SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (or Date of Earliest Event Reported): December 22, 1999
USOL HOLDINGS, INC.
(Exact name of Registrant as specified in its charter)
OREGON 01-14271 93-1197477
(State or other (Commission File Number) (IRS Employer
jurisdiction of incorporation) Identification No.)
10300 Metric Boulevard
Austin, Texas 78758
(Address of principal executive offices) (Zip Code)
(512) 651-3780
(Registrant's telephone number, including area code)
FIRSTLINK COMMUNICATIONS, INC.
190 SW Harrison
Portland, Oregon 97201
(Former name or former address, if changed since last report)
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INFORMATION TO BE INCLUDED IN THE REPORT
ITEM 1. CHANGE IN CONTROL OF REGISTRANT.
See Item 2.
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS.
The consummation of the merger of USOL Holdings, Inc., a Delaware
corporation ("Old USOL") with and into FirstLink Communications, Inc., an Oregon
corporation (the "Registrant") was effective as of December 22, 1999. In
connection with the merger, the Registrant's Articles of Incorporation were
amended to change the Registrant's name to USOL Holdings, Inc. The merger was
completed pursuant to the Agreement and Plan of Merger and Reorganization dated
as of July 21, 1999 by and among Old USOL and the Registrant. As a result of the
merger, each outstanding share of Old USOL's common stock, Series A Convertible
Preferred Stock and Series B Convertible Preferred Stock are exchangeable for
one share of the Registrant's common stock, Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock, respectively. In the aggregate, the
Registrant will issue approximately 3,175,000 shares of common stock and
1,480,000 shares of preferred stock in connection with the merger. Additionally,
each outstanding option to purchase approximately an aggregate of 1,910,000
shares of common stock of old USOL and warrants to purchase an aggregate of
2,084,000 shares of common stock of old USOL were converted into options and
warrants to purchase the same number of shares of the Registrant's common stock.
Each share of Series A Convertible Preferred Stock and Series B Convertible
Preferred Stock is convertible into that number of shares of common stock
obtained by dividing the liquidation preference by the then applicable
conversion price. The liquidation preference equals $25.00 and the conversion
price equals $2.00 per share, as adjusted. Each share of Series B Convertible
Preferred Stock is also convertible into one share of Series A Convertible
Preferred Stock. As of December 28, 1999, there were 6,883,779 shares of common
stock of the Registrant outstanding (including the shares to be issued to the
common stockholders of Old USOL). Following the merger, existing stockholders of
OLD USOL owned approximately 46.1% of the Registrant's outstanding common stock
as of December 28, 1999. Also as of such date, all of the holders of all of the
Series A and Series B Preferred Convertible Common Stock (the "Preferred
Stockholders"), some of which also own shares of the Registrant's common stock
and warrants to purchase shares of the Registrant's common stock, hold
approximately 70.8% of the Registrant's common stock on a fully diluted basis.
This transaction, which will be accounted for as a reverse acquisition, has
resulted in a change of control of the Registrant.
All of the Preferred Stockholders entered into an Agreement Among Investors
dated July 21, 1999 (the "Investor Agreement"). Under the terms of the Investor
Agreement, the Preferred Stockholders made certain agreements relating to the
voting and transfer of their respective shares of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock of Old USOL, which the parties
further agreed would apply to their shares of Series A Convertible Preferred
Stock and Series B Convertible Preferred Stock of the Registrant upon
consummation of the merger. Under the Investor Agreement, the Preferred
Stockholders agreed that in any matter requiring the vote of the Company's
stockholders, the Preferred Stockholders would hold a meeting where the holders
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of the Series A Convertible Preferred Stock (the "Voting Investors") would vote
among themselves to determine the collective course of action of the Preferred
Stockholders. The Preferred Stockholders holding more than 50% of all Voting
Percentage Interests (as such number is calculated in accordance with the
Investor Agreement) shall constitute a quorum at any meeting of the Preferred
Stockholders. A vote of more than 50% of the percentage interests held by the
Voting Investors shall be the act of the Preferred Stockholders at any meeting
(the "Desired Outcome"). Each of the Preferred Stockholders further agreed to
vote its shares of the Registrant consistent with the Desired Outcome. If there
is no Desired Outcome determined by the Preferred Stockholders, then the
Preferred Stockholders are entitled to vote their shares as they deem
appropriate at any meeting of the stockholders of the Registrant.
In addition, each of GMAC Commercial Mortgage Corporation, Aspen
Foxtrot Investments, LLC, Peregrine Equities 1, L.L.C. - Peregrine Equities 10,
L.L.C. (acting together), and AGL Investments No. 8 Limited Partnership is
entitled, subject to certain limitations, to designate an individual to serve as
director of the Registrant and each of the Preferred Stockholders has agreed to
vote its shares in favor of such director nominee.
Except for certain permitted transfers, the Investor Agreement further
provides that for a period of one year from the date of the merger, such
Preferred Stockholder will not transfer any of the shares of Series A
Convertible Preferred Stock or Series B Convertible Preferred Stock of the
Company owned by such Preferred Stockholder. The "permitted transfers" include
the following: a Preferred Stockholder may (a) subject to and in accordance with
the terms of the preferred stock, convert within the one year period following
the date of the merger, up to 25% of its shares of preferred stock into common
stock, and, to the extent permitted under applicable securities laws, such
common stock may be sold publicly, (b) transfer all or any part of such
Preferred Stockholder's preferred stock to one or more affiliates, employees or
directors of such Preferred Stockholder, (c) transfer the preferred stock in
connection with any exchange, reclassification or other conversion of shares
into cash, securities or other property pursuant to a merger or consolidation of
the Registrant or any of its subsidiaries with, or any sale or transfer by the
Registrant or any of its subsidiaries of all or substantially all of its assets
to any person, (d) transfer such Preferred Stockholder's preferred stock in
connection with any statutory share exchange or recapitalization of the
Registrant, and (e) transfer such Preferred Stockholder's preferred stock in
connection with the terms of the tag-along rights provision and drag-along
rights provision of the Investor Agreement. Other than in connection with a
"permitted transfer" described above or a transfer pursuant to an effective
registration statement or pursuant to Rule 144 under the Securities Act of 1933,
if at any time a Preferred Stockholder desires to transfer any shares of the
Registrant, the selling investor is required to give notice to the remaining
Preferred Stockholders of an offer to sell. Each of the remaining investors has
15 days to accept the offer on the terms set forth in the notice. There is no
obligation to sell any shares unless one or more of the other investors
purchases all, but not less than all, of the shares offered. If investors
deliver notices electing to purchase shares in excess of the number of shares
offered, then the accepting investors have the right to purchase the shares on a
pro rata basis. If the shares are not purchased by the remaining investors, then
the selling investor may sell to a third party on the same terms. However, prior
to such sale, the selling investor is required to offer to each remaining
investor the opportunity to sell such investor's shares on the same terms. Other
than in connection with a "permitted transfer" described above or a transfer
pursuant to an effective
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registration statement or pursuant to Rule 144 under the Securities Act of 1933,
if at any time Preferred Stockholders holding a majority of the securities
subject to the Investor Agreement, calculated on a fully converted basis, desire
to transfer all or any part of their securities, which would result in the sale
of at least 20% of the voting stock of the Registrant and the person or group
acquiring the stock will become the beneficial owner of a greater percentage of
voting capital stock, determined on a fully converted basis, than any other
person or group, each of the other Preferred Stockholders shall be required to
sell all, but not less than all, of their respective shares to the same party on
the same terms as the transferring investors. Unless otherwise provided by the
Investor Agreement in certain circumstances, the Investor Agreement applies only
to the Series A Convertible Preferred Stock and the Series B Convertible
Preferred Stock of the Registrant.
Additionally, the Preferred Stockholders have certain registration
rights with respect to the common stock issuable upon conversion of the Series A
Convertible Preferred Stock and the Series B Convertible Preferred Stock and
upon exercise of any warrant held by any Preferred Stockholder, pursuant to a
preferred stockholder registration rights agreement and a common stockholder and
warrant holder registration rights agreement, respectively, each dated as July
21, 1999 among Old USOL and each stock and warrant holder party thereto. Those
Preferred Stockholders currently holding common stock also have the benefit of
the common and warrant registration rights Agreement.
The Registrant provides integrated telecommunications and entertainment
services to residents of primarily apartment and condominium complexes through
agreements with the owners or managers of the complexes. The services include
local and long distance telephone, cable television or CATV, and internet
access, in a single package on a single invoice for the residents. These bundled
services are referred to as Residential Multi-Tenant Services, or RMTS. The
Registrant's primary objective is to become a leading provider of RMTS in the
United States. Currently, the Registrant has approximately 15,400 subscribers,
consisting of approximately 11,300 CATV and 4,100 telephone customers.
This Form 8-K includes "forward-looking statements" within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The opinions, forecasts,
projections or other statements, other than statements of historical fact, are
forward-looking statements. Although the Registrant believes that the
expectations reflected in such forward-looking statements are reasonable; it can
give no assurance that such expectations will prove to have been correct.
Certain risks and uncertainties inherent in the Registrant's business are set
forth in the filings of the Registrant with the Securities and Exchange
Commission.
ITEM 4. CHANGES IN REGISTRANT'S CERTIFYING ACCOUNTANTS.
As stated in the Registrant's Proxy Statement dated November 8, 1999,
on December 22, 1999, the effective date of the Registrant's merger with USOL
Holdings, Inc., the Registrant changed its certifying accountants from KPMG LLP
to Arthur Andersen LLP.
(1) With respect to that change in certifying accountants:
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(a) KPMG LLP did not resign but was replaced by the
Registrant with Arthur Andersen LLP.
(b) KPMG LLP's reports on the financial statements for
the last two years did not contain an adverse opinion
or a disclaimer of opinion, nor was it qualified as
to uncertainty, audit scope, or accounting
principles.
(c) The decision to change accountants was recommended by
the audit committee of the board of directors, and
approved by the board of directors.
(d) The Registrant had no disagreements with KPMG LLP on
any matter of accounting principles or practices,
financial statement disclosure, or auditing scope or
procedure.
Registrant has provided KPMG LLP with a copy of the disclosure it is making
in this Form 8-K and requested that KPMG provide Registrant with a letter
stating that it agrees with the statements made by the Registrant in this
report. A copy of that letter will be filed by amendment to this report as
promptly as possible, but not later than 10 business days after this report is
filed.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of business acquired:
See Registrant's Proxy Statement dated November 8, 1999. Any
additional financial information required by this item will be filed by
amendment to this report as soon as practicable, but not later than 60 days
after this report must be filed.
(b) Pro forma financial information:
See Registrant's Proxy Statement dated November 8, 1999. Any
additional pro forma financial information will be filed by the Registrant by an
amendment to this report as soon as practical, but not later than 60 days after
this report must be filed.
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(c) Exhibits:
Exhibit No. Exhibit Description
2 Agreement and Plan of Merger and Reorganization dated as of
July 21, 1999, by and between FirstLink Communications, Inc.
and USOL Holdings, Inc. (incorporated by reference to Appendix
A to the Proxy Statement dated November 8, 1999 of FirstLink
Communications, Inc.).
4.1 Amendment to Articles of Incorporation.
4.2 Certificate of Designations, Preferences, Limitations, and
Relative Rights of Series A Convertible Preferred Stock.
4.3 Certificate of Designations, Preferences, Limitations, and
Relative Rights of Series B Convertible Preferred Stock.
16* Letter re change in accounting principles.
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* To be filed by amendment
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
USOL HOLDINGS, INC.
Date: January 6, 2000 By: /s/ Jeffrey S. Sperber
--------------------------
Jeffrey S. Sperber
Chief Financial Officer
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EXHIBIT INDEX
Exhibit No. Exhibit Description
2 Agreement and Plan of Merger and Reorganization dated as of
July 21, 1999, by and between FirstLink Communications, Inc.
and USOL Holdings, Inc. (incorporated by reference to Appendix
A to the Proxy Statement dated November 8, 1999 of FirstLink
Communications, Inc.).
4.1 Amendment to Articles of Incorporation.
4.2 Certificate of Designations, Preferences, Limitations, and
Relative Rights of Series A Convertible Preferred Stock.
4.3 Certificate of Designations, Preferences, Limitations, and
Relative Rights of Series B Convertible Preferred Stock.
16* Letter re change in accounting principles.
- ------------
* To be filed by amendment
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Exhibit 4.1
AMENDMENT TO ARTICLES OF INCORPORATION
OF
FIRSTLINK COMMUNICATIONS, INC.
Article I of the Articles of Incorporation of the Corporation shall be
amended to read in full as follows:
ARTICLE I
The name of the corporation is USOL Holdings, Inc.
Article II of the Articles of Incorporation of the Corporation shall be
amended in full to read as follows:
ARTICLE II
2.1 The aggregate number of shares which the Corporation shall have the
authority to issue is Fifty-five Million (55,000,000) Shares. Of such 55,000,000
Shares, Fifty Million (50,000,000) shall be classified as common stock, no par
value ("Common Stock"), and Five Million (5,000,000) shall be classified as
preferred stock, no par value ("Preferred Stock"). All shares of Common Stock
and Preferred Stock when issued shall be nonassessable and fully paid.
2.2. Shares of Preferred Stock may be issued from time to time in one
or more series as the Board of Directors of the Corporation may determine. The
Board of Directors is hereby authorized, by resolution or resolutions, to
provide from time to time, out of the unissued shares of Preferred Stock not
then allocated by any series of Preferred Stock, for one or more series of the
Preferred Stock. Before any shares of any such series of Preferred Stock are
issued, the Board of Directors shall fix and determine, by resolution or
resolutions, the number of shares in the series, and the designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations and restrictions thereof. The Board of Directors
may, at any time and from time to time, by resolution or resolutions, increase
or decrease the number of shares of any series of Preferred Stock, to the extent
permitted by law.
2.3. There is hereby designated two series of Preferred Stock, which
shall be designated "Series A Convertible Preferred Stock" and "Series B
Convertible Preferred Stock." The Certificates of Designations, Preferences,
Limitations, and Relative Rights of Series A Convertible Preferred Stock
and Series B Convertible Preferred Stock are set forth below.
Exhibit 4.2
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS
OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
USOL HOLDINGS, INC.
(F/K/A FIRSTLINK COMMUNICATIONS, INC.)
1. DESIGNATION. There is hereby provided for a single series of
convertible preferred stock, the designation of which shall be the Series A
Convertible Preferred Stock (hereinafter the "Series A Preferred Stock") and the
number of authorized shares constituting the Series A Preferred Stock is
1,700,000. The stated value of each share of Series A Preferred Stock is
twenty-five dollars ($25.00). The number of authorized shares of Series A
Preferred Stock may be reduced or increased by a further resolution duly adopted
by the Board of Directors of the Corporation and by the filing of an amendment
to the Corporation's Articles of Incorporation pursuant to the provisions of the
Oregon Business Corporation Act stating that such reduction or increase has been
so authorized.
2. VOTING. Except as required by law, the shares of the Series A
Preferred Stock shall not have any voting powers, either general or special,
except as provided in this Section 2:
(a) Subject to Section 2(b), holders of Series A Preferred
Stock shall be entitled to vote on any matter on which the holders of the
Corporation's common stock (hereafter, the "Common Stock") are entitled to vote
(except for the election of directors which is governed by Section 2(b)) and the
votes of the Series A Preferred Stock shall be counted together with the holders
of the Common Stock as a single class. The Series A Preferred Stock shall vote
with the whole number of shares of Common Stock as if the Series A Preferred
Stock had been fully converted pursuant to Section 4 hereof three (3) business
days prior to the date of the vote. Any corporate action that may require a vote
of the holders of the Series A Preferred Stock as a class shall be deemed to
have been approved by that class upon the affirmative vote by the holders of a
majority of the issued and outstanding Series A Preferred Stock unless a higher
voting requirement is imposed by the Oregon Business Corporation Act.
(b) Prior to each annual meeting of stockholders, each of AGL
Investments No. 8 Limited Partnership, a Colorado limited partnership
("Amstar"), Aspen Foxtrot Investments, LLC ("Aspen"), GMAC Commercial Mortgage
Corporation ("GMACCMC") and Peregrine Capital, Inc. ("Peregrine") shall
individually have the right to nominate one of the seven directors (the
"Preferred Directors"). The Preferred Directors shall be elected by the holders
of the Series A Preferred Stock (which for the purposes of this paragraph shall
include Common Stock issuable upon conversion of the Series A Preferred Stock)
voting together as a class and separately from all other classes and series. If
at any time the number of directors on the Board is increased or decreased, the
holders of the Series A Preferred Stock shall have the right to nominate and
elect a majority of such number. Unless otherwise required by law, in case of
any vacancy occurring among the Preferred Directors, the holder nominating such
Preferred Director may appoint a successor to hold office for the unexpired term
of the Preferred Director whose place shall be vacant. If any of Amstar, Aspen,
GMACCMC or Peregrine or any of their respective affiliates, shareholders,
partners, or members to whom Series A Preferred Stock may be transferred cease
to own Series A Preferred Stock or Common Stock equal in the aggregate to 25% of
the number of shares of Series A Preferred Stock, on a fully converted basis,
that such person holds as of the effective date of this Certificate, then such
person shall no longer have the right to nominate a Preferred Director and the
number of Preferred Directors shall be reduced accordingly and the number of
directors to be elected by the holders of Common Stock shall be increased by the
same number.
(c) Subject to Section 10 herein, the Board of Directors
without the vote of the holders of shares of the Series A Preferred Stock may
authorize and issue additional shares of Common Stock and preferred stock
ranking junior as to dividends and upon liquidation to the shares of the Series
A Preferred Stock. No class or series of equity securities of the Corporation
may rank senior to or equal in right with the Series A Preferred Stock as to
dividends or upon liquidation except for the Series B Convertible Preferred
Stock (the "Series B Preferred Stock" and, together with the Series A Preferred
Stock, the "Preferred Stock") which shall be equal in right.
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(d) Notwithstanding anything to the contrary in Section 554(3)
of the Oregon Business Corporation Act, the holders of the Series A Preferred
Stock shall be entitled to dissenters' rights pursuant to, and to the fullest
extent permitted by, Section 554(1) of said Oregon Business Corporation Act in
the event of a merger or consolidation in which the Corporation is a constituent
corporation or the sale of substantially all of the assets of the Corporation.
3. DIVIDENDS.
(a) Rate. Holders of Series A Preferred Stock shall be
entitled to receive, out of any funds of the Corporation legally available for
that purpose, cumulative dividends from the date of issuance at the rate of 12%
per year of the Liquidation Preference (as defined in Section 5(a)below), for
each calendar quarter (pro-rated for partial quarters, based upon a 90 day
quarter of three 30 day months) (each such calendar quarter, a "Dividend
Period") payable in arrears in cash, or, at the option of the Corporation, in
shares of its Common Stock (with cash in lieu of fractional shares) based on the
determination of Fair Value (defined in Section 4(e)(viii) below), on the last
day of December, March, June and September of each year, commencing December 31,
1999 (each such date being hereinafter individually referred to as the "Dividend
Payment Date" and collectively as the "Dividend Payment Dates") provided, that
no Regulated Stockholder (as defined in Section 4(a)(iv) below) shall be
required to receive any shares of Common Stock pursuant to this Section 3(a) to
the extent that immediately prior to payment of such dividend, or as a result of
such dividend, the number of shares of Common Stock which constitute Restricted
Stock (as defined in Section 4(a)(iv) below) held by all holders thereof would
exceed the number of shares of Common Stock which such Regulated Stockholder
reasonably determines it and its Affiliates (defined in Section 4(a)(iv) below)
may own, control or have the power to vote under any law, regulation, rule or
other requirement of any governmental authority at the time applicable to such
Regulated Stockholder or its Affiliates and such Regulated Stockholder shall be
entitled to receive cash in lieu of such dividend payable in shares of Common
Stock. Should the Corporation in its discretion determine to pay said dividends
in shares of Common Stock for any Dividend Period, then all such accrued and
unpaid dividends shall be paid in shares of Common Stock at the first to occur
of the next Dividend Payment Date or the time of conversion of the Series A
Preferred Stock, such that upon such Dividend Payment date or such conversion of
the Series A Preferred Stock by the holder thereof, the Corporation shall pay
all accrued and unpaid dividends owed for such Dividend Period as of the date of
such conversion on all then converted shares. Each such dividend shall be paid
to the holders of record of the Series A Preferred Stock as they appear on the
books of the Corporation on the record date which shall be not less than 30 days
prior to the related Dividend Payment Date. Additional dividends, at an annual
rate of 12%, shall accrue in respect of, and compound on, any dividends in
arrears and may be payable at any time at the discretion of the Corporation.
(b) Dividends on Common Stock. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
or any series of preferred stock ranking junior to the Series A Preferred Stock
and the Series B Preferred Stock, which shall be pari passu with the Series A
Preferred Stock with respect to dividends, during any fiscal year of the
Corporation unless all due and unpaid dividends and the annual current dividend
on the shares of Series A Preferred Stock and the Series B Preferred Stock for
the then current and all prior Dividend Periods shall have been declared and
paid in cash. If dividends are paid partly in cash and partly in Common Stock
with respect to the Common Stock or any series of preferred stock ranking junior
to the Series A Preferred Stock and the Series B Preferred Stock, then all due
and unpaid dividends and the annual current dividend on the shares of Series A
Preferred Stock and the Series B Preferred Stock for the then current Dividend
Period and all prior Dividend Periods shall have been declared and paid either
in cash or in the same proportion of cash and Common Stock proposed to be paid
to holders of Common Stock and any series of preferred stock ranking junior to
the Series A Preferred Stock and the Series B Preferred Stock; provided, that no
Regulated Stockholder shall be required to receive any shares of Common Stock
pursuant to this Section 3(b) to the extent that immediately prior to payment of
such dividend, or as a result of such dividend, the number of shares of Common
Stock which constitute Restricted Stock held by all holders thereof would exceed
the number of shares of Common Stock with such Regulated Stockholder reasonably
determines it and its Affiliates may own, control or have the power or vote
under any law, regulation, rule or other requirement of any governmental
authority at the time applicable to such Regulated Stockholder or its Affiliates
and such Regulated Stockholder shall be entitled to receive cash in lieu of such
dividend payable in shares of Common Stock. No shares of Common Stock or any
series of preferred stock ranking junior to the Series A Preferred Stock and the
Series B Preferred Stock shall be purchased, redeemed or acquired by the
Corporation, and no funds shall be paid into or set aside or made available for
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a sinking fund for the purchase, redemption or acquisition thereof except in
transactions with employees of the Corporation aggregating not more than
$100,000.00 per year.
(c) Limitation on Amount of Dividends. Holders of shares of
the Series A Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full dividends for each
Dividend Period (including any dividends in arrears as provided herein), as
herein provided, on the Series A Preferred Stock. No interest, or sum of money
in lieu of interest, shall be payable in respect of any Dividend Payment or
Dividend Payments which may be in arrears.
(d) Parity of Dividend Payments. When dividends are not paid
in full upon the Series A Preferred Stock and the shares of any other series of
capital stock ranking on a parity as to dividends with the Series A Preferred
Stock, all dividends declared upon the Series A Preferred Stock and such other
series shall be declared pro rata so that the amount of dividends declared per
share on the Series A Preferred Stock and such other series of capital stock
shall in all cases bear to each other the same ratio that full dividends, for
the then-current and all prior Dividend Periods, per share on the Series A
Preferred Stock and full dividends, including required or permitted
accumulations, if any, on such other series of capital stock, bear to each
other.
4. CONVERSION. The holders of the Series A Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Automatic Conversion; Optional Conversion; Conversion
Price.
(i) Automatic Conversion. Beginning July 21,
2001, each share of the Series A Preferred Stock, without any action or
payment of additional consideration on the part of the Holder thereof, on the
earliest of (1) the closing of a firm commitment public offering after such date
pursuant to which the Corporation offers its equity securities for gross
proceeds to the Corporation in an amount equal to or greater than $40,000,000,
(2) the day that the closing sales price of the Common Stock on a national
securities exchange or the Nasdaq Stock Market is equal to or greater than
$10.00 per share for 15 consecutive trading days (taking into account any stock
split or reverse stock split or any other adjustments to the number of shares of
Common Stock outstanding after July 21, 1999, the "Reference Date"), or (3) the
seventh anniversary of the Reference Date; provided that if the Common Stock is
then trading at more than $2.00 per share, taking into account any stock split
or reverse stock split or any other adjustments to the number of shares of
Common Stock outstanding after the Reference Date, shall convert automatically
as provided in Section 4(j) into fully paid and non-assessable shares of Common
Stock (with cash paid in lieu of fractional shares), having the powers, relative
participating rights and the qualifications, limitations or restrictions of
holders of Common Stock as set forth in the Corporation's Articles of
Incorporation and bylaws, at the Conversion Price (as defined below); provided,
that no Regulated Stockholder shall be required to convert any shares of its
Series A Preferred Stock into Common Stock pursuant to this Section 4(a) to the
extent that immediately prior thereto, or as a result of such conversion, the
number of shares of Common Stock which constitute such Restricted Stock held by
all holders thereof would exceed the number of shares of Common Stock which such
Regulated Stockholder reasonably determines it and its Affiliates may own,
control or have the power to vote under any law, regulation, rule or other
requirement of any governmental authority at the time applicable to such
Regulated Stockholder or its Affiliates.
(ii) Optional Conversion. At any time, holders
of Series A Preferred Stock may elect to convert, in whole or in part,
their Series A Preferred Stock into fully paid and non-assessable shares of
Common Stock (with cash paid in lieu of fractional shares) at the Conversion
Price by following the procedures set forth in Section 4(j) hereof; provided,
however, that Series A Preferred Stock constituting Restricted Stock may not be
converted into Common Stock to the extent that immediately prior thereto, or as
a result of such conversion, the number of shares of Common Stock which
constitute such Restricted Stock held by all holders thereof would exceed the
number of shares of Common Stock which such Regulated Stockholder reasonably
determines it and its Affiliates may own, control or have the power to vote
under any law, regulation, rule or other requirement of any governmental
authority at the time applicable to such Regulated Stockholder or its
Affiliates; and, provided, further, that each holder of Series A Preferred Stock
may convert such shares into Common Stock if such holder reasonably believes
that such converted shares will be transferred within fifteen (15) days or
already have been transferred pursuant to a Conversion Event (defined below) and
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such holder agrees not to vote any such shares of Common Stock prior to such
Conversion Event and undertakes to promptly convert such shares back into Series
A Preferred Stock if such shares are not transferred pursuant to a Conversion
Event. Each Regulated Stockholder may provide for further restrictions upon the
conversion of any shares of Restricted Stock by providing the Corporation with
signed, written instructions specifying such additional restrictions and
legending such shares as to the existence of such restrictions.
(iii) Conversion Price. The "Conversion Price" shall
initially be $2.00 per share. The number of shares of Common Stock issuable
upon conversion is the Liquidation Preference divided by the then applicable
Conversion Price, as adjusted from time to time as provided for in Section 4(e),
multiplied by the number of shares of Series A Preferred Stock converted.
Notwithstanding any provision of this section 4(a)(iii) to the
contrary, each holder of Series A Preferred Stock shall be entitled to convert
shares of Series A Preferred Stock in connection with any Conversion Event if
such holder reasonably believes that such Conversion Event will be consummated,
and a written request for conversion from any holder of Series A Preferred Stock
to the Corporation stating such holder's reasonable belief that a Conversion
Event shall occur shall be conclusive and shall obligate the Corporation to
effect such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation will not cancel the shares
of Series A Preferred Stock so converted before the 15th day following such
Conversion Event and will reserve such shares until such 15th day for resistance
in compliance with the next sentence. If any shares of Series A Preferred Stock
are converted into shares of Common Stock in connection with a Conversion Event
and such shares of Common Stock are not actually distributed, disposed of or
sold pursuant to such Conversion Event, such shares of Common Stock shall be
promptly converted back into the same number of shares of Series A Preferred
Stock.
(iv) Defined terms. For purposes of this
Certificate of Designations, the following terms shall be defined as set forth
below:
1. "Affiliate" shall mean with respect to
any Person, any other person, directly or indirectly
controlling, controlled by or under common control with such
Person. For the purpose of the above definition, the term
"control" (including with correlative meaning, the terms
"controlling," "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or
by contract or otherwise.
2. "Conversion Event" shall mean (a) any
public offering or public sale of securities of the
Corporation (including a public offering registered under the
Securities Act of 1933 and a public sale pursuant to Rule 144
of the Securities and Exchange Commission or any similar rule
then in force), (b) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the
Securities Exchange Act of 1934, as amended (the "1934 Act"))
if, prior to such sale, such person or group of persons in the
aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the
Corporation's directors (provided that such sale has been
approved by the Corporation's Board of Directors or a
committee thereof), (c) any sale of Securities of the
Corporation to a person or group of persons (within the
meaning of the 1934 Act) if, after such sale, such person or
group of persons would not, in the aggregate, own, control or
have the right to acquire more than two percent (2%) of the
outstanding securities of any class of voting securities of
the Corporation, (d) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the
1934 Act) if, after such sale, such person or group of persons
in the aggregate would own or control securities of the
Corporation (excluding any Series A Preferred Stock being
converted and disposed of in connection with such Conversion
Event) which possess in the aggregate the ordinary voting
power to elect a majority of the Corporation's directors, and
(e) a merger, consolidation or similar transaction involving
the Corporation if, after such transaction (but without taking
into account the Restricted Stock converted by the Regulated
Holder) a person or group of persons (within the meaning of
the 1934 Act) in the aggregate would own or control securities
which possess in the aggregate the ordinary voting power to
<PAGE>
elect a majority of the surviving corporation's directors
(provided that the transaction has been approved by the
Corporation's Board of Directors or a committee thereof).
3. "Regulated Stockholder" shall mean any
stockholder (i) that, directly or indirectly, due to its
ownership by an entity subject to Regulation Y of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 225
(or any successor to such regulation) ("Regulation Y"), is
itself subject to the provisions of Regulation Y and (ii) that
holds Preferred Stock or Common Stock of the Corporation.
4. "Restricted Stock" means, with respect to
any Regulated Stockholder, any outstanding shares of Common
Stock and/or Series A Preferred Stock and/or Series B
Preferred Stock ever held of record by such Regulated
Stockholder or its Affiliates, excluding treasury shares;
provided, however, that any such shares shall cease to be
Restricted Stock when such shares are transferred in a
transaction which is a Conversion Event or are acquired by the
Corporation or any subsidiary of the Corporation; and
provided, further that the Corporation shall have no
responsibility for determining whether any outstanding shares
of Common Stock and/or Series A Preferred Stock constitute
Restricted Stock with respect to any particular Regulated
Stockholder, but shall instead be entitled to receive, and
rely exclusively upon, a written notice provided by such
Regulated Stockholder designating such shares as Restricted
Stock.
(b) Issuance of Shares of Common Stock or Other Securities
on Conversion.
(i) Pursuant to Section 4(j) herein, the
Corporation shall issue, at its expense, and shall deliver to such holder
of Series A Preferred Stock ("Holder"), (i) a certificate or certificates for
the number of full shares of Common Stock issuable upon the conversion of the
Series A Preferred Stock, and (ii) cash in lieu of fractional shares as provided
in Section 4(d).
(ii) Such conversion shall be deemed to have been
effected immediately prior to the close of business on the Conversion Date
(as defined in Section 4(j) (iii)), and at such time the rights of the
Holder shall cease and the Holder shall be deemed to have become the holder or
holders of record of the shares of Common Stock issued upon conversion.
(c) No Adjustments for Dividends. No payment or adjustment
shall be made by or on behalf of the Corporation on account of any dividends on
the Common Stock issued upon such conversion which were declared for payment to
holders of Common Stock of record as of a date prior to the Conversion Date.
(d) Cash Payment in Lieu of Fractional Shares. No fractional
shares of Common Stock shall be issued upon the conversion of the Series A
Preferred Stock. In lieu of any fraction of a share of Common Stock to which the
Holder would otherwise be entitled upon conversion of the Series A Preferred
Stock, the Corporation shall pay a cash adjustment for such fraction in an
amount equal to the same fraction of the Fair Value per share of Common Stock at
the close of business on the Conversion Date.
(e) Adjustment of Conversion Price of Common Stock.
(i) Except as provided in Section 4(e)(vii), in
case, at any time or from time to time after the Reference Date, the
Corporation shall issue or sell any shares of any class of common stock for a
consideration per share less than the Fair Value (as defined in Section
4(e)(viii) below), then forthwith upon such issue or sale the Conversion Price
in effect immediately prior to such issue or sale shall be reduced to a price
(calculated to the nearest cent) determined by multiplying the Conversion Price
in effect prior to the adjustment by a fraction determined by dividing (A) an
amount equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Fair Value per share
of Common Stock immediately prior to such issue or sale, and (2) the
consideration, if any, received by the Corporation upon such issue or sale, by
(B) the total number of shares of Common Stock outstanding immediately after
such issue or sale multiplied by the Fair Value per share of Common Stock
immediately prior to such issue or sale. No adjustment of the Conversion Price,
however, shall be made in an amount less than one cent per share, but any lesser
<PAGE>
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to two cents per share or more.
(ii) For the purposes of Subsection 4(e)(i) above, the
following paragraphs (1) to (6), inclusive, shall also be applicable:
(1) In case at any time the Corporation
shall grant any rights to subscribe for, or any rights or
options or warrants to purchase, Common Stock or any stock or
other securities convertible into or exchangeable for Common
Stock (such convertible or exchangeable stock or securities
being herein called "Convertible Securities"), whether or not
such rights or options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon
the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities (determined by
dividing (A) the total amount, if any, received or receivable
by the Corporation as consideration for the granting of such
rights or options or warrants, plus the maximum aggregate
amount of additional consideration payable to the Corporation
upon the exercise of such rights or options, plus, in the case
of any such rights or options or warrants which relate to such
Convertible Securities, the maximum aggregate amount of
additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Fair Value in effect
immediately prior to the time of the granting of such rights
or options or warrants, then the total maximum number of
shares of Common Stock issuable upon the exercise of such
rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon
the exercise of such rights or options shall (as of the date
of granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share
and the current Conversion Price shall be adjusted as provided
in Subsection 4(e)(i) above. Except as provided in Subsection
4(e)(v), no further adjustments of the Conversion Price shall
be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights or options
or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities. Notwithstanding
the foregoing, if at any time on or after the Reference Date
the Corporation shall grant, issue or sell any options or
rights to purchase stock, warrants, securities or other
property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be
entitled (but not obligated) to acquire, in lieu of any other
adjustment provided for in this Subsection 4(e) and upon the
terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if it
had held the number of shares of Common Stock issuable upon
conversion of the Series A Preferred Stock immediately prior
to the time or times at which the Corporation granted, issued
or sold such Purchase Rights.
(2) In case at any time the Corporation
shall issue or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by
dividing (A) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Fair Value immediately prior to the
time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share
and the Conversion Price shall be adjusted as provided in
Subsection 4(e)(i) above, provided that (x) except as provided
in Subsection 4(e)(v), no further adjustments of the
Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, and (y) if any such issue or sale of such
<PAGE>
Convertible Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase any
such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other
provisions of Subsection 4(e)(ii), no further adjustment of
the Conversion Price shall be made by reason of such issue or
sale.
(3) With respect to any dividend or other
distribution upon any stock of the Corporation payable in
Common Stock or Convertible Securities, any Common Stock or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration and the
Conversion Price shall be adjusted as provided in Subsection
4(e)(i) above.
(4) In case at any time any shares of Common
Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall
be issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the
Corporation in good faith, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued in connection with any merger of another corporation
into the Corporation, the amount of consideration therefor
shall be deemed to be the fair value of the assets of such
merged corporation as determined by the Board of Directors of
the Corporation in good faith after deducting therefrom all
cash and other consideration (if any) paid by the Corporation
in connection with such merger.
(5) In case at any time the Corporation
shall take a record of the holders of Common Stock for the
purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock or in Convertible
Securities, or (B) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(6) The number of shares of Common Stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Corporation or any of its
subsidiaries, but the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes
of Subsection 4(e).
(iii) In the event that the Corporation shall make
any distribution of its assets upon or with respect to its Common Stock, as
a liquidating or partial liquidating dividend, or other than as a dividend
payable out of current earnings or any surplus legally available for dividends
under the laws of the state of incorporation of the Corporation, the Holder
shall, if the Conversion Date is after the record date for such distribution or,
in the absence of a record date, after the date of such distribution, receive,
in addition to the shares subscribed for, the amount of such assets (or, at the
option of the Corporation, a sum equal to the fair value thereof at the time of
distribution as determined by the Board of Directors of the Corporation in good
faith) which would have been distributed to such Holder if the Conversion Date
had occurred immediately prior to the record date for such distribution or, in
the absence of a record date, immediately prior to the date of such
distribution.
(iv) In case at any time the Corporation shall
subdivide its outstanding shares of Common Stock into a greater number of
shares or upon any issuance by the Corporation of a greater number of shares of
Common Stock in a pro rata exchange for all of its outstanding shares of Common
<PAGE>
Stock, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller number of
shares or upon any issuance by the Corporation of a lesser number of shares of
Common Stock in a pro rata exchange for all of its outstanding shares of Common
Stock, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
(v) If the purchase price provided for in
any right or option referred to in paragraph (1) of Subsection 4(e)(ii), or
the rate at which any Convertible Securities referred to in paragraphs (1) or
(2) of said Subsection 4(e)(ii) are convertible into or exchangeable for Common
Stock, shall change or a different purchase price or rate shall become effective
at any time or from time to time (other than under or by reason of provisions
designed to protect against dilution), then, upon such change becoming
effective, the Conversion Price then in effect hereunder shall forthwith be
increased or decreased to such Conversion Price as would have obtained had the
adjustments made upon the granting or issuance of such rights or options or
Convertible Securities been made upon the basis of (1) the issuance of the
number of shares of Common Stock theretofore actually delivered upon the
exercise of such options or rights or upon the conversion or exchange of such
Convertible Securities, and the total consideration received therefor, and (2)
the granting or issuance at the time of such change of any such options, rights,
or Convertible Securities then still outstanding for the consideration, if any,
received by the Corporation therefor and to be received on the basis of such
changed price. On the expiration of any right or option referred to in paragraph
(1) of Subsection 4(e)(ii), or on the termination of any right to convert or
exchange any Convertible Securities referred to in paragraphs (1) or (2) of said
Subsection 4(e)(ii), the Conversion Price shall forthwith be readjusted to such
amount as would have obtained had the adjustment made upon the granting or
issuance of such rights or options or Convertible Securities been made upon the
basis of the issuance or sale of only the number of shares of Common Stock
actually issued upon the exercise of such options or rights or upon the
conversion or exchange of such Convertible Securities. If the purchase price
provided for in any such right or option, or the rate at which any such
Convertible Securities are convertible into or exchangeable for Common Stock,
shall change at any time under or by reason of provisions with respect thereto
designed to protect against dilution, then in case of the delivery of Common
Stock upon the exercise of any such right or option or upon conversion or
exchange of any such Convertible Security, the Conversion Price then in effect
hereunder shall forthwith be decreased to such Conversion Price as would have
obtained had the adjustments made upon the issuance of such right or option or
Convertible Security been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(vi) For so long as shares of Series A Preferred
Stock are issued and outstanding, the Corporation may not consolidate or
merge with or into (whether or not the Corporation is the surviving entity),
another person, unless (i) the Corporation is the surviving entity, or the
person formed by or surviving any such consolidation or merger (if other than
the Corporation) is a corporation organized or existing under the laws of the
United States, any state thereof or the District of Columbia; and (ii) the
Series A Preferred Stock shall be converted or exchanged for and shall become
shares of such successor, transferee or resulting person, having in respect of
such successor, transferee or successor person the same powers, preferences, and
relative participating, optional or other special rights and the qualifications,
limitations or restrictions thereon, that the Series A Preferred Stock had
immediately prior to such transaction.
(vii) The following events shall not effect an
adjustment to the Conversion Price
pursuant to this Section 4(e):
(1) The issuance of Common Stock by the
Corporation upon the conversion of the Series A Preferred
Stock or the Series B Preferred Stock;
(2) The issuance of options to acquire
shares of Common Stock not to exceed 10% of the outstanding
shares of Common Stock, on a fully diluted basis, as of the
effective date of this Certificate, from time to time issuable
or issued to employees, consultants or directors of the
Corporation granted or to be granted with the approval of the
Board of Directors of the Corporation and the Common Stock
issuable or issued upon exercise thereof;
(3) The issuance of warrants to acquire
1,500,000 shares of Common Stock to be issued by the
<PAGE>
Corporation in exchange for identical warrants issued by USOL
Holdings, Inc.. a Delaware corporation ("USOL") to former
creditors of U.S. Online Communications, Inc. in connection
with the sale of assets to USOL and the issuance by the
Corporation of Common Stock issuable or issued upon exercise
thereof;
(4) The issuance of 3,175,000 shares of
Common Stock by the Corporation in exchange for 3,175,000
shares of USOL common stock in connection with the merger
between the Corporation and USOL;
(5) The issuance of warrants to acquire
325,000 shares of Common Stock to be issued by the Corporation
in exchange for identical warrants to be issued by USOL to
GMAC Commercial Mortgage Corporation in connection with the
sale of assets to USOL, and the issuance by the Corporation of
Common Stock issuable or issued upon exercise thereof; and
(6) The issuance of warrants to acquire
259,000 shares of Common Stock to be issued to Amstar Capital
Group or its Affiliates in connection with a financial
advisory arrangement, and the issuance by the Corporation of
Common Stock issuable or issued upon exercise thereof.
(viii) "Fair Value" of the Common Stock as of a
particular date shall mean the average of the daily closing prices for the
preceding twenty trading days before the day in question. The closing price for
each day shall be the last reported sale price or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, in either case on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, the average of the closing bid
and asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. If no price can be determined by the foregoing
method, "Fair Value" shall mean the fair value thereof as determined by mutual
agreement reached by the Corporation and the holders of a majority of the shares
of Series A Preferred Stock and Series B Preferred Stock (the "Majority of the
Holders") or, in the event the parties are unable to agree, an opinion of an
independent investment banking firm or firms in accordance with the following
procedure. In the case of any event which gives rise to a requirement to
determine "Fair Value" hereunder, the Corporation shall be responsible for
initiating the process by which Fair Value shall be determined as promptly as
practicable, but in any event within twenty (20) days following such event and
if the procedures contemplated herein in connection with determining Fair Value
have not been complied with fully, then any such determination of Fair Value for
any purpose hereunder shall be deemed to be preliminary and subject to
adjustment pending full compliance with such procedures. Upon the occurrence of
an event requiring the determination of Fair Value, the Corporation shall give
the holders of Series A Preferred Stock and Series B Preferred Stock notice of
such event, and the Corporation and the holders of Series A Preferred Stock and
Series B Preferred Stock shall engage in direct good faith discussions to arrive
at a mutually agreeable determination of Fair Value. In the event the
Corporation and the Majority of the Holders are unable to arrive at a mutually
agreeable determination within thirty (30) days of the notice, an independent
investment banking firm of national standing selected by the Corporation shall
make such determination and render such opinion. The determination so made shall
be conclusive and binding on the Corporation and the holders of Series A
Preferred Stock and Series B Preferred Stock. The fees and expenses of the
investment banking firm retained for such purpose shall be shared equally by the
Corporation and the holders of Series A Preferred Stock and Series B Preferred
Stock.
(ix) If at any time or from time to time conditions
arise by reason of action taken by the Corporation which are not adequately
covered by the provisions of Subsection 4(e), and which might materially and
adversely affect the exercise rights of the Holders of Series A Preferred Stock
and Series B Preferred Stock, upon the request of at least a Majority of the
Holders, the Corporation shall appoint a firm of independent public accountants
of recognized national standing (which may be the regular auditors of the
Corporation), which shall give their opinion upon the adjustment, if any, of the
number of shares issuable upon the conversion of the Series A Preferred Stock
and Series B Preferred Stock, on a basis consistent with the standards
established in the other provisions of Subsection 4(e), necessary in order to
preserve without diminution the rights of the Holders of the Series A Preferred
Stock and Series B Preferred Stock. Upon receipt of such opinion, the Board of
Directors shall forthwith make the adjustments, if any, described therein.
<PAGE>
(f) Covenant to Reserve Shares of Common Stock for
Conversion.
(i) The Corporation covenants that it will
reserve and keep available out of its authorized Common Stock and/or shares
of its Common Stock then owned or held by or for the account of the Corporation,
solely for the purpose of delivery upon conversion of the Series A Preferred
Stock as herein provided, such number of shares of Common Stock as shall then be
deliverable upon the conversion of the Series A Preferred Stock. All shares of
Common Stock which shall be so deliverable shall be duly and validly issued and
fully paid and nonassessable.
(ii) Before taking any action which would cause an
adjustment reducing the Conversion Price at any time in effect below the
then par value of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock, the Corporation shall take any corporate action which
may be necessary in order that the Corporation may validly and legally issue
fully paid and nonassessable shares of such Common Stock at such Conversion
Price as so adjusted.
(g) Compliance with Governmental Requirements. If any shares
of Common Stock required to be reserved for purposes of conversion of the Series
A Preferred Stock hereunder require registration with or approval of any
governmental authority under any federal or state law, or listing upon any
national securities exchange, before such shares may be issued upon conversion,
the Corporation will in good faith and as expeditiously as possible endeavor to
cause such shares to be duly registered, approved or listed, as the case may be.
(h) Notice of Change of Conversion Price of Common Stock.
Whenever the Conversion Price is adjusted, as herein provided, the Corporation
shall promptly deliver to each Holder a certificate of a firm of independent
public accountants of national standing (who may be the accountants regularly
employed by the Corporation) selected by the Board of Directors of the
Corporation setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(i) Notice of Taking of Certain Actions. In case:
(i) the Corporation shall declare a dividend
(or any other distribution) on its Common Stock payable otherwise than out of
its earned surplus; or
(ii) the Corporation shall authorize the granting
to holders of Common Stock of rights to subscribe for or purchase any
shares of capital stock of any class or of any other rights; or
(iii) of any capital reorganization or
reclassification of the capital stock of the Corporation or of any
consolidation or merger of the Corporation with another corporation, or of the
sale of all or substantially all of its assets to another corporation which is
to be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or other assets with respect to or in exchange for
Common Stock; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
(v) of any other action requiring adjustment to
the Conversion Price; then the Corporation shall promptly cause to be
mailed to each Holder at its last address as set forth on the stock transfer
records of the Corporation, at least 14 days prior to the applicable record date
hereinafter specified, a notice stating (1) the date on which a record is to be
taken for the purpose of such dividend or distribution of rights, or, if a
record is not to be taken, the date as of which the holders of Common Stock of
record would be entitled to such dividend or distribution of rights, or (2) the
date on which such capital reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up is expected to become
effective, and the date as of which it is expected that the holders of Common
Stock of record shall be entitled to exchange their shares of Common Stock for
securities or other assets deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up.
<PAGE>
The Corporation shall not convert or directly or indirectly redeem,
purchase or otherwise acquire any shares of Common Stock or any other class of
capital stock of the Corporation or take any other action affecting the voting
rights of such shares, if such action will increase the percentage of any class
of outstanding voting securities owned or controlled by any Regulated
Stockholder (other than any such stockholder which requested that the
Corporation take such action), or which otherwise waives in writing its rights
under this Section 4(i)), unless the Corporation gives written notice (the
"Deferral Notice") of such action to each Regulated Stockholder. The Corporation
will defer making any such conversion, redemption, purchase or other
acquisition, or taking any such other action for a period of twenty (20) days
(the "Deferral Period") after giving the Deferral Notice in order to allow each
Regulated Stockholder to determine whether it wishes to convert or take any
other action with respect to the Common Stock it owns, controls or has the power
to vote, and if any such Regulated Stockholder then elects to convert any shares
of Common Stock, it shall notify the Corporation in writing within ten (10) days
of the issuance of the Deferral Notice, in which case the Corporation shall (i)
promptly notify from time to time prior to the end of such 20-day period each
other Regulated Stockholder holding shares of each proposed conversion, and (ii)
effect the conversions requested by all Regulated Stockholders in response to
the notice issued pursuant to this Section 4(i) at the end of the Deferral
Period. Upon complying with the procedures hereinabove set forth in this Section
4(i), the Corporation may so convert or directly or indirectly redeem, purchase
or otherwise acquire any shares of Common Stock or any other class of capital
stock of the Corporation or take any other action affecting the voting rights of
such shares.
The Corporation shall not redeem, purchase, acquire or take any other
action affecting outstanding shares of Series A Preferred Stock if, after giving
effect to such redemption, purchase, acquisition or other action, a Regulated
Stockholder would own more than 4.9% of any class of voting securities of the
Corporation (other than any class of voting securities which is (or is made
prior to any such redemption, purchase, acquisition or other action))
convertible into a class of non-voting securities which are otherwise identical
to the voting securities and convertible into such voting securities on terms
reasonably acceptable to such Regulated Stockholder) or more than 24.9% of the
total equity of the Corporation or more than 24.9% of the total value of all
capital stock of the Corporation (in each case determined by assuming such
Regulated Holder (but no other holder) has exercised, converted or exchanged all
of its options, warrants and other convertible or exchangeable securities),
unless the Corporation gives the Deferral Notice set forth in the immediately
preceding paragraph.
(j) Mechanics of Conversion.
(i) Optional Conversion. In order to convert
Series A Preferred Stock into full shares of Common Stock, a Holder shall
deliver, no later than 11:00 a.m., Pacific Standard Time on the business day
next preceding the Conversion Date, to the office of the Corporation's
designated transfer agent for the Series A Preferred Stock (the "Transfer
Agent") (1) a fully executed notice of conversion ("Notice of Conversion"), and
(2) the original certificate or certificates evidencing the Series A Preferred
Stock being converted (a "Certificate"), duly endorsed.
(ii) Automatic Conversion. Upon the satisfaction
of the conditions set forth in Section 4(a) above, the Corporation shall,
by notice to the Holders of Series A Preferred Stock (the "Automatic Conversion
Notice"), require such Holders to convert all shares of Series A Preferred Stock
into fully paid and nonassessable shares of Common Stock at the applicable
Conversion Price. Such notice shall be delivered by first class mail, postage
prepaid, shall be given to the holders of record of the Series A Preferred Stock
to be converted, addressed to such holders at their last addresses as shown on
the Corporation's stock transfer ledger. Such notice of conversion shall specify
the date fixed for conversion; the then effective Conversion Price; that
accumulated but unpaid dividends to the date fixed for conversion will be paid,
at the Corporation's election in cash or in a number of shares of Common Stock
equal to the dividend amount divided by the Conversion Price on the date fixed
for conversion (which shall be within thirty (30) days of the notice); and that
on and after the Conversion Date, dividends will cease to accumulate on such
shares. Tender of shares of Series A Preferred Stock by Holder shall be required
for conversion. Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not a Holder of the
Series A Preferred Stock receives such notice; and failure so to give such
notice or any defect in such notice, shall not affect the validity of the
proceedings for the conversion.
(iii) Conversion Date. The Conversion Date shall
be deemed to be (a) for an optional conversion, the date the Notice of
<PAGE>
Conversion and the original Certificates representing the Series A Preferred
Stock to be converted are surrendered to the Transfer Agent or (b) for an
automatic conversion, the date specified by the Corporation in the Automatic
Conversion Notice delivered to the Holder.
(iv) Issuance of Common Stock within Three (3)
Business Days. Upon receipt of the original Certificates representing the
Series A Preferred Stock to be converted, the Corporation shall use its
reasonable best efforts to cause the Transfer Agent to issue the appropriate
number of shares of Common Stock, and to send Certificates representing such
shares, postage prepaid, to each Holder at each such Holder's address as it
appears on the stock record books of the transfer agent, no later than three (3)
business days thereafter.
(v) Lost or Stolen Certificates. Within three
(3) business days after receipt by the Corporation of evidence of the loss,
theft, destruction or mutilation of a certificate or certificates representing
the Series A Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Corporation and the
Transfer Agent, and upon surrender and cancellation of the Series A Preferred
Stock certificate or certificates, if mutilated, the Corporation shall use its
reasonable best efforts to cause the execution and delivery of new Series A
Preferred Stock of like tenor and date. The Corporation shall not be required to
deliver new Series A Preferred Stock if the request for replacement is made
contemporaneously with the conversion or redemption of such Series A Preferred
Stock.
5. RIGHTS ON LIQUIDATION.
(a) Upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the Holders of the shares of the Series A
Preferred Stock and the Series B Preferred Stock, which shall be pari passu with
respect to rights on liquidation, shall be entitled to receive out of the assets
of the Corporation available for distribution to stockholders under applicable
law, before any payment or distribution of assets shall be made on the Common
Stock or on any other class or series of stock of the Corporation ranking junior
to the Series A Preferred Stock and Series B Preferred Stock upon liquidation,
the amount of $25.00 per share (taking into account any stock split or reverse
stock split or any other adjustments to the number of shares of Common Stock
into which the Series A Preferred Stock and the Series B Preferred Stock is
convertible) (the "Liquidation Preference"), plus a sum equal to all dividends
accrued (including any compound dividends) on such shares and unpaid to the date
fixed for such liquidation, dissolution or winding up.
(b) After the payment in cash to the Holders of the shares of
the Series A Preferred Stock and the Series B Preferred Stock of the full
preferential amounts for the shares of the Series A Preferred Stock and Series B
Preferred Stock, as set forth in paragraph (a) of this Section 5, the Holders of
the Series A Preferred Stock and Series B Preferred Stock shall have no further
right or claim to any of the remaining assets of the Corporation.
(c) In the event the assets of the Corporation available for
distribution to the Holders of shares of the Series A Preferred Stock and Series
B Preferred Stock upon any voluntary or involuntary liquidation, dissolution or
winding up of the Corporation shall be insufficient to pay in full all amounts
to which such holders are entitled pursuant to paragraph (a) of this Section 5,
no distribution shall be made on account of any shares of any other series of
preferred stock or any other class of stock of the Corporation ranking on a
parity with the shares of the Series A Preferred Stock and Series B Preferred
Stock upon such liquidation, dissolution or winding up unless proportionate
amounts shall be paid on account of the shares of the Series A Preferred Stock
and Series B Preferred Stock, ratably, in proportion to the full amounts to
which holders of all such shares which are on a parity with the shares of the
Series A Preferred Stock and the Series B Preferred Stock are respectively
entitled upon such dissolution, liquidation or winding up.
(d) A merger or consolidation of the Corporation into or with
any other corporation or association (in the event that the Corporation is not
the surviving entity or the holders of shares of Common Stock prior to the
transaction do not hold a majority of the outstanding equity interests of the
surviving entity immediately after the transaction) or the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property and assets of the
Corporation shall be deemed to be a liquidation or winding up of the Corporation
for the purposes of this Section 5. In such event, the holders of the Series A
Preferred Stock and Series B Preferred Stock shall be entitled to receive,
before any payment or distribution of assets shall be made on the Common Stock
or on any other class or series ranking junior to the Series A Preferred Stock
and Series B Preferred Stock, an amount equal to the greater of (i) the amount
<PAGE>
payable pursuant to Section 5(a) or (ii) the amount such holders would have
received if they had converted their shares of Series A Preferred Stock and
Series B Preferred Stock into Common Stock immediately prior to such liquidation
or winding up (without giving effect to the liquidation preference of or any
distributions on any other equity interests ranking prior to the Common Stock).
6. OPTIONAL REDEMPTION. Commencing on the earlier to occur of (x) the
tenth anniversary of the Reference Date and (y) the date on which fewer than 25%
of the aggregate of the shares of Series A Preferred Stock and Series B
Preferred Stock issued on the date of issuance remain outstanding, and at all
times thereafter, the Corporation may, at its option, redeem all (but not less
than all) outstanding shares of Series A Preferred Stock and Series B Preferred
Stock on a date specified by the Corporation (the "Optional Redemption Date") by
paying the greater of Fair Value or the Liquidation Preference plus a sum equal
to all dividends accrued on such shares and unpaid to the Optional Redemption
Date (the "Redemption Price") in cash out of funds legally available for such
purpose.
(a) Notice and Redemption Procedures. Notice of the redemption
of shares of Series A Preferred Stock pursuant to this Section 6 (a "Notice of
Redemption") shall be sent to the Holders of record of the shares of Series A
Preferred Stock to be redeemed by first class mail, postage prepaid, at each
such Holder's address as it appears on the stock record books of the Corporation
not more than 120 nor fewer than 90 days prior to the Optional Redemption Date,
which date shall be set forth in such notice (the "Redemption Date"); provided
that failure to give such Notice of Redemption to any Holder, or any defect in
such Notice of Redemption to any Holder shall not affect the validity of the
proceedings for the redemption of any shares of Series A Preferred Stock held by
any other Holder. In order to facilitate the redemption of shares of Series A
Preferred Stock, the Board of Directors may fix a record date for the
determination of the holders of shares of Series A Preferred Stock to be
redeemed not more than 30 days prior to the date the Notice of Redemption is
mailed. On or after the Optional Redemption Date, each Holder of the shares
called for redemption shall surrender the certificate evidencing such shares to
the Corporation at the place designated in such notice and shall thereupon be
entitled to receive payment of the Redemption Price for such shares. From and
after the Optional Redemption Date, all dividends on shares of Series A
Preferred Stock shall cease to accumulate and all rights of the Holders thereof
as Holders of Series A Preferred Stock shall cease and terminate, except to the
extent the Corporation shall default in payment thereof on the Optional
Redemption Date.
(b) Deposit of Funds. The Corporation shall, on or prior to
the Optional Redemption Date, deposit with its transfer agent or other
redemption agent in the State of Texas having a capital and surplus of at least
$500,000,000 selected by the Board of Directors, as a trust fund for the benefit
of the holders of the shares of Series A Preferred Stock to be redeemed, cash
that is sufficient in amount to redeem the shares to be redeemed in accordance
with the Notice of Redemption, with irrevocable instructions and authority to
such transfer agent or other redemption agent to pay to the respective holders
of such shares, as evidenced by a list of such holders certified by an officer
of the Corporation, the Redemption Price upon surrender of their respective
share certificates. Such deposit shall be deemed to constitute full payment of
the Redemption Price for such shares to the holders, and from and after the date
of such deposit, all rights of the holders of the shares of Series A Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. In case holders of
any shares of Series A Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.
7. NOTICE. Any notice required to be given to the holders of Series A
Preferred Stock or any securities issued upon conversion thereof shall be in
writing and shall be deemed to have been given upon the earlier of personal
delivery or three days after deposit in the United States mails by registered or
<PAGE>
certified mail, return receipt requested, with postage fully prepaid, and
addressed to each holder of record at his or its address as it appears on the
stock transfer records of the Corporation. Any notice to the Corporation shall
be in writing and shall be deemed to have been given upon the earlier of
personal delivery or three days after deposit in the United States mails by
registered or certified mail, return receipt requested, with postage fully
prepaid, to the Corporation at 10300 Metric Boulevard, Austin, Texas 78758 or
such other address as to which the Corporation shall have given notice to each
Holder in accordance with the provisions of this Section 7.
8. LEGEND. All certificates representing the Series A Preferred Stock,
all shares of Common Stock issued upon conversion thereof and any and all
securities issued in replacement thereof or in exchange therefor shall bear such
legends as shall be required by law or contract.
9. RANK. The Series A Preferred Stock shall rank pari passu with the
Series B Preferred Stock and shall rank senior to all of the Corporation's
Common Stock, par value $0.001 per share (the "Common Stock"), and all other
classes and series of preferred or other capital stock of the Corporation
hereafter issued by the Corporation as to dividends and as to distributions of
assets upon the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
10. PROTECTIVE PROVISIONS.
(a) So long as shares of Series A Preferred Stock are
outstanding, the Corporation may not waive or amend any term of this Certificate
of Designations, including but not limited to Section 4(e)(vi), without first
obtaining the approval (by vote or written consent) of a Majority of the Holders
then outstanding.
(b) So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without the consent of the holders of a
two-thirds of the shares the Series A Preferred Stock then-outstanding:
(i) issue any class or series of preferred or
other capital stock senior to or on parity with the Series A Preferred
Stock as to payment of dividends or senior to or on a parity with the Series A
Preferred Stock as to payments on liquidation, dissolution or winding up of the
Corporation;
(ii) amend its Articles of Incorporation or bylaws in
any manner which would impair or reduce the rights of a Holder of the Series A
Preferred Stock; or
(iii) permit a liquidation, dissolution, or winding
up of the Corporation to occur.
(c) Notwithstanding any other provision hereof to the
contrary, so long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without the consent of the Series A Preferred Stock
holder so affected, amend its Articles of Incorporation or bylaws to impair or
reduce the economic rights of the holders of Series A Preferred Stock, including
reducing the Conversion Price or dividend rate.
(d) Notwithstanding any other provision hereof to the
contrary, so long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without the consent of the holder of the Series A
Preferred Stock so affected, amend its Articles of Incorporation or bylaws to,
or otherwise take any action to, treat one holder of Series A Preferred Stock
differently from another holder of Series A Preferred Stock.
<PAGE>
NOTICE OF CONVERSION
(To be executed by the Registered Holder
in order to convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert shares of Series A
Preferred Stock, represented by stock certificate No(s). `(the "Preferred Stock
Certificates") into shares of common stock ("Common Stock") of USOL Holdings,
Inc. (f/k/a FirstLink Communications, Inc.)(the "Corporation") according to the
conditions of the Certificate of Designations of Series A Preferred Stock, as of
the date written below. If shares are to be issued in the name of a person other
than 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.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the shares of Series A Preferred Stock represented by the Series A
Preferred Stock Certificates shall be made pursuant to and subject to an
effective registration statement covering the Common Stock under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
Conversion Calculations:
___________________________
Date of Conversion
___________________________
Applicable Conversion Price
___________________________
Signature
___________________________
Name
Address:
___________________________
___________________________
No shares of Common Stock will be issued until the original Preferred Stock
Certificate(s) to be converted and the Notice of Conversion are received by the
Corporation or the Corporation's transfer agent (the "Transfer Agent") as
required by the Certificate of Designations of the Series A Preferred Stock. The
Series A Preferred Stock to be converted shall be deemed to cease to be
outstanding as of the Conversion Date (irrespective as to when the underlying
Common Stock is delivered).
Exhibit 4.3
CERTIFICATE OF DESIGNATIONS,
PREFERENCES, LIMITATIONS AND RELATIVE RIGHTS
OF SERIES B CONVERTIBLE PREFERRED STOCK
OF
USOL HOLDINGS, INC.
(F/K/A FIRSTLINK COMMUNICATIONS, INC.)
1. DESIGNATION. This resolution shall provide for a single series of
convertible preferred stock, the designation of which shall be the Series B
Convertible Preferred Stock (hereinafter the "Series B Preferred Stock") and the
number of authorized shares constituting the Series B Preferred Stock is
300,000. The stated value of each share of Series B Preferred Stock is
twenty-five dollars ($25.00). The number of authorized shares of Series B
Preferred Stock may be reduced or increased by a further resolution duly adopted
by the Board of Directors of the Corporation and by the filing of an amendment
to the Corporation's Articles of Incorporation pursuant to the provisions of the
Oregon Business Corporation Act stating that such reduction or increase has been
so authorized.
2. VOTING. Except as required by law, the shares of the Series B
Preferred Stock shall not have any voting powers, either general or special,
except as provided in this Section 2:
(a) Except as set forth herein or as otherwise required by
law, each outstanding share of Series B Preferred Stock shall not be entitled to
vote on any matter on which the stockholders of the Corporation shall be
entitled to vote, and shares of Series B Preferred Stock shall not be included
in determining the number of shares voting or entitled to vote on any such
matters; provided that the holders of Series B Preferred Stock shall have the
right to vote as a separate class on any merger or consolidation of the
Corporation with or into another entity or entities, or any recapitalization or
reorganization, in which shares of Series B Preferred Stock would receive or be
exchanged for consideration different on a per share basis from consideration
received with respect to or in exchange for the shares of Common Stock or would
otherwise be treated differently from shares of Common Stock in connection with
such transaction, except that shares of Series B Preferred Stock may, without
such a separate class vote, receive or be exchanged for non-voting securities
which are otherwise identical on a per share basis in amount and form to the
voting securities received with respect to or exchanged for the Common Stock so
long as (i) such non-voting securities are convertible into such voting
securities on the same terms as the Series B Preferred Stock is convertible into
Common Stock and (ii) all other consideration is equal on a per share basis.
Notwithstanding the foregoing, holders of the shares of the Series B Preferred
Stock shall be entitled to vote as a separate class on any amendment to this
Section 2(a) and any amendment, repeal or modification of any provision of this
Articles of Incorporation that adversely affects the powers, preferences or
special rights of holders of the Series B Preferred Stock.
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, after payment or provision for
payment of the debts and other liabilities of the Corporation, the holders of
shares of Series A Convertible Preferred Stock (the "Series A Preferred Stock,
and, together with the Series B Preferred Stock, the "Preferred Stock") and
Series B Preferred Stock shall be entitled to share ratably, share and share
alike, in the remaining net assets of the Corporation.
(b) Subject to Section 10 herein, the Board of Directors
without the vote of the holders of shares of the Series B Preferred Stock may
authorize and issue additional shares of Common Stock and preferred stock
ranking junior as to dividends and upon liquidation to the shares of the Series
B Preferred Stock. No class or series of equity securities of the Corporation
may rank senior to or equal in right with the Series B Preferred Stock as to
dividends or upon liquidation except for the Series A Preferred Stock which
shall be equal in right.
(c) Notwithstanding anything to the contrary in Section 554(3)
of the Oregon Business Corporation Act, the holders of the Series B Preferred
Stock shall be entitled to dissenters' rights pursuant to, and to the fullest
extent permitted by, Section 554(1) of said Oregon Business Corporation Act in
the event of a merger or consolidation in which the Corporation is a constituent
corporation or the sale of substantially all of the assets of the Corporation.
<PAGE>
3. DIVIDENDS.
(a) Rate. Holders of Series B Preferred Stock shall be
entitled to receive, out of any funds of the Corporation legally available for
that purpose, cumulative dividends from the date of issuance at the rate of 12%
per year of the Liquidation Preference (as defined in Section 5(a) below), for
each calendar quarter (pro-rated for partial quarters, based upon a 90 day
quarter of three 30-day months) (each such calendar quarter, a "Dividend
Period") payable in arrears in cash, or, at the option of the Corporation, in
shares of its Common Stock (with cash in lieu of fractional shares) based on the
determination of Fair Value (as defined in Section 4(e)(viii) below) on the last
day of December, March, June and September of each year commencing December 31,
1999 (each such date being hereinafter individually referred to as the "Dividend
Payment Date," and collectively as the "Dividend Payment Dates"); provided, that
no Regulated Stockholder (as defined in Section 4(a)(iv) below) shall be
required to receive any shares of Common Stock pursuant to this Section 3(a) to
the extent that immediately prior to payment of such dividend, or as a result of
such dividend, the number of shares of Common Stock which constitute Restricted
Stock (as defined in Section 4(iv) below) held by all holders thereof would
exceed the number of shares of Common Stock with such Regulated Stockholder
reasonably determines it and its Affiliates (as defined in Section 4(a)(iv)
below) may own, control or have the power or vote under any law, regulation,
rule or other requirement of any governmental authority at the time applicable
to such Regulated Stockholder or its Affiliates and such Regulated Stockholder
shall be entitled to receive cash in lieu of such dividend payable in shares of
Common Stock. Should the Corporation in its discretion determine to pay said
dividends in shares of Common Stock for any Dividend Period, then all such
accrued and unpaid dividends shall be paid in shares of Common Stock at the
first to occur of the next Dividend Payment Date or the time of conversion of
the Series B Preferred Stock, such that upon such Dividend Payment Date or such
conversion of the Series B Preferred Stock by the holder thereof, the
Corporation shall pay all accrued and unpaid dividends owed for such Dividend
Period as of the date of such conversion on all then converted shares. Each such
dividend shall be paid to the holders of record of the Series B Preferred Stock
as they appear on the books of the Corporation on the record date which shall be
not less than 30 days prior to the related Dividend Payment Date. Additional
dividends, at an annual rate of 12%, shall accrue in respect of, and compound
on, any dividends in arrears and may be payable at any time in the discretion of
the Corporation.
(b) Dividends on Common Stock. No dividends (other than those
payable solely in Common Stock) shall be paid with respect to the Common Stock
or any series of preferred stock ranking junior to the Series B Preferred Stock
and the Series A Preferred Stock, which shall be pari passu with the Series B
Preferred Stock with respect to dividends, during any fiscal year of the
Corporation unless all due and unpaid dividends and the annual current dividend
on the shares of Series B Preferred Stock and the Series A Preferred Stock for
the then current and all prior Dividend Periods shall have been declared and
paid in cash. If dividends are paid partly in cash and partly in Common Stock
with respect to the Common Stock or any series of preferred stock ranking junior
to the Series A Preferred Stock and the Series B Preferred Stock, then all due
and unpaid dividends and the annual current dividend on the shares of Series A
Preferred Stock and the Series B Preferred Stock for the then current Dividend
Period and all prior Dividend Periods shall have been declared and paid either
in cash or in the same proportion of cash and Common Stock proposed to be paid
to holders of Common Stock and any series of preferred stock ranking junior to
the Series A Preferred Stock and the Series B Preferred Stock provided, that no
Regulated Stockholder shall be required to receive any shares of Common Stock
pursuant to this Section 3(b) to the extent that immediately prior to payment of
such dividend, or as a result of such dividend, the number of shares of Common
Stock which constitute Restricted Stock held by all holders thereof would exceed
the number of shares of Common Stock with such Regulated Stockholder reasonably
determines it and its Affiliates may own, control or have the power or vote
under any law, regulation, rule or other requirement of any governmental
authority at the time applicable to such Regulated Stockholder or its Affiliates
and such Regulated Stockholder shall be entitled to receive cash in lieu of such
dividend payable in shares of Common Stock. No shares of Common Stock or any
series of preferred stock ranking junior to the Series B Preferred Stock and the
Series A Preferred Stock shall be purchased, redeemed or acquired by the
Corporation, and no funds shall be paid into or set aside or made available for
a sinking fund for the purchase, redemption or acquisition thereof except in
transactions with employees of the Corporation aggregating not more than
$100,000.00 per year.
(c) Limitation on Amount of Dividends. Holders of shares of
the Series B Preferred Stock shall not be entitled to any dividends, whether
payable in cash, property or stock, in excess of full dividends for each
<PAGE>
Dividend Period (including any dividends in arrears as provided herein), as
herein provided, on the Series B Preferred Stock. No interest, or sum of money
in lieu of interest, shall be payable in respect of any Dividend Payment or
Dividend Payments which may be in arrears.
(d) Parity of Dividend Payments. When dividends are not paid
in full upon the Series B Preferred Stock and the shares of any other series of
capital stock ranking on a parity as to dividends with the Series B Preferred
Stock, all dividends declared upon the Series B Preferred Stock and such other
series shall be declared pro rata so that the amount of dividends declared per
share on the Series B Preferred Stock and such other series of capital stock
shall in all cases bear to each other the same ratio that full dividends, for
the then-current and all prior Dividend Periods, per share on the Series B
Preferred Stock and full dividends, including required or permitted
accumulations, if any, on such other series of capital stock, bear to each
other.
4. Conversion.
The holders of the Series B Preferred Stock shall have
conversion rights as follows (the "Conversion Rights"):
(a) Automatic Conversion; Optional Conversion; Conversion
Price.
(i) Automatic Conversion. Beginning July 21,
2001, each share of the Series B Preferred Stock, without any action or
payment of additional consideration on the part of the Holder thereof, on the
earliest of (1) the closing of a firm commitment public offering after such date
pursuant to which the Corporation offers its equity securities for gross
proceeds to the Corporation in an amount equal to or greater than $40,000,000,
(2) the day that the closing sales price of the Common Stock on a national
securities exchange or the Nasdaq Stock Market is equal to or greater than
$10.00 per share for 15 consecutive trading days (taking into account any stock
split or reverse stock split or any other adjustments to the number of shares of
Common Stock outstanding after July 21, 1999, the "Reference Date") or (3) the
seventh anniversary of the Reference Date, provided that the Common Stock is
then trading at more than $2.00 per share, taking into account any stock split
or reverse stock split or any other adjustments to the number of shares of
Common Stock outstanding after the Reference Date, shall convert automatically
as provided in Section 4(j) into fully paid and non-assessable shares of Common
Stock or Series A Preferred Stock (with cash paid in lieu of fractional shares),
having the powers, relative participating rights and the qualifications,
limitations or restrictions of holders of Common Stock or Series A Preferred
Stock, as applicable, as set forth in the Corporation's Articles of
Incorporation and Bylaws, at the Conversion Price (as defined below); provided,
that no Regulated Stockholder shall be required to convert any shares of its
Series B Preferred Stock into Common Stock or Series A Preferred Stock pursuant
to this Section 4(a) to the extent that immediately prior thereto, or as a
result of such conversion, the number of shares of Common Stock or Series A
Preferred Stock which constitute such Restricted Stock held by all holders
thereof would exceed the number of shares of Common Stock or Series A Preferred
Stock which such Regulated Stockholder reasonably determines it and its
Affiliates may own, control or have the power or vote under any law, regulation,
rule or other requirement of any governmental authority at the time applicable
to such Regulated Stockholder or its Affiliates.
(ii) Optional Conversion. At any time, holders
of Series B Preferred Stock may elect to convert, in whole or in part,
their Series B Preferred Stock into fully paid and non-assessable shares of (A)
Common Stock (with cash paid in lieu of fractional shares) at the Conversion
Price by following the procedures set forth in Section 4(j) hereof or (B) Series
A Preferred Stock at a one to one ratio; provided, however, that Series B
Preferred Stock constituting Restricted Stock may not be converted into Common
Stock or Series A Preferred Stock to the extent that immediately prior thereto,
or as a result of such conversion, the number of shares of Common Stock or
Series A Preferred Stock which constitute such Restricted Stock held by all
holders thereof would exceed the number of shares of Common Stock or Series A
Preferred Stock which such Regulated Stockholder reasonably determines it and
its Affiliates may own, control or have the power to vote under any law,
regulation, rule or other requirement of any governmental authority at the time
applicable to such Regulated Stockholder or its Affiliates; and, provided,
further, that each holder of Series B Preferred Stock may convert such shares
into Common Stock or Series A Preferred Stock if such holder reasonably believes
that such converted shares will be transferred within fifteen (15) days or
already have been transferred pursuant to a Conversion Event (defined below) and
such holder agrees not to vote any such shares of Common Stock or Series A
Preferred Stock prior to such Conversion Event and undertakes to promptly
convert such shares back into Series B Preferred Stock if such shares are not
transferred pursuant to a Conversion Event. Each Regulated Stockholder may
<PAGE>
provide for further restrictions upon the conversion of any shares of Restricted
Stock by providing the Corporation with signed, written instructions specifying
such additional restrictions and legending such shares as to the existence of
such restrictions.
(iii) Conversion Price. The "Conversion Price" shall
initially be $2.00 per share. The number of shares of common Stock issuable
upon conversion is the Liquidation Preference divided by the then applicable
Conversion Price, as adjusted from time to time as provided in Section
4(e), multiplied by the number of shares of Series B Preferred Stock converted.
Notwithstanding any provision of this Section 4(a)(iii) to the
contrary, each holder of Series B Preferred Stock shall be entitled to convert
shares of Series B Preferred Stock in connection with any Conversion Event if
such holder reasonably believes that such Conversion Event will be consummated,
and a written request for conversion from any holder of Series B Preferred Stock
to the Corporation stating such holder's reasonable belief that a Conversion
Event shall occur shall be conclusive and shall obligate the Corporation to
effect such conversion in a timely manner so as to enable each such holder to
participate in such Conversion Event. The Corporation will not cancel the shares
of Series B Preferred Stock so converted before the 15th day following such
Conversion Event and will reserve such shares until such 15th day for reissuance
in compliance with the next sentence. If any shares of Series B Preferred Stock
are converted into shares of Common Stock or Series A Preferred Stock in
connection with a Conversion Event and such shares of Common Stock or Series A
Preferred Stock are not actually distributed, disposed of or sold pursuant to
such Conversion Event, such shares of Common Stock or Series A Preferred Stock
shall be promptly converted back into the same number of shares of Series B
Preferred Stock.
(iv) Defined terms. For purposes of this
Certificate of Designations, the following terms shall be defined as set
forth below:
1. "Affiliate" shall mean with respect to
any Person, any other person, directly or indirectly
controlling, controlled by or under common control with such
Person. For the purpose of the above definition, the term
"control" (including with correlative meaning, the terms
"controlling", "controlled by" and "under common control
with"), as used with respect to any Person, shall mean the
possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of such
Person, whether through the ownership of voting securities or
by contract or otherwise.
2. "Conversion Event" shall mean (a) any
public offering or public sale of securities of the
Corporation (including a public offering registered under the
Securities Act of 1933 and a public sale pursuant to Rule 144
of the Securities and Exchange Commission or any similar rule
then in force), (b) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the
Securities Exchange Act of 1934, as amended (the "1934 Act"))
if, prior to such sale, such person or group of persons in the
aggregate would own or control securities which possess in the
aggregate the ordinary voting power to elect a majority of the
Corporation's directors (provided that such sale has been
approved by the Corporation's Board of Directors or a
committee thereof), (c) any sale of securities of the
Corporation to a person or group of persons (within the
meaning of the 1934 Act) if, prior to such sale, such person
or group of persons would not, in the aggregate, own, control
or have the right to acquire more than two percent (2%) of the
outstanding securities of any class of voting securities of
the Corporation, (d) any sale of securities of the Corporation
to a person or group of persons (within the meaning of the
1934 Act) if, after such sale, such person or group of persons
in the aggregate would own or control securities of the
Corporation (excluding any Series B Preferred Stock being
converted and disposed of in connection with such Conversion
Event) which possess in the aggregate the ordinary voting
power to elect a majority of the Corporation's directors, and
(e) a merger, consolidation or similar transaction involving
the Corporation if, after such transaction (but without taking
into account the Restricted Stock converted by the Regulated
Holder), a person or group of persons (within the meaning of
the 1934 Act) in the aggregate would own or control securities
which possess in the aggregate the ordinary voting power to
elect a majority of the surviving corporation's directors
(provided that the transaction has been approved by the
Corporation's Board of Directors or a committee thereof).
<PAGE>
3. "Regulated Stockholder" shall mean any
stockholder (i) that, directly or indirectly, due to its
ownership by an entity subject to Regulation Y of the Board of
Governors of the Federal Reserve System, 12 C.F.R. Part 225
(or any successor to such regulation) ("Regulation Y"), is
itself subject to the provisions of Regulation Y and (ii) that
holds Preferred Stock or Common Stock of the Corporation.
4. "Restricted Stock" means, with respect to
any Regulated Stockholder, any outstanding shares of Common
Stock and/or Series A Preferred Stock and/or Series B
Preferred Stock ever held of record by such Regulated
Stockholder or its Affiliates, excluding treasury shares;
provided, however, that any such shares shall cease to be
Restricted Stock when such shares are transferred in a
transaction which is a Conversion Event or are acquired by the
Corporation or any subsidiary of the Corporation; and
provided, further, that the Corporation shall have no
responsibility for determining whether any outstanding shares
of Common Stock and/or Series B Preferred Stock constitute
Restricted Stock with respect to any particular Regulated
Stockholder, but shall instead be entitled to receive, and
rely exclusively upon, a written notice provided by such
Regulated Stockholder designating such shares as Restricted
Stock.
(b) Issuance of Shares of Common Stock or Other Securities
on Conversion.
(i) Pursuant to Section 4(j) herein, the
Corporation shall issue, at its expense, and shall deliver to such holder of
Series B Preferred Stock ("Holder"), (i) a certificate or certificates for
the number of full shares of Common Stock or Series A Preferred Stock issuable
upon the conversion of the Series B Preferred Stock, and (ii) cash in lieu of
fractional shares as provided in Section 4(d).
(ii) Such conversion shall be deemed to have been
effected immediately prior to the close of business on the Conversion Date
(as defined in Section 4(j)(iii)), and at such time the rights of the Holder
shall cease and the Holder shall be deemed to have become the holder or holders
of record of the shares of Common Stock or Series A Preferred Stock issued upon
conversion.
(c) No Adjustments for Dividends. No payment or adjustment
shall be made by or on behalf of the Corporation on account of any dividends on
the Common Stock issued upon such conversion which were declared for payment to
holders of Common Stock of record as of a date prior to the Conversion Date.
(d) Cash Payment in Lieu of Fractional Shares. No fractional
shares of Common Stock shall be issued upon the conversion of the Series B
Preferred Stock. In lieu of any fraction of a share of Common Stock to which the
Holder would otherwise be entitled upon conversion of the Series B Preferred
Stock, the Corporation shall pay a cash adjustment for such fraction in an
amount equal to the same fraction of the Fair Value per share of Common Stock at
the close of business on the Conversion Date.
(e) Adjustment of Conversion Price of Common Stock.
(i) Except as provided in Section 4(e)(vii),
in case, at any time or from time to time after the Reference Date, the
Corporation shall issue or sell any shares of any class of common stock for a
consideration per share less than the Fair Value (as defined in Section
4(e)(viii) below), then forthwith upon such issue or sale the Conversion Price
in effect immediately prior to such issue or sale shall be reduced to a price
(calculated to the nearest cent) determined by multiplying the Conversion Price
in effect prior to the adjustment by a fraction determined by dividing (A) an
amount equal to the sum of (1) the number of shares of Common Stock outstanding
immediately prior to such issue or sale multiplied by the Fair Value per share
of Common Stock immediately prior to such issue or sale, and (2) the
consideration, if any, received by the Corporation upon such issue or sale, by
(B) the total number of shares of Common Stock outstanding immediately after
such issue or sale multiplied by the Fair Value per share of Common Stock
immediately prior to such issue or sale. No adjustment of the Conversion Price,
however, shall be made in an amount less than one cent per share, but any lesser
adjustment shall be carried forward and shall be made at the time of and
together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to two cents per share or more.
<PAGE>
(ii) For the purposes of Subsection 4(e)(i)above,
the following paragraphs (1) to (6), inclusive, shall also be applicable:
(1) In case at any time the Corporation
shall grant any rights to subscribe for, or any rights or
options or warrants to purchase, Common Stock or any stock or
other securities convertible into or exchangeable for Common
Stock (such convertible or exchangeable stock or securities
being herein called "Convertible Securities"), whether or not
such rights or options or the right to convert or exchange any
such Convertible Securities are immediately exercisable, and
the price per share for which Common Stock is issuable upon
the exercise of such rights or options or upon conversion or
exchange of such Convertible Securities (determined by
dividing (A) the total amount, if any, received or receivable
by the Corporation as consideration for the granting of such
rights or options or warrants, plus the maximum aggregate
amount of additional consideration payable to the Corporation
upon the exercise of such rights or options, plus, in the case
of any such rights or options or warrants which relate to such
Convertible Securities, the maximum aggregate amount of
additional consideration, if any, payable upon the issue or
sale of such Convertible Securities and upon the conversion or
exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the exercise of such rights or
options or upon the conversion or exchange of all such
Convertible Securities issuable upon the exercise of such
rights or options) shall be less than the Fair Value in effect
immediately prior to the time of the granting of such rights
or options or warrants, then the total maximum number of
shares of Common Stock issuable upon the exercise of such
rights or options or upon conversion or exchange of the total
maximum amount of such Convertible Securities issuable upon
the exercise of such rights or options shall (as of the date
of granting of such rights or options) be deemed to be
outstanding and to have been issued for such price per share
and the current Conversion Price shall be adjusted as provided
in Subsection 4(e)(i) above. Except as provided in Subsection
4(e)(v), no further adjustments of the Conversion Price shall
be made upon the actual issue of such Common Stock or of such
Convertible Securities upon exercise of such rights or options
or upon the actual issue of such Common Stock upon conversion
or exchange of such Convertible Securities. Notwithstanding
the foregoing, if at any time on or after the Reference Date
the Corporation shall grant, issue or sell any options or
rights to purchase stock, warrants, securities or other
property pro rata to the holders of Common Stock of all
classes ("Purchase Rights"), then each Holder shall be
entitled (but not obligated) to acquire, in lieu of any other
adjustment provided for in this Subsection 4(e) and upon the
terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Holder could have acquired if it
had held the number of shares of Common Stock issuable upon
conversion of the Series B Preferred Stock immediately prior
to the time or times at which the Corporation granted, issued
or sold such Purchase Rights.
(2) In case at any time the Corporation
shall issue or sell any Convertible Securities, whether or not
the rights to exchange or convert thereunder are immediately
exercisable, and the price per share for which Common Stock is
issuable upon such conversion or exchange (determined by
dividing (A) the total amount received or receivable by the
Corporation as consideration for the issue or sale of such
Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation
upon the conversion or exchange thereof, by (B) the total
maximum number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities)
shall be less than the Fair Value immediately prior to the
time of such issue or sale, then the total maximum number of
shares of Common Stock issuable upon conversion or exchange of
all such Convertible Securities shall (as of the date of the
issue or sale of such Convertible Securities) be deemed to be
outstanding and to have been issued for such price per share
and the Conversion Price shall be adjusted as provided in
Subsection 4(e)(i) above, provided that (x) except as provided
in Subsection 4(e)(v), no further adjustments of the
Conversion Price shall be made upon the actual issue of such
Common Stock upon conversion or exchange of such Convertible
Securities, and (y) if any such issue or sale of such
Convertible Securities is made upon exercise of any rights to
subscribe for or to purchase or any option to purchase any
such Convertible Securities for which adjustments of the
Conversion Price have been or are to be made pursuant to other
<PAGE>
provisions of Subsection 4(e)(ii), no further adjustment of
the Conversion Price shall be made by reason of such issue or
sale.
(3) With respect to any dividend or other
distribution upon any stock of the Corporation payable in
Common Stock or Convertible Securities, any Common Stock or
Convertible Securities, as the case may be, issuable in
payment of such dividend or distribution shall be deemed to
have been issued or sold without consideration and the
Conversion Price shall be adjusted as provided in Subsection
4(e)(i) above.
(4) In case at any time any shares of Common
Stock or Convertible Securities or any rights or options to
purchase any such Common Stock or Convertible Securities shall
be issued or sold for cash, the consideration received
therefor shall be deemed to be the amount received by the
Corporation therefor, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued or sold for a consideration other than cash, the amount
of the consideration other than cash received by the
Corporation shall be deemed to be the fair value of such
consideration as determined by the Board of Directors of the
Corporation in good faith, without deduction therefrom of any
expenses incurred or any underwriting commissions or
concessions or discounts paid or allowed by the Corporation in
connection therewith. In case any shares of Common Stock or
Convertible Securities or any rights or options to purchase
any such Common Stock or Convertible Securities shall be
issued in connection with any merger of another corporation
into the Corporation, the amount of consideration therefor
shall be deemed to be the fair value of the assets of such
merged corporation as determined by the Board of Directors of
the Corporation in good faith after deducting therefrom all
cash and other consideration (if any) paid by the Corporation
in connection with such merger.
(5) In case at any time the Corporation
shall take a record of the holders of Common Stock for the
purpose of entitling them (A) to receive a dividend or other
distribution payable in Common Stock or in Convertible
Securities, or (B) to subscribe for or purchase Common Stock
or Convertible Securities, then such record date shall be
deemed to be the date of the issue or sale of the shares of
Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other
distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(6) The number of shares of Common Stock
outstanding at any given time shall not include shares owned
or held by or for the account of the Corporation or any of its
subsidiaries, but the disposition of any such shares shall be
considered an issue or sale of Common Stock for the purposes
of Subsection 4(e).
(iii) In the event that the Corporation shall make
any distribution of its assets upon or with respect to its Common Stock, as
a liquidating or partial liquidating dividend, or other than as a dividend
payable out of current earnings or any surplus legally available for dividends
under the laws of the state of incorporation of the Corporation, the Holder
shall, if the Conversion Date is after the record date for such distribution or,
in the absence of a record date, after the date of such distribution, receive,
in addition to the shares subscribed for, the amount of such assets (or, at the
option of the Corporation, a sum equal to the fair value thereof at the time of
distribution as determined by the Board of Directors of the Corporation in good
faith) which would have been distributed to such Holder if the Conversion Date
had occurred immediately prior to the record date for such distribution or, in
the absence of a record date, immediately prior to the date of such
distribution.
(iv) In case at any time the Corporation shall
subdivide its outstanding shares of Common Stock into a greater number of
shares or upon any issuance by the Corporation of a greater number of shares of
Common Stock in a pro rata exchange for all of its outstanding shares of Common
<PAGE>
Stock, the Conversion Price in effect immediately prior to such subdivision
shall be proportionately reduced and conversely, in case the outstanding shares
of Common Stock of the Corporation shall be combined into a smaller number of
shares or upon any issuance by the Corporation of a lesser number of shares of
Common Stock in a pro rata exchange for all of its outstanding shares of Common
Stock, the Conversion Price in effect immediately prior to such combination
shall be proportionately increased.
(v) If the purchase price provided for in any
right or option referred to in paragraph (1) of Subsection 4(e)(ii), or the
rate at which any Convertible Securities referred to in paragraphs (1) or (2) of
said Subsection 4(e)(ii) are convertible into or exchangeable for Common Stock,
shall change or a different purchase price or rate shall become effective at any
time or from time to time (other than under or by reason of provisions designed
to protect against dilution), then, upon such change becoming effective, the
Conversion Price then in effect hereunder shall forthwith be increased or
decreased to such Conversion Price as would have obtained had the adjustments
made upon the granting or issuance of such rights or options or Convertible
Securities been made upon the basis of (1) the issuance of the number of shares
of Common Stock theretofore actually delivered upon the exercise of such options
or rights or upon the conversion or exchange of such Convertible Securities, and
the total consideration received therefor, and (2) the granting or issuance at
the time of such change of any such options, rights, or Convertible Securities
then still outstanding for the consideration, if any, received by the
Corporation therefor and to be received on the basis of such changed price. On
the expiration of any right or option referred to in paragraph (1) of Subsection
4(e)(ii), or on the termination of any right to convert or exchange any
Convertible Securities referred to in paragraphs (1) or (2) of said Subsection
4(e)(ii), the Conversion Price shall forthwith be readjusted to such amount as
would have obtained had the adjustment made upon the granting or issuance of
such rights or options or Convertible Securities been made upon the basis of the
issuance or sale of only the number of shares of Common Stock actually issued
upon the exercise of such options or rights or upon the conversion or exchange
of such Convertible Securities. If the purchase price provided for in any such
right or option, or the rate at which any such Convertible Securities are
convertible into or exchangeable for Common Stock, shall change at any time
under or by reason of provisions with respect thereto designed to protect
against dilution, then in case of the delivery of Common Stock upon the exercise
of any such right or option or upon conversion or exchange of any such
Convertible Security, the Conversion Price then in effect hereunder shall
forthwith be decreased to such Conversion Price as would have obtained had the
adjustments made upon the issuance of such right or option or Convertible
Security been made upon the basis of the issuance of (and the total
consideration received for) the shares of Common Stock delivered as aforesaid.
(vi) For so long as shares of Series B Preferred
Stock are issued and outstanding, the Corporation may not consolidate or
merge with or into another person, unless (i) the Corporation is the surviving
entity, or the person formed by or surviving any such consolidation or merger
(if other than the Corporation) is a corporation organized or existing under the
laws of the United States, any state thereof or the District of Columbia; and
(ii) the Series B Preferred Stock shall be converted or exchanged for and shall
become shares of such successor, transferee or resulting person having in
respect of such successor, transferee or successor person the same powers,
preferences, and relative participating, optional or other special rights and
the qualifications, limitations or restrictions thereon, that the Series B
Preferred Stock had immediately prior to such transaction.
(vii) The following events shall not effect an
adjustment to the Conversion Price
pursuant to this Section 4(e):
(1) The issuance of Common Stock by the
Corporation upon the conversion of the Series B Preferred
Stock or the Series A Preferred Stock;
(2) The issuance of options to acquire
shares of Common Stock not to exceed 10% of the outstanding
shares of Common Stock, on a fully diluted basis, as of the
effective date of this Certificate, from time to time issuable
or issued to employees, consultants or directors of the
Corporation granted or to be granted with the approval of the
Board of Directors of the Corporation and the Common Stock
issuable or issued upon exercise thereof;
(3) The issuance of warrants to acquire
1,500,000 shares of Common Stock to be issued by the
Corporation in exchange for identical warrants issued by USOL
Holdings, Inc., a Delaware corporation ("USOL") to former
creditors of U.S. Online Communications, Inc. in connection
with the sale of assets to USOL and the issuance by the
Corporation of Common Stock issuable or issued upon exercise
thereof;
<PAGE>
(4) The issuance of 3,175,000 shares of USOL
Common Stock in connection with the merger between USOL and
the Corporation;
(5) The issuance of warrants to acquire
325,000 shares of Common Stock to be issued by the Corporation
in exchange for identical warrants issued by USOL to GMAC
Commercial Mortgage Corporation in connection with the sale of
assets to USOL and the issuance by the Corporation of Common
Stock issuable or issued upon exercise thereof; and
(6) The issuance of warrants to acquire
259,000 shares of Common Stock to be issued to Amstar Capital
Group or its affiliates, in connection with any financial
advisory arrangements and the issuance by the Corporation of
Common Stock issuable or issued upon exercise thereof.
(viii) "Fair Value" of the Common Stock as of a
particular date shall mean the average of the daily closing prices for the
preceding twenty trading days before the day in question. The closing price for
each day shall be the last reported sale price or, in case no such reported sale
takes place on such day, the average of the reported closing bid and asked
prices, in either case on the principal national securities exchange on which
the Common Stock is listed or admitted to trading or, if not listed or admitted
to trading on any national securities exchange, the average of the closing bid
and asked prices as reported by the National Association of Securities Dealers
Automated Quotation System. If no price can be determined by the foregoing
method, "Fair Value" shall mean the fair value thereof as determined by mutual
agreement reached by the Corporation and the holders of a majority of the shares
of Series B Preferred Stock and Series A Preferred Stock (the "Majority of the
Holders") or, in the event the parties are unable to agree, an opinion of an
independent investment banking firm or firms in accordance with the following
procedure. In the case of any event which gives rise to a requirement to
determine "Fair Value" hereunder, the Corporation shall be responsible for
initiating the process by which Fair Value shall be determined as promptly as
practicable, but in any event within twenty (20) days following such event and
if the procedures contemplated herein in connection with determining Fair Value
have not been complied with fully, then any such determination of Fair Value for
any purpose hereunder shall be deemed to be preliminary and subject to
adjustment pending full compliance with such procedures. Upon the occurrence of
an event requiring the determination of Fair Value, the Corporation shall give
the holders of Series B Preferred Stock and Series A Preferred Stock notice of
such event, and the Corporation and the holders of Series B Preferred Stock and
Series A Preferred Stock shall engage in direct good faith discussions to arrive
at a mutually agreeable determination of Fair Value. In the event the
Corporation and the Majority of the Holders are unable to arrive at a mutually
agreeable determination within thirty (30) days of the notice, an independent
investment banking firm of national standing selected by the Corporation shall
make such determination and render such opinion. The determination so made shall
be conclusive and binding on the Corporation and the holders of Series B
Preferred Stock and Series A Preferred Stock. The fees and expenses of the
investment banking firm retained for such purpose shall be shared equally by the
Corporation and the holders of Series B Preferred Stock and Series A Preferred
Stock.
(ix) If at any time or from time to time conditions
arise by reason of action taken by the Corporation which are not adequately
covered by the provisions of Subsection 4(e), and which might materially and
adversely affect the exercise rights of the Holders of Series B Preferred Stock
and Series A Preferred Stock, upon the request of at least a Majority of the
Holders, the Corporation shall appoint a firm of independent public accountants
of recognized national standing (which may be the regular auditors of the
Corporation), which shall give their opinion upon the adjustment, if any, of the
number of shares issuable upon the conversion of the Series B Preferred Stock
and Series A Preferred Stock, on a basis consistent with the standards
established in the other provisions of Subsection 4(e), necessary in order to
preserve without diminution the rights of the Holders of the Series B Preferred
Stock and Series A Preferred Stock. Upon receipt of such opinion, the Board of
Directors shall forthwith make the adjustments, if any, described therein.
<PAGE>
(f) Covenant to Reserve Shares of Common Stock and Series
A Preferred Stock for Conversion.
(i) The Corporation covenants that it will
reserve and keep available out of its authorized Common Stock and Series A
Preferred Stock and/or shares of its Common Stock and Series A Preferred Stock
then owned or held by or for the account of the Corporation, solely for the
purpose of delivery upon conversion of the Series B Preferred Stock as herein
provided, such number of shares of Common Stock or Series A Preferred Stock as
shall then be deliverable upon the conversion of the Series B Preferred Stock.
All shares of Common Stock and Series A Preferred Stock which shall be so
deliverable shall be duly and validly issued and fully paid and nonassessable.
(ii) Before taking any action which would cause
an adjustment reducing the Conversion Price at any time in effect below the
then par value of the shares of Common Stock issuable upon conversion of the
Series B Preferred Stock, the Corporation shall take any corporate action which
may be necessary in order that the Corporation may validly and legally issue
fully paid and nonassessable shares of such Common Stock at such Conversion
Price as so adjusted.
(g) Compliance with Governmental Requirements. If any shares
of Common Stock or Series A Preferred Stock required to be reserved for purposes
of conversion of the Series B Preferred Stock hereunder require registration
with or approval of any governmental authority under any federal or state law,
or listing upon any national securities exchange, before such shares may be
issued upon conversion, the Corporation will in good faith and as expeditiously
as possible endeavor to cause such shares to be duly registered, approved or
listed, as the case may be.
(h) Notice of Change of Conversion Price of Common Stock.
Whenever the Conversion Price is adjusted, as herein provided, the Corporation
shall promptly deliver to each Holder a certificate of a firm of independent
public accountants of national standing (who may be the accountants regularly
employed by the Corporation) selected by the Board of Directors of the
Corporation setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment.
(i) Notice of Taking of Certain Actions. In case:
(i) the Corporation shall declare a dividend
(or any other distribution) on its Common Stock payable otherwise than out
of its earned surplus; or
(ii) the Corporation shall authorize the
granting to holders of Common Stock of rights to subscribe for or purchase
any shares of capital stock of any class or of any other rights; or
(iii) of any capital reorganization or
reclassification of the capital stock of the Corporation or of any
consolidation or merger of the Corporation with another corporation, or of the
sale of all or substantially all of its assets to another corporation which is
to be effected in such a way that holders of Common Stock shall be entitled to
receive stock, securities or other assets with respect to or in exchange for
Common Stock; or
(iv) of the voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; or
(v) of any other action requiring adjustment to the
Conversion Price.
then the Corporation shall promptly cause to be mailed to each Holder at its
last address as set forth on the stock transfer records of the Corporation, at
least 14 days prior to the applicable record date hereinafter specified, a
notice stating (1) the date on which a record is to be taken for the purpose of
such dividend or distribution of rights, or, if a record is not to be taken, the
date as of which the holders of Common Stock of record would be entitled to such
dividend or distribution of rights, or (2) the date on which such capital
reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up is expected to become effective, and the date as of
<PAGE>
which it is expected that the holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other assets
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation or winding up.
The Corporation shall not convert or directly or indirectly redeem,
purchase or otherwise acquire any shares of Common Stock or any other class of
capital stock of the Corporation or take any other action affecting the voting
rights of such shares, if such action will increase the percentage of any class
of outstanding voting securities owned or controlled by any Regulated
Stockholder (other than any such stockholder which requested that the
Corporation take such action, or which otherwise waives in writing its rights
under this Section 4(i)), unless the Corporation gives written notice (the
"Deferral Notice") of such action to each Regulated Stockholder. The Corporation
will defer making any such conversion, redemption, purchase or other
acquisition, or taking any such other action for a period of twenty (20) days
(the "Deferral Period") after giving the Deferral Notice in order to allow each
Regulated Stockholder to determine whether it wishes to convert or take any
other action with respect to the Common Stock it owns, controls or has the power
to vote, and if any such Regulated Stockholder then elects to convert any shares
of Common Stock, it shall notify the Corporation in writing within ten (10) days
of the issuance of the Deferral Notice, in which case the Corporation shall (i)
promptly notify from time to time prior to the end of such 20-day period each
other Regulated Stockholder holding shares of each proposed conversion, and (ii)
effect the conversions requested by all Regulated Stockholders in response to
the notice issued pursuant to this Section 4(i) at the end of the Deferral
Period. Upon complying with the procedures hereinabove set forth in this Section
4(i), the Corporation may so convert or directly or indirectly redeem, purchase
or otherwise acquire any shares of Common Stock or any other class of capital
stock of the Corporation or take any other action affecting the voting rights of
such shares.
The Corporation shall not redeem, purchase, acquire or take any other
action affecting outstanding shares of Series B Preferred Stock if, after giving
effect to such redemption, purchase, acquisition or other action, a Regulated
Stockholder would own more than 4.9% of any class of voting securities of the
Corporation (other than any class of voting securities which is (or is made
prior to any such redemption, purchase, acquisition or other action) convertible
into a class of non-voting securities which are otherwise identical to the
voting securities and convertible into such voting securities on terms
reasonably acceptable to such Regulated Stockholder) or more than 24.9% of the
total equity of the Corporation or more than 24.9% of the total value of all
capital stock of the Corporation (in each case determined by assuming such
Regulated Holder (but no other holder) has exercised, converted or exchanged all
of its options, warrants and other convertible or exchangeable securities)
unless the Corporation gives the Deferral Notice set forth in the immediately
preceding paragraph.
(j) Mechanics of Conversion.
(i) Optional Conversion. In order to convert
Series B Preferred Stock into full shares of Common Stock or Series A
Preferred Stock, a Holder shall deliver, no later than 11:00 a.m., Pacific
Standard Time on the business day next preceding the Conversion Date, to the
office of the Corporation's designated transfer agent for the Series B Preferred
Stock (the "Transfer Agent") (1) a fully executed notice of conversion ("Notice
of Conversion"), and (2) the original certificate or certificates evidencing the
Series B Preferred Stock being converted (a "Certificate"), duly endorsed.
(ii) Automatic Conversion. Upon the satisfaction
of the conditions set forth in Section 4(a) above, the Corporation shall,
by notice to the Holders of Series B Preferred Stock (the "Automatic Conversion
Notice"), require such Holders to convert all shares of Series B Preferred Stock
into fully paid and nonassessable shares of Common Stock at the applicable
Conversion Price. Such notice shall be delivered by first class mail, postage
prepaid, shall be given to the holders of record of the Series B Preferred Stock
to be converted, addressed to such holders at their last addresses as shown on
the Corporation's stock transfer ledger. Such notice of conversion shall specify
the date fixed for conversion; the then effective Conversion Price; that
accumulated but unpaid dividends to the date fixed for conversion will be paid,
at the Corporation's election in cash or in a number of shares of Common Stock
equal to the dividend amount divided by the Conversion Price on the date fixed
for conversion (which shall be within thirty (30) days of the notice); and that
on and after the Conversion Date, dividends will cease to accumulate on such
shares. Tender of shares of Series B Preferred Stock by Holder shall be required
for conversion. Any notice which is mailed as herein provided shall be
conclusively presumed to have been duly given, whether or not a Holder of the
Series B Preferred Stock receives such notice; and failure so to give such
notice or any defect in such notice, shall not affect the validity of the
proceedings for the conversion.
<PAGE>
(iii) Conversion Date. The Conversion Date
shall be deemed to be (a) for an optional conversion, the date the Notice
of Conversion and the original Certificates representing the Series B Preferred
Stock to be converted are surrendered to the Transfer Agent or (b) for an
automatic conversion, the date specified by the Corporation in the Automatic
Conversion Notice delivered to the Holder.
(iv) Issuance of Common Stock within Three (3)
Business Days. Upon receipt of the original Certificates representing the
Series B Preferred Stock to be converted, the Corporation shall use its
reasonable best efforts to cause the Transfer Agent to issue the appropriate
number of shares of Common Stock or Series A Preferred Stock, and to send
Certificates representing such shares, postage prepaid, to each Holder at each
such Holder's address as it appears on the stock record books of the transfer
agent, no later than three (3) business days thereafter.
(v) Lost or Stolen Certificates. Within three
(3) business days after receipt by the Corporation of evidence of the loss,
theft, destruction or mutilation of a certificate or certificates representing
the Series B Preferred Stock, and (in the case of loss, theft or destruction) of
indemnity or security reasonably satisfactory to the Corporation and the
Transfer Agent, and upon surrender and cancellation of the Series B Preferred
Stock certificate or certificates, if mutilated, the Corporation shall use its
reasonable best efforts to cause the execution and delivery of new Series B
Preferred Stock of like tenor and date. The Corporation shall not be required to
deliver new Series B Preferred Stock if the request for replacement is made
contemporaneously with the conversion or redemption of such Series B Preferred
Stock.
5. RIGHTS ON LIQUIDATION.
(a) Upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, the Holders of the shares of the Series B
Preferred Stock and the Series A Preferred Stock, which shall be pari passu with
respect to rights on liquidation, shall be entitled to receive out of the assets
of the Corporation available for distribution to stockholders under applicable
law, before any payment or distribution of assets shall be made on the Common
Stock or on any other class or series of stock of the Corporation ranking junior
to the Series B Preferred Stock upon liquidation, the amount of $25.00 per share
(taking into account any stock split or reverse stock split or any other
adjustments to the number of shares of Common Stock into which the Series B
Preferred Stock and the Series A Preferred Stock is convertible) (the
"Liquidation Preference"), plus a sum equal to all dividends accrued (including
any compound dividends) on such shares and unpaid to the date fixed for such
liquidation, dissolution or winding up.
(b) After the payment in cash to the Holders of the shares of
the Series B Preferred Stock and the Series A Preferred Stock of the full
preferential amounts for the shares of the Series B Preferred Stock and the
Series A Preferred Stock, as set forth in paragraph (a) of this Section 5, the
Holders of the Series B Preferred Stock and the Series A Preferred Stock shall
have no further right or claim to any of the remaining assets of the
Corporation.
(c) In the event the assets of the Corporation available for
distribution to the Holders of shares of the Series B Preferred Stock and the
Series A Preferred Stock upon any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation shall be insufficient to pay in
full all amounts to which such holders are entitled pursuant to paragraph (a) of
this Section 5, no distribution shall be made on account of any shares of any
other series of preferred stock or any other class of stock of the Corporation
ranking on a parity with the shares of the Series B Preferred Stock and the
Series A Preferred Stock upon such liquidation, dissolution or winding up unless
proportionate amounts shall be paid on account of the shares of the Series B
Preferred Stock and the Series A Preferred Stock, ratably, in proportion to the
full amounts to which holders of all such shares which are on a parity with the
shares of the Series B Preferred Stock and the Series A Preferred Stock are
respectively entitled upon such dissolution, liquidation or winding up.
(d) A merger or consolidation of the Corporation into or with
any other corporation or association (in the event that the Corporation is not
the surviving entity or the holders of shares of Common Stock prior to the
transaction do not hold a majority of the outstanding equity interests of the
<PAGE>
surviving entity immediately after the transaction) or the sale, conveyance,
exchange or transfer (for cash, shares of stock, securities or other
consideration) of all or substantially all the property and assets of the
Corporation shall be deemed to be a liquidation or winding up of the Corporation
for the purposes of this Section 5. In such event, the holders of the Series B
Preferred Stock and the Series A Preferred Stock shall be entitled to receive,
before any payment or distribution of assets shall be made on the Common Stock
or on any other class or series ranking junior to the Series B Preferred Stock
and the Series A Preferred Stock, an amount equal to the greater of (i) the
amount payable pursuant to Section 5(a) or (ii) the amount such holders would
have received if they had converted their shares of Series B Preferred Stock and
Series A Preferred Stock into Common Stock immediately prior to such liquidation
or winding up (without giving effect to the liquidation preference of or any
distributions on any other equity interests ranking prior to the Common Stock).
6. OPTIONAL REDEMPTION.
Commencing on the earlier to occur of (x) the tenth
anniversary of the Reference Date and (y) the date on which fewer than 25% of
the aggregate of the shares of Series B Preferred Stock and the Series A
Preferred Stock issued on the date of issuance remain outstanding, and at all
times thereafter, the Corporation may, at its option, redeem all (but not less
than all) outstanding shares of Series B Preferred Stock and the Series A
Preferred Stock on a date specified by the Corporation (the "Optional Redemption
Date") by paying the greater of Fair Value or the Liquidation Preference plus a
sum equal to all dividends accrued on such shares and unpaid to the Optional
Redemption Date (the "Redemption Price") in cash out of funds legally available
for such purpose.
(a) Notice and Redemption Procedures.
Notice of the redemption of shares of Series B
Preferred Stock pursuant to this Section 6 (a "Notice of Redemption") shall
be sent to the Holders of record of the shares of Series B Preferred Stock to be
redeemed by first class mail, postage prepaid, at each such Holder's address as
it appears on the stock record books of the Corporation not more than 120 nor
fewer than 90 days prior to the Optional Redemption Date, which date shall be
set forth in such notice (the "Redemption Date"); provided that failure to give
such Notice of Redemption to any Holder, or any defect in such Notice of
Redemption to any Holder shall not affect the validity of the proceedings for
the redemption of any shares of Series B Preferred Stock held by any other
Holder. In order to facilitate the redemption of shares of Series B Preferred
Stock, the Board of Directors may fix a record date for the determination of the
holders of shares of Series B Preferred Stock to be redeemed not more than 30
days prior to the date the Notice of Redemption is mailed. On or after the
Optional Redemption Date, each Holder of the shares called for redemption shall
surrender the certificate evidencing such shares to the Corporation at the place
designated in such notice and shall thereupon be entitled to receive payment of
the Redemption Price for such shares. From and after the Optional Redemption
Date, all dividends on shares of Series B Preferred Stock shall cease to
accumulate and all rights of the Holders thereof as Holders of Series B
Preferred Stock shall cease and terminate, except to the extent the Corporation
shall default in payment thereof on the Optional Redemption Date.
(b) Deposit of Funds.
The Corporation shall, on or prior to the Optional
Redemption Date, deposit with its transfer agent or other redemption agent
in the State of Texas having a capital and surplus of at least $500,000,000
selected by the Board of Directors, as a trust fund for the benefit of the
holders of the shares of Series B Preferred Stock to be redeemed, cash that is
sufficient in amount to redeem the shares to be redeemed in accordance with the
Notice of Redemption, with irrevocable instructions and authority to such
transfer agent or other redemption agent to pay to the respective holders of
such shares, as evidenced by a list of such holders certified by an officer of
the Corporation, the Redemption Price upon surrender of their respective share
certificates. Such deposit shall be deemed to constitute full payment of the
Redemption Price for such shares to the holders, and from and after the date of
such deposit, all rights of the holders of the shares of Series B Preferred
Stock that are to be redeemed as stockholders of the Corporation with respect to
such shares, except the right to receive the Redemption Price upon the surrender
of their respective certificates, shall cease and terminate. In case holders of
any shares of Series B Preferred Stock called for redemption shall not, within
two years after such deposit, claim the cash deposited for redemption thereof,
such transfer agent or other redemption agent shall, upon demand, pay over to
the Corporation the balance so deposited. Thereupon, such transfer agent or
<PAGE>
other redemption agent shall be relieved of all responsibility to the holders
thereof and the sole right of such holders, with respect to shares to be
redeemed, shall be to receive the Redemption Price as general creditors of the
Corporation. Any interest accrued on any funds so deposited shall belong to the
Corporation, and shall be paid to it from time to time on demand.
7. NOTICE.
Any notice required to be given to the holders of Series B
Preferred Stock or any securities issued upon conversion thereof shall be in
writing and shall be deemed to have been given upon the earlier of personal
delivery or three days after deposit in the United States mails by registered or
certified mail, return receipt requested, with postage fully prepaid, and
addressed to each holder of record at his or its address as it appears on the
stock transfer records of the Corporation. Any notice to the Corporation shall
be in writing and shall be deemed to have been given upon the earlier of
personal delivery or three days after deposit in the United States mails by
registered or certified mail, return receipt requested, with postage fully
prepaid, to the Corporation at 10300 Metric Boulevard, Austin, Texas 78758 or
such other address as to which the Corporation shall have given notice to each
Holder in accordance with the provisions of this Section 7.
8. LEGEND.
All certificates representing the Series B Preferred Stock,
all shares of Series A Preferred Stock or Common Stock issued upon conversion of
shares of Series B Preferred Stock, and any and all securities issued in
replacement thereof or in exchange therefor shall bear such legends as shall be
required by law or contract.
9. RANK.
The Series B Preferred Stock shall rank pari passu with the
Series A Preferred Stock and shall rank senior to all of the Corporation's
Common Stock, par value $0.001 per share (the "Common Stock"), and all other
classes and series of preferred or other capital stock of the Corporation
hereafter issued by the Corporation as to dividends and as to distributions of
assets upon the liquidation, dissolution or winding up of the Corporation,
whether voluntary or involuntary.
10. PROTECTIVE PROVISIONS.
(a) So long as shares of Series B Preferred Stock are
outstanding, the Corporation may not waive or amend any term of this Certificate
of Designations, including but not limited to Section 4(e)(vi), without first
obtaining the approval (by vote or written consent) of a majority of the holders
of the then-outstanding Series A Preferred Stock and the then-outstanding Series
B Preferred Stock, voting as a single class.
(b) So long as shares of Series B Preferred Stock are
outstanding, the Corporation shall not, without the consent of the holders of
two-thirds of the shares of then-outstanding Series A Preferred Stock and
then-outstanding Series B Preferred Stock:
(i) issue any class or series of preferred or
other capital stock senior to or on parity with the Series B Preferred
Stock as to payment of dividends or senior to or on a parity with the Series B
Preferred Stock as to payments on liquidation, dissolution or winding up of the
Corporation;
(ii) amend its Articles of Incorporation or bylaws in
any manner which would impair
or reduce the rights of a Holder of the Series B Preferred Stock; or
(iii) permit a liquidation, dissolution or winding up
of the Corporation to occur.
(c) Notwithstanding any other provision hereof to the
contrary, so long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without the consent of the Series B Preferred Stock
holder so affected, amend its Articles of Incorporation or bylaws to impair or
reduce the economic rights of the holders of Series B Preferred Stock, including
reducing the Conversion Price or dividend rate.
<PAGE>
(d) Notwithstanding any other provision hereof to the
contrary, so long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without the consent of the holder of the Series B
Preferred Stock so affected, amend its Articles of Incorporation or bylaws or
take any action to treat one holder of Series B Preferred Stock differently from
another holder of Series B Preferred Stock.
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock into
Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ___________ shares of
Series B Preferred Stock ("Series B Preferred Stock"), represented by stock
certificate No(s). ____________ (the "Series B Stock Certificates") into shares
of Series A Preferred Stock ("Series A Preferred Stock") of USOL Holdings, Inc.
(f/k/a FirstLink Communications, Inc.) (the "Corporation") according to the
conditions of the Certificate of Designations of Series B Preferred Stock, as of
the date written below. If shares are to be issued in the name of a person other
than 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.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Series A Preferred Stock issuable to the
undersigned upon conversion of the shares of Series B Preferred Stock
represented by the Series B Stock Certificates shall be made pursuant to an
exemption from registration under the Securities A of 1933.
Conversion Calculations:
---------------------------
Date of Conversion
---------------------------
Applicable Conversion Price
---------------------------
Signature
---------------------------
Name
Address:
---------------------------
---------------------------
No shares of Series A Preferred Stock will be issued until the original Series B
Stock Certificate(s) to be converted and the Notice of Conversion are received
by the Corporation or the Corporation's transfer agent (the "Transfer Agent") as
required by the Certificate of Designations of the Series B Preferred Stock. The
Series B Preferred Stock to be converted shall be deemed to cease to be
outstanding as of the Conversion Date (irrespective as to when the underlying
Series A Preferred Stock is delivered).
<PAGE>
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series B Preferred Stock into
Common Stock)
The undersigned hereby irrevocably elects to convert ___________ shares of
Series B Preferred Stock ("Series B Preferred Stock"), represented by stock
certificate No(s). ____________ (the "Preferred Stock Certificates") into shares
of common stock ("Common Stock") of USOL Holdings, Inc. (f/k/a FirstLink
Communications, Inc.) (the "Corporation") according to the conditions of the
Certificate of Designations of Series B Preferred Stock, as of the date written
below. If shares are to be issued in the name of a person other than
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.
The undersigned represents and warrants that all offers and sales by the
undersigned of the shares of Common Stock issuable to the undersigned upon
conversion of the shares of Series B Preferred Stock represented by the
Preferred Stock Certificates shall be made pursuant to and subject to an
effective registration statement covering the Common Stock under the Securities
Act of 1933, as amended (the "Act"), or pursuant to an exemption from
registration under the Act.
Conversion Calculations:
---------------------------
Date of Conversion
---------------------------
Applicable Conversion Price
---------------------------
Signature
---------------------------
Name
Address:
---------------------------
---------------------------
No shares of Common Stock will be issued until the original Preferred Stock
Certificate(s) to be converted and the Notice of Conversion are received by the
Corporation or the Corporation's transfer agent (the "Transfer Agent") as
required by the Certificate of Designations of the Series B Preferred Stock. The
Series B Preferred Stock to be converted shall be deemed to cease to be
outstanding as of the Conversion Date (irrespective as to when the underlying
Common Stock is delivered).
