The above provisions shall similarly apply to successive consolidations,
mergers, sales, transfers or share exchanges.
(iii) Issuance of Other Convertible Securities. If, at any time after the
----------------------------------------
Issue Date, the Corporation sells securities convertible into, or exchangeable
for, Common Stock, (collectively, the "New Convertible Securities"), then, if
the effective or maximum sales price of the Common Stock issuable pursuant to
such New Convertible Securities (including the effective or maximum conversion,
or exchange price) (the "Other Price") is less than the effective Conversion
Price of the Series E Preferred Stock at such time or the formula by which the
conversion price of such other Convertible Securities differs from the formula
used to determine the Conversion Price of the Series E Preferred Stock, at the
option of each holder of Series E Preferred Stock, the Corporation shall adjust
the Conversion Price applicable to the Series E Preferred Stock not yet
converted in form and substance reasonably satisfactory to the holders of Series
E Preferred Stock so that the Conversion Price applicable to the Series E
Preferred Stock shall not, in any event, be greater, after giving effect to all
other adjustments contained herein, than the Other Price.
(iv) Adjustment Due to Distribution. Subject to Article III, if the
------------------------------
Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),
then
<PAGE>
the holders of Series E Preferred Stock shall be entitled, upon any conversion
of shares of Series E Preferred Stock (and upon any exercise of the Investment
Options) after the date of record for determining shareholders entitled to such
Distribution, to receive the amount of such assets which would have been payable
to the holder with respect to the shares of Common Stock issuable upon such
conversion (or upon such exercise of the Investment Options) had such holder
been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(v) Purchase Rights. Subject to Article III, if at any time when any Series
---------------
E Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series E Preferred Stock 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 Series E Preferred Stock (including upon exercise of the
Investment Options) (without regard to any limitations on conversion contained
herein) 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.
(vi) Adjustment for Restricted Periods. In the event that (i) the
---------------------------------
Corporation fails to obtain effectiveness with the SEC of any Registration
Statement required to be filed pursuant to the Registration Rights Agreement on
or prior to the date on which such Registration Statement is required to become
effective pursuant to the terms of the Registration Rights Agreement, or (ii)
any such Registration Statement after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement) lapses in
effect, or sales of all the Registrable Securities otherwise cannot be made
thereunder, whether by reason of the Corporation's failure or inability to amend
or supplement the prospectus (the "Prospectus") included therein in accordance
with the Registration Rights Agreement or otherwise, after such Registration
Statement becomes effective (including, without limitation, during an Allowed
Delay (as defined in Section 3(f) of the Registration Rights Agreement)) or
(iii) a Trading Market Redemption Event occurs (each of such events describe in
clauses (i), (ii) and (iii) being referred to as an "Extended Lookback Period"),
then, at the election of each holder of Series E Preferred Stock, the Pricing
Period shall be comprised of, (x) in the case of an event described in clause
(i), the ten (10) Trading Days preceding the date on which such Registration
Statement is required to become effective pursuant to the terms of the
Registration Rights Agreement, plus all Trading Days through and including the
third (3rd) Trading Day following the date of actual effectiveness of such
Registration Statement; (y) in the case of an event described in clause (ii),
the ten (10) Trading Days preceding the date on which the holder of the Series E
Preferred Stock is first notified that sales may not be made under the
Prospectus that would otherwise then be included in the Pricing Period in
accordance with the definition thereof, plus all Trading Days through and
including the third (3rd) Trading Day following the date on which the Holder is
first notified that such sales may again be made under the Prospectus; and (z)
in the case of an event described in clause (iii), the ten (10) Trading Days
preceding the occurrence of the Trading Market Redemption Event, plus all
Trading Days through and including the third (3rd) Trading Day following the
date the Stockholders' Approval is obtained or the Borrower is permitted by
<PAGE>
the applicable rules and regulations of the principle securities market on which
the Common Stock is listed or traded to issue shares in excess of the Maximum
Share Amount (each of such periods referred to in clauses (i), (ii) and (iii)
being defined as an "Extended Lookback Period". If a holder of Series E
Preferred Stock determines that sales may not be made pursuant to the Prospectus
(whether by reason of the Corporation's failure or inability to amend or
supplement the Prospectus or otherwise) it shall so notify the Corporation in
writing and, unless the Corporation provides such holder with a written opinion
of the Corporation's counsel to the contrary, such determination shall be
binding for purposes of this paragraph. In the event that an Extended Lookback
Event occurs within the three (3) Trading Day-period following the cure of any
other Extended Lookback Event, the Extended Lookback Periods shall be
cumulative.
(vii) Antidilution Provisions. The Fixed Conversion Price shall be subject
-----------------------
to adjustment from time to time as provided below:
(a) Adjustment of Conversion Price. If the Corporation issues or sells,
------------------------------
or in accordance with Article VI.C(vii)(b) hereof is deemed to have issued or
sold, any shares of Common Stock for no consideration or for a consideration per
share (before deduction of reasonable expenses or commissions or underwriting
discounts or allowances in connection therewith) less than the greater of (1)
the Fixed Conversion Price and (2) the Trading Price of the Common Stock in
effect on the date of issuance (or deemed issuance) (a "Dilutive Issuance"),
then immediately upon the Dilutive Issuance, the Fixed Conversion Price will be
reduced to a price determined by multiplying the Fixed Conversion Price in
effect immediately prior to the Dilutive Issuance by a fraction, (i) the
numerator of which is an amount equal to the sum of (x) the number of shares of
Common Stock actually outstanding immediately prior to the Dilutive Issuance,
plus (y) the quotient of the aggregate consideration, calculated as set forth in
Article VI.C(vii)(b) hereof, received by the Corporation upon such Dilutive
Issuance divided by the greater of (1) the Fixed Conversion Price and (2) the
Trading Price of the Common Stock in effect immediately prior to the Dilutive
Issuance, and (ii) the denominator of which is the total number of shares of
Common Stock Deemed Outstanding (as defined below) immediately after the
Dilutive Issuance.
(b) Effect on Conversion Price of Certain Events. For purposes of
--------------------------------------------
determining the adjusted Fixed Conversion Price, the following will be
applicable:
(1) Issuance of Rights or Options. If the Corporation in any
-----------------------------
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock
(such warrants, rights and options to purchase Common Stock are
hereinafter referred to as "Options") and the price per share for which
Common Stock is issuable upon the exercise of such Options is less than
the greater of (1) the Fixed Conversion Price and (2) the Trading Price
of the Common Stock, then the Conversion Price shall be adjusted
pursuant to Article VI.C (vii)(a). For purposes of the preceding
sentence, the "price per share for which Common Stock is issuable upon
the exercise of such Options" is determined by dividing (i) the total
amount, if any, received or receivable by the Corporation as
consideration for the issuance or granting of all such Options, plus
the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the exercise of all such Options, by
(ii) the maximum total number of shares of Common Stock issuable upon
the exercise of all such. No further adjustment to the Conversion Price
will
<PAGE>
be made upon the actual issuance of such Common Stock upon the exercise
of such Options. Notwithstanding the foregoing, if the Board of
Directors and the shareholders of the Corporation approve an anti-
takeover plan involving the distribution of rights to all of the
shareholders of the Corporation, no adjustment to the Conversion Price
will be made pursuant to Article VI.C(vii).
(1) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration
payable to the Corporation upon the exercise of any Options; (ii) the
amount of additional consideration, if any, payable to the Corporation
upon the conversion or exchange of any securities convertible into or
exchangeable for Common Stock ("Convertible Securities"); or (iii) the
rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock (other than under or by reason of
provisions designed to protect against dilution), the Conversion Price
in effect at the time of such change will be readjusted to the
Conversion Price which would have been in effect at such time had such
Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the
case may be, at the time initially granted, issued or sold.
(1) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
----------
issuable upon exercise of any Option or upon conversion or exchange of
any Convertible Securities is not, in fact, issued and the rights to
exercise such Option or to convert or exchange such Convertible
Securities shall have expired or terminated, the Conversion Price then
in effect will be readjusted to the Conversion Price which would have
been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately
prior to such expiration or termination (other than in respect of the
actual number of shares of Common Stock issued upon exercise or
conversion thereof), never been issued.
(1) Calculation of Consideration Received. If any Common Stock,
-------------------------------------
Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor will be the amount received by the
Corporation therefor, before deduction of reasonable commissions,
underwriting discounts or allowances or other reasonable expenses paid
or incurred by the Corporation in connection with such issuance, grant
or sale. In case any Common Stock, Options or Convertible Securities
are issued or sold for a consideration part or all of which shall be
other than cash, the amount of the consideration other than cash
received by the Corporation will be the fair value of such
consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Corporation
will be the Market Price thereof as of the date of receipt. In case any
Common Stock, Options or Convertible Securities are issued in
connection with any acquisition, merger or consolidation in which the
Corporation is the surviving corporation, the amount of consideration
<PAGE>
therefor will be deemed to be the fair value of such portion of the net
assets and business of the non-surviving corporation 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 in good faith by the Board of Directors
of the Corporation.
(1) Exceptions to Adjustment of Conversion Price. No adjustment
--------------------------------------------
to the Conversion Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and
outstanding on the Issue Date; (ii) upon the grant or exercise of any
stock or options which may hereafter be granted or exercised under any
employee benefit plan of the Corporation now existing or to be
implemented in the future, so long as the issuance of such stock or
options is approved by a majority of the independent members of the
Board of Directors of the Corporation or a majority of the members of a
committee of independent directors established for such purpose; (iii)
upon issuances of securities in a firm commitment underwritten public
offering (excluding a continuous offering pursuant to Rule 415 under
the 1933 Act) and (iv) upon issuances of securities as consideration
for a merger, consolidation or purchase of assets, or in connection
with any strategic alliance, relationship, partnership or joint venture
(the primary purpose of which is not to raise equity capital), or in
connection with the disposition or acquisition of a business, product
or license by the Corporation.
(a) Certain Definitions.
-------------------
(b)
(1) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of
Common Stock held in the treasury of the Company), plus (x) pursuant to
Article VI.C(vii)(b)(1) hereof, the maximum total number of shares of
Common Stock issuable upon the exercise of Options, as of the date of
such issuance or grant of such Options, if any, and (y) pursuant to
Article VI.C(vii)(b)(2) hereof, the maximum total number of shares of
Common Stock issuable upon conversion or exchange of Convertible
Securities, as of the date of issuance of such Convertible Securities,
if any.
(2) "Common Stock." As used in this Article VI.C, "Common
Stock" includes the Common Stock, par value $.001 per share, and any
additional class of stock of the Corporation having no preference as to
dividends or distributions on liquidation, provided that the shares
issuable pursuant to the Series E Preferred Stock shall include only
shares of Common Stock, par value $.001 per share, in respect of which
the Preferred Stock is convertible, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of any
reorganization, reclassification, consolidation, merger, or sale of the
character referred to above hereof, the stock or other securities or
property provided for in such paragraph.
<PAGE>
A. Mechanics of Conversion. In order to convert Series E Preferred Stock
-----------------------
into full shares of Common Stock, a holder of Series E Preferred Stock shall:
(i) submit a copy of the fully executed notice of conversion in the form
attached hereto as Exhibit A ("Notice of Conversion") to the Corporation by
---------
facsimile dispatched prior to Midnight, New York City time (the "Conversion
Notice Deadline") on the date specified therein as the Conversion Date (as
defined in Article VI.D(iv)) (or by other means resulting in, or reasonably
expected to result in, notice to the Corporation on the Conversion Date) to the
office of the Corporation or its designated Transfer Agent for the Series E
Preferred Stock, which notice shall specify the number of shares of Series E
Preferred Stock to be converted, the applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
conversion (together with a copy of the first page of each certificate to be
converted (including the number of shares issuable upon exercise of the
Investment Options, if any)); and (ii) surrender the original certificates
representing the Series E Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent for the Series E Preferred
Stock as soon as practicable thereafter. The Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (i) below) and
executes an affidavit which is customary in such situations to that effect. In
the case of a dispute as to the calculation of the Conversion Price, the
Corporation shall promptly issue such number of shares of Common Stock that are
not disputed in accordance with subparagraph (ii) below. The Corporation shall
submit the disputed calculations to its outside accountant via facsimile within
two (2) business days of receipt of the Notice of Conversion. The accountant
shall audit the calculations and notify the Corporation and the holder of the
results no later than 48 hours from the time it receives the disputed
calculations. The accountant's calculation shall be deemed conclusive absent
manifest error.
(i) Lost or Stolen Certificates. Upon receipt by the Corporation of evidence
----------------------------
of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series E Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date.
(ii) Delivery of Common Stock Upon Conversion. Upon the surrender of
-----------------------------------------
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within two (2) business days after such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (a) above) (the "Delivery
Period"), deliver (or cause its Transfer Agent to so issue and deliver) in
accordance with the terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g) of the Purchase
Agreement) to or upon the order of the holder (i) that number of shares of
Common Stock for the portion of the shares of Series E Preferred Stock converted
(and, if applicable, the number of shares of Common Stock issuable upon exercise
of Investment Options in connection herewith) as shall be determined in
<PAGE>
accordance herewith and (ii) a certificate representing the balance of the
shares of Series E Preferred Stock not converted, if any. In addition to any
other remedies available to the holder, including actual damages and/or
equitable relief, the Corporation shall pay to a holder $2,000 per day in cash
for each day beyond a two (2) day grace period following the Delivery Period
that the Corporation fails to deliver Common Stock (a "Delivery Default")
issuable upon surrender of shares of Series E Preferred Stock with a Notice of
Conversion until such time as the Corporation has delivered all such Common
Stock (the "Delivery Default Payments"). Such Delivery Default Payments shall be
paid to such holder by the fifth day of the month following the month in which
it has accrued or, at the option of the holder (by written notice to the
Corporation by the first day of the month following the month in which it has
accrued), shall be convertible into Common Stock in accordance with the terms of
this Article VI.
(iii) In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, provided the Corporation's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the holder and its compliance with
the provisions contained in Article VI.A and in this Article VI.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electr onic transmittals described herein.
(iv) No Fractional Shares. If any conversion of Series E Preferred Stock would
---------------------
result in a fractional share of Common Stock or the right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion of the Series E
Preferred Stock (or exercise of the Investment Options) shall be the next higher
number of shares.
(v) Conversion Date. The "Conversion Date" shall be the date specified in the
----------------
Notice of Conversion, provided that the Notice of Conversion is submitted by
facsimile (or by other means resulting in, or reasonably expected to result in,
notice) to the Corporation or its Transfer Agent before Midnight, New York City
time, on the date so specified, otherwise the Conversion Date shall be the first
business day after the date so specified on which the Notice of Conversion is
actually received by the Corporation or its Transfer Agent. The person or
persons entitled to receive the shares of Common Stock issuable upon conversion
(or exercise of the Investment Options) shall be treated for all purposes as the
record holder or holders of such securities as of the Conversion Date and all
rights with respect to the shares of Series E Preferred Stock surrendered shall
forthwith terminate except the right to receive the shares of Common Stock or
other securities or property issuable on such conversion and except that the
holders preferential rights as a holder of Series E Preferred Stock shall
survive to the extent the Corporation fails to deliver such securities.
(vi)
B. Investment Options. On any Conversion Date relating to a conversion of the
------------------
Series E Preferred Stock by holders thereof, the holder shall have the option to
purchase eight tenths (.80) of one additional share of Common Stock for every
share of Common Stock issuable as a result of such conversion, at an exercise
price equal to the Conversion Price then in effect (the options to purchase such
additional shares shall be referred to herein as the "Investment Options"). The
holders of the Series E Preferred Stock (i) shall indicate on the Notice of
Conversion in respect
<PAGE>
of such Conversion Date that it is exercising its Investment Option with respect
to such conversion and shall specify the number of shares of Common Stock with
respect to which the Investment Option is being so exercised, and (ii) shall pay
to the Corporation, in immediately available funds, on or within one (1)
business day following the Conversion Date, the aggregate purchase price for the
shares of Common Stock issuable as a result of the exercise of such Investment
Options. The provisions of paragraphs A, D(ii) (so long as the holder of the
Series E Preferred Stock has delivered to the Corporation the aggregate purchase
price due in connection with the exercise of the Investment Options) and F of
this Article VI shall apply to any exercise by the holders of the Series E
Preferred Stock of Investment Options.
C.
D. Reservation of Shares. A number of shares of the authorized but unissued
---------------------
Common Stock sufficient to provide for the conversion of the Series E Preferred
Stock outstanding (based on the lesser of the then current Market Price and the
Fixed Conversion Price in effect from time to time) shall at all times be
reserved by the Corporation, free from preemptive rights, for such conversion or
exercise. As of the date of issuance of the Series E Preferred Stock, 15,646,202
authorized and unissued shares of Common Stock have been duly reserved for
issuance upon conversion of the Series E Preferred Stock and upon exercise of
the Investment Options. After the Authorization Date (as defined in the
Securities Purchase Agreement), the Company shall use its best efforts at all
times to maintain the number of shares of Common Stock so reserved for issuance
at no less than two (2) times the number that is then actually issuable upon
full conversion of the Series E Preferred Stock (the "Reserved Amount"). The
Reserved Amount shall be increased from time to time in accordance with the
Corporation's obligations pursuant to Section 4(j) of the Purchase Agreement. In
addition, if the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which each share of the Series E Preferred Stock shall be convertible and
for which the Investment Options shall be exercisable, the Corporation shall at
the same time also make proper provision so that thereafter there shall be a
sufficient number of shares of Common Stock authorized and reserved, free from
preemptive rights, for conversion of the outstanding Series E Preferred Stock
and exercise of the Investment Options.
E. If at any time a holder of shares of Series E Preferred Stock submits a
Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (including any Investment
Options exercised in connection herewith) (a "Conversion Default"), subject to
Article XI, the Corporation shall issue to the holder all of the shares of
Common Stock which are available to effect such conversion. The number of shares
of Series E Preferred Stock (or the number of shares of common stock including
shares underlying the Investment Options exercised in connection with such
conversion) included in the Notice of Conversion which exceeds the amount which
is then convertible into available shares of Common Stock (the "Excess Amount")
shall, notwithstanding anything to the contrary contained herein, not be
convertible into Common Stock in accordance with the terms hereof until (and at
the holder's option at any time after) the date additional shares of Common
Stock are authorized by the Corporation to permit such conversion, at which time
the Conversion Price in respect thereof shall be the lesser of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii) the
Conversion Price on the Conversion Date elected by the holder in respect
thereof. The Corporation shall use its best efforts to effect an increase in the
authorized
<PAGE>
number of shares of Common Stock as soon as possible following the earlier of
(i) such time that a holder of Series E Preferred Stock notifies the Corporation
or that the Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
exercise of the Investment Options hereunder and (ii) a Conversion Default. In
addition, the Corporation shall pay to the holder payments ("Conversion Default
Payments") for a Conversion Default in the amount of (a) .24, multiplied by (b)
the sum of the Stated Value plus the Premium Amount per share of Series E
Preferred Stock held by such holder through the Authorization Date (as defined
below), multiplied by (c) (N/365), where N = the number of days from the day the
holder submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Corporation authorizes a sufficient number of shares of Common Stock to effect
conversion of the full number of shares of Series E Preferred Stock and exercise
of the Investment Options hereunder. The Corporation shall send notice to the
holder of the authorization of additional shares of Common Stock, the
Authorization Date and the amount of holder's accrued Conversion Default
Payments. The accrued Conversion Default Payment for each calendar month shall
be paid in cash or shall be convertible into Common Stock at the applicable
Conversion Price, at the holder's option, as follows:
(i) In the event the holder elects to take such payment in cash, cash payment
shall be made to holder by the fifth day of the month following the month in
which it has accrued; and
(ii) In the event the holder elects to take such payment in Common Stock, the
holder may convert such payment amount into Common Stock at the Conversion Price
(as in effect at the time of Conversion) at any time after the fifth day of the
month following the month in which it has accrued in accordance with the terms
of this Article VI (so long as there is then a sufficient number of authorized
shares of Common Stock).
(iii)
(iv) The holder's election shall be made in writing to the Corporation at any
time prior to 9:00 p.m, New York City Time, on the third (3rd) day of the month
following the month in which Conversion Default payments have accrued. If no
election is made, the holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive relief).
F. Notice of Conversion Price Adjustments. Upon the occurrence of each
--------------------------------------
adjustment or readjustment of the Conversion Price pursuant to this Article VI,
the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series E Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series E Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series E Preferred Stock.
<PAGE>
G. Status as Stockholders. Upon submission of a Notice of Conversion by a
----------------------
holder of Series E Preferred Stock, (i) the shares covered thereby (other than
the shares, if any, which cannot be issued because their issuance would exceed
such holder's allocated portion of the Reserved Amount or Maximum Share Amount)
shall be deemed converted into shares of Common Stock and (ii) the holder's
rights as a holder of such converted shares of Series E Preferred Stock shall
cease and terminate, excepting only the right to receive certificates for such
shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series E Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series E Preferred Stock with respect to such unconverted shares of Series E
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series E Preferred Stock to the holder or, if such shares
of Series E Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series E Preferred Stock have not been converted. In
all cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Delivery Default Payments pursuant
to Article VI.D to the extent required thereby for such Delivery Default and any
subsequent Delivery Default and (ii) the right to have the Conversion Price with
respect to subsequent conversions determined in accordance with Article VI.D.)
for the Corporation's failure to convert the Series E Preferred Stock.
II. CONVERSION AT THE OPTION OF THE CORPORATION
-------------------------------------------
Subject to the limitations on conversion set forth in Article VI.A and so
long as for at all times during the period beginning forty-five (45) days prior
to the Forced Conversion Trigger Date (as defined below) and ending on the
Mandatory Conversion Date (as defined below) (i) all of the shares of Common
Stock issuable upon conversion of the Series E Preferred Stock are then (x)
authorized and reserved for issuance, (y) registered for resale under the 1933
Act by the Holders of the Series E Preferred Stock (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE,
the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, then, at any time after
October 6, 2001 (subject to extension by one Trading Day for each Trading Day
following effectiveness that sales of all of the Registrable Securities (as
defined in the Registration Rights Agreement) cannot be made pursuant to the
Registration Statement (whether by reason of the Corporation's failure to
properly supplement or amend the prospectus included therein in accordance with
the terms of the Registration Rights Agreement, during an Allowed Delay (as
defined in the Registration Rights Agreement) or otherwise)), the Corporation
shall have the right on any Trading Day (a "Forced Conversion Trigger Date") on
which, and for a period of twenty two (22) consecutive Trading Days prior
thereto, the Closing Bid Price of the Common Stock is greater than 200% of the
Fixed Conversion Price (subject to adjustment for stock splits, stock dividends
and similar transactions), to deliver written notice (the "Mandatory Conversion
Notice") to all of the Holders of the Series E Preferred Stock (which notice may
not be sent to the Holders of the Series E Preferred Stock (a) until the
Corporation is permitted to
<PAGE>
convert the Series E Preferred Stock pursuant to this Article and (b) during any
period of time in which the Corporation is in possession of any information, the
disclosure of which could cause a material increase in the Trade Price of the
Common Stock, of its intention to convert all of the outstanding Series E
Preferred Stock into shares of Common Stock in accordance with this Article VII
and Article VI; provided, however, that a Mandatory Conversion shall not be
-------- -------
permitted if during the period beginning on the date the Mandatory Conversion
Notice is delivered to the holders of the Series E Preferred Stock and ending on
the Trading Day prior to the Mandatory Conversion Date the average Closing Bid
Price of the Common Stock during such period is not greater than 175% of the
Conversion Price (subject to adjustment for stock splits, stock dividends and
similar transactions). Any conversion hereunder (a "Mandatory Conversion") shall
be as of the date (the "Mandatory Conversion Date") specified in the Mandatory
Conversion Notice (but in no event prior to the tenth (10th) Trading Day
following the date of such notice). The Mandatory Conversion Notice shall be
delivered to the holders of the Series E Preferred Stock at their registered
addresses appearing on the books and records of the Corporation, which notice
shall contain substantially the same information as the Notice of Conversion
described in Article VI.D. The Mandatory Conversion Date shall be the
"Conversion Date" for purposes of determining the Conversion Price and the time
within which certificates representing the Common Stock must be delivered to the
holder upon a Mandatory Conversion. Notwithstanding notice of a Mandatory
Conversion, the Holder shall at all times prior to the Mandatory Conversion Date
maintain the right to convert all or any portion of the Series E Preferred Stock
in accordance with Article VI. "Trade Price" means, for any security as of any
date, the sale price of the Common Stock on the Nasdaq as reported by Bloomberg
or, if Nasdaq is not the principal trading market for such security, the sale
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or, if no sale
price of such security is available in any of the foregoing manners, the bid
price of any market maker for such security that is listed in the "pink sheet"
by the National Quotation Bureau, Inc. If the Trade Price cannot be calculated
for such security on such date in the manner provided above, the Trade Price
shall be the fair market value as mutually determined by the Corporation and the
holders of a majority of the outstanding principal amount of the Series E
Preferred Stock. All conversions pursuant to this Article VII will be subject to
the limitations set forth in Article VI.A. If, due to the limitations set forth
in Article VI.A, the holder of the Series E Preferred Stock is unable to convert
any portion of the Series E Preferred Stock pursuant to this Article VII, holder
shall not convert any such portion of the Series E Preferred Stock not converted
as a result of such limitation until the holder's beneficial ownership (as
calculated in accordance with Article VI.A(i)) of Corporation is below 4.9% of
the outstanding shares of Common Stock. If (i) a Mandatory Conversion Notice has
been delivered, (ii) holder's beneficial ownership (as calculated in accordance
with Article VI.A(i)) of Corporation decreases below 4.9% of the outstanding
shares of Common Stock, and (iii) amounts (either principal or interest) remain
outstanding under the Series E Preferred Stock, at any time the holder's
beneficial ownership of Corporation decreases below 4.9% of the outstanding
shares of Common Stock, without any further notice to the Corporation, the
holder shall resume conversion of the Series E Preferred Stock pursuant to this
Article VII until (i) holder's beneficial ownership (as calculated in accordance
with Article VI.A(i)) of Corporation increases to 4.9% of the outstanding shares
of Common Stock or (ii) all amounts outstanding under the Series E Preferred
Stock have been converted.
<PAGE>
I. REDEMPTION OR CONVERSION AT MATURITY
------------------------------------
Each share of Series E Preferred Stock issued and outstanding on October 6,
2003 (the "Maturity Date"), shall be either (i) redeemed in cash by the
Corporation for the Liquidation Preference or (ii) at the option of the
Corporation, subject to the limitations on conversion set forth in Article
VI.A(ii) and so long as (i) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Series E Preferred Stock are then (x)
authorized and reserved for issuance, (y) registered for re-sale under the 1933
Act by the holders of the Series E Preferred Stock (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE,
the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, automatically converted
into shares of Common Stock on such date at a conversion price equal to the
average of the Closing Bid Prices for the ten (10) Trading Days ending one (1)
Trading Day prior to the Maturity Date in accordance with, and subject to, the
provisions of Article VI hereof (the "Automatic Conversion"). At the option of
each holder of Series E Preferred Stock, the Maturity Date shall be delayed by
one (1) Trading Day for each Trading Day occurring prior thereto and prior to
the full conversion of the Series E Preferred Stock that (i) any Registration
Statement required to be filed and to be effective pursuant to the Registration
Rights Agreement is not effective or sales of all of the Registrable Securities
otherwise cannot be made thereunder during the Registration Period (as defined
in the Registration Rights Agreement) (whether by reason of the Corporation's
failure to properly supplement or amend the prospectus included therein in
accordance with the terms of the Registration Rights Agreement or otherwise,
including during any Allowed Delays (as defined in Section 3(f) of the
Registration Rights Agreement), (ii) any Mandatory Redemption Event or Trading
Market Redemption Event exists, without regard to whether any cure periods shall
have run or (iii) that the Corporation is in breach of any of its obligations
pursuant to Section 4(j) of the Purchase Agreement.
I. VOTING RIGHTS
-------------
The holders of the Series E Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
("DGCL"), in this Article IX, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder of
Series E Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty
<PAGE>
(30) days prior to the consummation of the transaction or event, whichever is
earlier), of the date on which any such record is to be taken for the purpose of
such dividend, distribution, right or other event, and a brief statement
regarding the amount and character of such dividend, distribution, right or
other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series E
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series E
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series E Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. To the extent that under the DGCL holders
of the Series E Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series E Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series E Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the DGCL.
<PAGE>
PROTECTIVE PROVISIONS
So long as shares of Series E Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series E Preferred Stock:
(a) alter, amend or repeal (whether by merger, consolidation or otherwise) the
rights, preferences or privileges of the Series E Preferred Stock or any capital
stock of the Corporation so as to affect adversely the Series E Preferred Stock;
(b) create any new class or series of capital stock having a preference over
the Series E Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari passu with the
---- -----
Series E Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Pari Passu Securities");
---- -----
(d) increase the authorized number of shares of Series E Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
---- -----
(f) increase the par value of the Common Stock;
(g) issue any additional shares of Series E Preferred Stock except pursuant to
the Purchase Agreement; or
(h) do any act or thing not authorized or contemplated by this Certificate of
Designation which would result in taxation of the holders of shares of the
Series E 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).
(i) In the event holders of at least a majority of the then outstanding shares
of Series E Preferred Stock agree to allow the Corporation to alter or change
the rights, preferences or privileges of the shares of Series E Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series E Preferred Stock,
then the Corporation will deliver notice of such approved change to the holders
of the Series E 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 pursuant to the terms of this Certificate
of Designation as they exist prior to such alteration or change or continue to
hold their shares of Series E Preferred Stock.
<PAGE>
I. PRO RATA ALLOCATIONS
--------------------
The Maximum Share Amount and the Reserved Amount (including any increases
thereto) shall be allocated by the Corporation pro rata among the holders of
Series E Preferred Stock based on the number of shares of Series E Preferred
Stock issued to each holder. Each increase to the Maximum Share Amount and the
Reserved Amount shall be allocated pro rata among the holders of Series E
Preferred Stock based on the number of shares of Series E Preferred Stock held
by each holder at the time of the increase in the Maximum Share Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer any of
such holder's shares of Series E Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor's Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series E
Preferred Stock shall be allocated to the remaining holders of shares of Series
E Preferred Stock, pro rata based on the number of shares of Series E Preferred
Stock then held by such holders.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on behalf
of the Corporation this 6th day of October, 2000.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /c/ H. Douglas Saathoff
-----------------------
Name: H. Douglas Soathoff
Title: Senior Executive Vice President
By: /c/ Raymond G. Romero
-----------------------
Name: Raymond G. Romero
Title: Secretary
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series E Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series E Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of AMERICAN TELESOURCE INTERNATIONAL, INC., a Delaware corporation (the
"Corporation") according to the conditions of the Certificate of Designation of
Series E Preferred Stock, as of the date written below. If securities are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. A copy of each Preferred Stock Certificate
is attached hereto (or evidence of loss, theft or destruction thereof).
The undersigned hereby irrevocably elects to convert $___________ in
Conversion Default Payments, $__________ in Delivery Default Payments and/or
$___________ in payments pursuant to Section 2(c) of the Registration Rights
Agreement at the Applicable Conversion Price set forth below.
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
Transfer").
Name of DTC Prime Broker:____________________
Account Number:_______________________
. In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:______________________
Address:___________________
_______________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series E Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:________________________
Market Price Days:_________________________
Applicable Conversion Price:__________
Number of Shares of Common Stock to be Issued pursuant to:
(i) Conversion of Series E Preferred Stock:
______________________________________________
(ii) Conversion of Conversion Default Payments, Delivery Default Payments
and/or payments pursuant to Section 2(c) of the Registration Rights
Agreement:
Signature:_____________________
Name:______________________
Address:___________________
* The Corporation is not required to issue shares of Common Stock until the
original Series E Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
