CERTIFICATE OF DESIGNATIONS
OF
SERIES B 7% CONVERTIBLE PREFERRED STOCK
OF
EDUCATIONAL VIDEO CONFERENCING, INC.
(Pursuant to Section 151 of the General
Corporation Law of the State of Delaware)
EDUCATIONAL VIDEO CONFERENCING, INC., a corporation organized and
existing under the laws of the State of Delaware (the "CORPORATION"), does
hereby certify that, pursuant to authority conferred upon the Board of Directors
of the Corporation (the "BOARD") by Article FOURTH of the Certificate of
Incorporation of the Corporation as amended (the "CERTIFICATE OF INCORPORATION")
and Section 151 of the Delaware General Corporation Law, the Board has duly
adopted the following resolutions, which are still in full force and effect and
are not in conflict with any provisions of the Certificate of Incorporation or
the Corporation's By-Laws.
RESOLVED, that the Board hereby fixes and determines the designation
of, the number of shares constituting, and the rights, preferences, privileges,
and restrictions relating to, a series of Preferred Stock, as follows:
1. DEFINITIONS.
Whenever used in this Certificate of Designations, the terms defined in
this Section 1 have the following respective meanings:
"ADDITIONAL SECURITIES" is defined in Section 18(b)
"AUTOMATIC CONVERSION DATE" is defined in Section 8(a).
"BINDING COURT" is defined in Section 19(a).
"BOARD" means the Board of Directors of the Corporation.
"BUSINESS DAY" means a day other than Saturday, Sunday, or any day on
which banks located in the State of New York are authorized or obligated to
close.
"CERTIFICATE OF INCORPORATION" means the Certificate of Incorporation
of the Corporation as amended prior to or following the filing in Delaware of
this Certificate of Designations.
"CHANGE OF CONTROL" means the issuance by the Corporation, following
the Closing Date, of its securities for cash and/or indebtedness, for a price
below the Conversion Price,
<PAGE>
under circumstances that would require the Corporation to report such issuance
in a proxy or information statement distributed by the Corporation pursuant to
Section 14 of the Exchange ACA in response to Item 6(e) of Schedule 14A
promulgated under the Exchange Act or otherwise adopted.
"CLOSING DATE" means the date this Certificate of Designations is filed
Delaware.
"COMMON STOCK" means shares of common stock, par value $.0001 per
share, of the Corporation.
"CONVERSION DATE" means an Optional Conversion Date or the Automatic
Conversion Date, as applicable.
"CONVERSION NOTICE" is defined in Section 7(b).
"CONVERSION PRICE" means on any Conversion Date (i) prior to the first
anniversary of the Closing Date, the Initial Conversion Price and (ii) on and
after the first anniversary of the Closing Date and prior to the third
anniversary of the Closing Date, the Reset Conversion Price, in each case,
subject to adjustments, if any, pursuant to Section 11.
"CORPORATION" means Educational Video Conferencing, Inc., a Delaware
corporation.
"CURRENT MARKET PRICE" means the 10-day average closing bid prices as
reported on NASDAQ for the period of 10 consecutive Trading Days ending on the
date of determination; PROVIDED, HOWEVER, if the Common Stock is not listed or
admitted to trading on NASDAQ, as reported on the principal national security
exchange or quotation system on which the Common Stock is quoted or listed or
admitted to trading, or if not, quoted or listed or admitted to trading on any
national securities exchange or quotation system, the closing bid price of such
security on the over-the-counter market on the day in question as reported by
Bloomberg LP, or a similar generally accepted reporting service, as the case may
be; or, if not listed or admitted for trading on any national securities
exchange or quoted in the over-the-counter market, the Fair Value on such date.
"DIVIDEND PAYMENT DUE DATE" means June 30 and December 31 of each year.
"DIVIDEND PERIOD" means the semi-annual period commencing on and
including the Issue Date or, if a dividend has previously been paid, the day
after the immediately preceding Dividend Payment Due Date and ending on and
including the immediately subsequent Dividend Payment Due Date.
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"EXCLUDED SHARES" means:
(a) (i) shares of Common Stock issuable upon the exercise of the
Warrants and other warrants of the Corporation that are outstanding on the
Closing Date and (ii) such number of additional shares as may become issuable
upon the exercise of the Warrants and such other
2
<PAGE>
warrants by reason of adjustments required pursuant to the anti-dilution
provisions applicable to such Warrants and other warrants as in effect on the
Closing Date;
(b) (i) shares of Common Stock issuable upon the exercise of options or
warrants granted or issued by the Corporation to its employees, officers,
directors, consultants and advisors, up to a maximum number of such shares
issuable at any point in time while shares of Series B Preferred are outstanding
that does not exceed 17.5% of the then issued and outstanding shares of Common
Stock; provided, in each such case, that the exercise price for any such share
shall not be less than 85% of the fair market value, determined in good faith by
the Board of the Common Stock on the date of grant or issuance (the "MINIMUM
PRICE"), and (ii) such additional number of shares as may become issuable
pursuant to the terms of any such options or warrants by reason of adjustments
required pursuant to anti-dilution provisions applicable to such securities in
order to reflect any subdivision or combination of Common Stock, by
reclassification or otherwise, or any dividend on Common Stock payable in Common
Stock and anti-dilution adjustments that do not adjust the exercise price below
the Minimum Price;
(c) shares of Common Stock issuable upon exercise of warrants issued to
equipment lessors, banks or other institutional credit financing sources of the
Corporation in connection with the provision of financing or the rendering of
other services to the Corporation up to a maximum number of shares issuable at
any point in time while shares of Series B Preferred are outstanding that does
not exceed 5% of the then issued and outstanding shares of Common Stock;
provided, in each such case, that the exercise or purchase price for any such
share shall not be less than Minimum Price, and (ii) such additional number of
shares as may become issuable pursuant to the terms of any such options or
warrants by reason of adjustments required pursuant to anti-dilution provisions
applicable to such securities in order to reflect any subdivision or combination
of Common Stock, by reclassification or otherwise, or any dividend on Common
Stock payable in Common Stock and anti-dilution adjustments that do no adjust
the exercise price below the Minimum Price.
"FAIR VALUE" shall mean as determined in good faith jointly by the
Corporation and the Holder; PROVIDED HOWEVER, that if such parties are unable to
reach agreement within a reasonable period of time, the Fair Value shall be
determined in good faith by an independent investment banking firm selected
jointly by the Corporation and the Holder or, if that selection cannot be made
within ten days, by an independent investment banking firm selected by the
American Arbitration Association in accordance with its rules; and PROVIDED
FURTHER that the Corporation shall pay all of the fees and expenses of any third
parties incurred in connection with determining the Fair Value.
"HOLDER" means a Person to whom or which the Series B Preferred Stock
is originally issued, or any Person or Persons to whom the Series B Preferred
Stock is subsequently transferred on the books of the Corporation in accordance
with the provisions hereof.
"HOLDERS' PUT" is defined in Section 14(a).
"INITIAL CONVERSION PRICE" means $13.50.
"INITIAL HOLDERS" is defined in Section 18(b).
3
<PAGE>
"ISSUE DATE" means, as to any share of Series B Preferred Stock, the
date of issuance of such share.
"JUNIOR SECURITIES" means all capital stock of the Corporation other
than Series B Preferred and Parity Preferred.
"MAXIMUM ISSUANCE AMOUNT" is defined in Section 19(b).
"MINIMUM PRICE" is defined in the definition of Excluded Shares.
"NASDAQ" means the NASDAQ SmallCap Market or the NASDAQ National
Market, as applicable.
"OPTIONAL CONVERSION DATE" is defined in section 7(c).
"OTHER SECURITIES" is defined in Section 18(a).
"PARITY PREFERRED" means the shares of any class or series of the
Corporation which, shall, in the event that the stated dividends thereon are not
paid in full, be entitled to share ratably with the Series B Preferred in the
payment of dividends, including accumulations, if any, in accordance with the
sums which would be payable on such shares if all dividends were declared and
paid in full, and/or shall, in the event that the amounts payable thereon on
liquidation are not paid in full, be entitled to share ratably with the Series B
Preferred in any distribution of assets other than by way of dividends in
accordance with the sums which would be payable in such distribution if all sums
payable were discharged in full.
"PERSON" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
"PUT NOTICE" is defined in Section 14(b).
"PUT PRICE" is defined in Section 14(a).
"PUT REDEMPTION DATE" is defined in Section 14(b).
"RESET CONVERSION PRICE" means, on the first anniversary of the Closing
Date, the lower of the Initial Conversion Price and the Current Market price,
but not less than 50% of the Initial Conversion Price.
"SERIES A PREFERRED" means the shares of Series A 7.5% Convertible
Preferred Stock of the Corporation that was created prior to the Closing Date.
"SERIES B PREFERRED" means the Series B 7% Convertible Preferred Stock
created by this Certificate of Designations.
"6TH MONTH ANNIVERSARY" is defined in Section 18(a).
4
<PAGE>
"SECTION 16 DETERMINATION DATE" is defined in Section 19(a).
"SECTION 16 REDEMPTION SHARES" is defined in Section 19(a).
"STATED VALUE" is defined in Section 2.
"TRADING DAY" means any day on which (a) purchases and sales of
securities authorized for quotation on NASDAQ are reported thereon, (b) no event
which results in a material suspension or limitation of trading on the Common
Stock on NASDAQ has occurred and (c) at least one bid for the trading of Common
Stock is reported on NASDAQ. For the purposes of this definition only,
references to NASDAQ mean the applicable over-the-counter market or national
securities exchange referred to in the definition of Current Market Price.
"WARRANTS" means the Common Stock Purchase Warrants issued to the
Holders of Series B Preferred by the Corporation in connection with their
purchase of Series B Preferred shares.
2. DESIGNATION; AMOUNT; STATED VALUE.
From the Corporation's 1,000,000 authorized shares of Preferred Stock,
par value $.0001 per share, 200,000 shares are hereby designated Series B 7%
Convertible Preferred Stock, with the rights, preferences, privileges and
restrictions specified herein. Each share of Series B Preferred shall have a
stated value of $100 (the "STATED VALUE") and all shares of Series B Preferred
shall have an aggregate stated value of $20,000,000.
3. RANK. The Series B Preferred shall rank senior as to dividends,
liquidation and voting rights to all capital stock of theCorporation and,
PARI-PASSU, with Parity Preferred.
4. DIVIDENDS.
(a) The Holders of the Series B Preferred shall be entitled to receive
cash dividends, as and when declared by the Board, out of funds legally
available therefor, at a rate per annum, equal to 7% of the Stated Value.
Dividends shall be payable semi-annually in arrears on June 30 and December 31
of each year, commencing December 31, 2000, subject to Section 4(d). Dividends
shall accrue from the Issue Date and shall be cumulative.
(b) A Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series B Preferred.
(c) So long as any shares of Series B Preferred are outstanding, no
dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon any Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation) for any consideration by the Corporation, directly or
indirectly, nor shall any moneys be paid to or made available for a sinking fund
for the redemption of any shares of any Junior Securities, unless in each case
(i) the full cumulative dividends required to be paid in cash
5
<PAGE>
on all outstanding shares of Series B Preferred shall have been paid or set
apart for payment for all past Dividend Periods and (ii) sufficient funds shall
have been paid or set apart for the payment of the dividend for the current
Dividend Period with respect to the Series B Preferred.
(d) Shares of Series B Preferred that are converted into the Common
Stock or redeemed, as provided herein, shall not accrue dividends following the
date the conversion or redemption is deemed effected and all accrued and unpaid
dividends, as of such date, shall be paid at the time of conversion or
redemption.
5. LIQUIDATION PREFERENCE. In the event of a (i) liquidation, dissolution
or winding-up of the Corporation, whether voluntary or involuntary, or (ii)
merger or consolidation of the Corporation with another entity (where the
Corporation is not the survivor) or (iii) sale or other disposition (which shall
not be deemed to include a mortgage, pledge or other lien or encumbrance) of all
or substantially all of the assets of the Corporation in one or more related
transactions, the Holders of the Series B Preferred shall be entitled to receive
ratably in full, out of lawfully available assets of the Corporation, whether
such assets are stated capital or surplus of any nature, an amount in cash per
outstanding share of Series B Preferred equal to the sum of 100% of the Stated
Value and all dividends (whether or not declared) accrued and unpaid thereon, as
of the date of final distribution to such Holders or the date of consummation of
the event specified in clauses (ii) and (iii) of this Section 5, before any
payment shall be made or any assets distributed to the holders of any Junior
Securities. If the amount available for such payment to the holders of Series B
Preferred shall not be sufficient to pay in full the amounts payable on the
Series B Preferred, the holders of Parity Preferred shall share in the
distribution of the amount available in proportion to the respective
preferential amounts to which each is entitled.
6. VOTING RIGHTS. Except as provided below, the Series B Preferred shall
have no voting rights, except as required by the Delaware General Corporation
Law.
7. OPTIONAL CONVERSION RIGHTS.
(a) At any time prior to the third anniversary of the Issue Date,
shares of Series B Preferred shall be convertible, in whole or in part, at the
option of the Holder, into the number of fully paid and non-assessable shares of
the Common Stock as equals the quotient of the aggregate Stated Value of Series
B Preferred duly surrendered for conversion divided by the Conversion Price.
(b) In order to exercise the conversion rights set forth herein, a
Holder of Series B Preferred shall surrender the certificate(s) representing
such shares, duly endorsed to the Corporation or in blank, at the principal
office of the Corporation or the Corporation's transfer agent for its Common
Stock, or at such other office as the Corporation may designate, and shall give
written notice to the Corporation, that states such Holder elects to convert the
Series B Preferred or a specified portion thereof, and sets forth the name or
names in which the certificate(s) for shares of Common Stock are to be issued
(the "CONVERSION NOTICE"); PROVIDED, HOWEVER, that nothing in this Certificate
of Designations shall be deemed to permit any Holder of Series B Preferred to
designate another person to be the holder of Common Stock issuable upon
conversion of the Series B Preferred if the issuance to such other person would
violate federal
6
<PAGE>
or state securities laws. Within 10 Business Days after receipt of the
Conversion Notice, surrender of the certificate(s) (or if such certificate(s)
cannot be found, an affidavit of loss and indemnity in customary form)
representing the Series B Preferred and payment by the Holder of any applicable
transfer or similar taxes, the Corporation shall issue and deliver (i) a
certificate or certificates for the number of full shares of Common Stock
issuable upon conversion, in the name or names and to the address or addresses
specified in the Conversion Notice, subject to any such restrictions on
transferability and (ii) a check or checks in payment for any fractional shares
pursuant to Section 16 and any accrued and unpaid dividends as of the Optional
Conversion Date. The Corporation shall cancel the certificate(s) for Series B
Preferred upon the surrender thereof and shall execute and deliver a new
certificate for Series B Preferred representing the balance, if any, of the
number of shares evidenced by such certificate(s) not so converted. Each
Conversion Notice shall constitute a contract between the holder of shares of
Series B Preferred and the Corporation whereby the holder of such shares shall
be deemed to subscribe for the amount of Common Stock which such holder shall be
entitled to receive upon such conversion and whereby the Corporation shall be
deemed to agree that the surrender of the certificate(s) therefor and the
payment of any applicable transfer or similar taxes shall constitute full
payment of such subscription for Common Stock to be issued upon such conversion.
(c) A conversion of the Series B Preferred shall be deemed to have been
effected at the close of business on the date on which the Conversion Notice
shall have been received by the Corporation, the certificate or certificates for
Series B Preferred shall have been surrendered as provided above and the
Corporation shall have received payment of any applicable transfer taxes (the
"OPTIONAL CONVERSION DATE"). On the Optional Conversion Date, the Holder thereof
shall cease to be a stockholder with respect to the Series B Preferred then
being converted and all rights whatsoever with respect to such shares shall
terminate (except the rights of the holder to receive shares of Common Stock and
cash in respect of fractional shares and to receive accrued and unpaid
dividends, and the Person(s) in whose name any certificate(s) for Common Stock
are issuable upon such conversion shall be deemed to have become the holder of
record of the shares represented thereby for all purposes.
8. AUTOMATIC CONVERSION.
(a) On the third anniversary of the Issue Date (the "AUTOMATIC
CONVERSION DATE") all Series B Preferred outstanding shall be automatically
converted into the number of fully paid and non-assessable shares of Common
Stock as equals the quotient of the aggregate Stated Value of the outstanding
Series B Preferred divided by the lower of the Reset Conversion Price and the
Current Market Price on the Automatic Conversion Date, but not less than 50% of
the Reset Conversion Price.
(b) At the opening of business on the Automatic Conversion Date, each
Holder of Series B Preferred shall cease to be a stockholder with respect
thereto and all rights whatsoever with respect to such shares shall terminate
(except the rights of the Holder to receive shares of Common Stock and cash in
respect of fractional shares and to receive accrued and unpaid dividends as of
the Automatic Conversion Date) and the Person(s) in whose name any
certificate(s) for Common Stock are issuable upon such conversion shall be
deemed to have become the holder of record of the shares represented thereby for
all purposes. Within five Business Days after receipt by the Corporation of a
Holder's certificate(s) (or if such
7
<PAGE>
certificate(s) cannot be found, an affidavit of loss and indemnity in customary
form) representing the Series B Preferred converted pursuant to this Section 8
and payment by the Holder of any applicable transfer or similar taxes, the
Corporation shall issue and deliver (i) a certificate or certificates for the
number of full shares of Common Stock issuable upon conversion, in the name or
names and to the address or addresses specified by the Holder, subject to
compliance with applicable federal and state securities laws, and (ii) a check
in payment for any fractional shares pursuant to Section 16, and any accrued and
unpaid dividends.
9. STOCK SPLITS AND DIVIDENDS. If after the Issue Date, the Corporation
subdivides the Common Stock, by split-up or otherwise, or combines the Common
Stock, or issues additional shares of Common Stock in payment of a stock
dividend on the Common Stock, the number of shares issuable on the conversion of
the Series B Preferred shall forthwith be proportionately increased in the case
of a subdivision or stock dividend, or proportionately decreased in the case of
a combination, and the Conversion Price shall forthwith be proportionately
decreased in the case of a subdivision or stock dividend or proportionately
increased in the case of a combination.
10. MERGERS AND RECLASSIFICATIONS. If after the Issue Date, there shall be
any reclassification or recapitalization of the Common Stock (other than as a
result of a subdivision, combination or stock dividend provided for in Section
9), or any consolidation of the Corporation with, or merger of the Corporation
into, another corporation or other business organization (other than a
consolidation or merger in which the Corporation is the continuing corporation
and which does not result in any reclassification or recapitalization of the
Common Stock), or any sale or conveyance to another corporation or other
business organization of all or substantially all of the assets of the
Corporation, then, as a condition of such reclassification, recapitalization,
consolidation, merger, sale or conveyance, lawful provisions shall be made, and
duly executed documents evidencing the same from the Corporation or its
successor, in form reasonably satisfactory to the Holders of Series B Preferred,
shall be delivered to each such Holder, so that the Holder shall thereafter have
the right to convert each share of Series B Preferred into the kind and amount
of shares of stock and other securities and property which the Holder would have
been entitled to receive upon conversion of Series B Preferred if such
conversion had occurred immediately prior to such reclassification,
recapitalization, consolidation, merger, sale or conveyance, and in any such
case appropriate provisions shall be made with respect to the rights and
interest of the Holder to the end that the provisions hereof (including without
limitation, provisions for the adjustment of the Conversion Price) shall
thereafter be applicable in relation to any shares of stock or other securities
and property thereafter deliverable upon exercise hereof.
11. ADJUSTMENTS FOR ISSUANCES BELOW THE CONVERSION PRICE.
(a) In case the Corporation shall at any time or from time to time,
after the Issue Date, issue or sell any shares of Common Stock in a transaction
that is exempt from the registration requirements of the Securities Act (other
than issuances of (i) Excluded Shares and (ii) securities in transactions to
which Sections 9 or 10 apply) for a consideration per share less than the
Conversion Price immediately prior to the time of such issue or sale, or pay any
dividend or make any other distribution upon the Common Stock payable in cash,
property or securities of the Corporation other than Common Stock or securities
of a corporation other than the
8
<PAGE>
Corporation, then forthwith upon such issue or sale, or upon the payment of such
dividend or the making of such other distribution, as the case may be, the
Conversion Price shall be reduced to a price (calculated to the nearest cent)
determined by dividing (i) an amount equal to the sum of (x) the number of
shares of Common Stock outstanding immediately prior to such issue or sale or
the payment of such dividend or the making of such other distribution,
multiplied by the Conversion Price in effect immediately prior to such event
plus (y) the consideration, if any, received by the Corporation upon such issue
or sale minus (z) the amount of such dividend or other distribution in respect
of the Common Stock, by (ii) the total number of shares of Common Stock
outstanding immediately after such issue or sale or dividend or other
distribution.
(b) For the purpose of this Section 11, the following provisions shall
also be applicable:
A. In case the Corporation shall in any manner offer any rights to
subscribe for or to purchase shares of Common Stock, or grant any options for
the purchase of shares of Common Stock, at a price less than the Conversion
Price in effect immediately prior to the time of the offering of such rights or
the granting of such options, as the case may be, all shares of Common Stock
which the holders of such rights or options shall be entitled to subscribe for
or purchase pursuant to such rights or options shall be deemed to be issued or
sold as of the date of the offering of such rights or the granting of such
options, as the case may be, and the minimum aggregate consideration named in
such rights or options for the Common Stock covered thereby, plus the
consideration received by the Corporation for such rights or options, shall be
deemed to be the consideration actually received by the Corporation (as of the
date of the offering of such rights or the granting of such options, as the case
may be) for the issue or sale of such shares.
B. In case the Corporation shall in any manner issue or sell any
shares of any class or obligations directly or indirectly convertible into or
exchangeable for shares of Common Stock and the initial price per share for
which Common Stock is deliverable upon such conversion or exchange (determined
by dividing (x) the total minimum amount received or receivable by the
Corporation in consideration of the issue or sale of such convertible or
exchangeable shares or obligations, plus the total minimum amount of premiums,
if any, payable to the Corporation upon conversion or exchange, by (y) the total
number of shares of Common Stock necessary to effect the conversion or exchange
of all such convertible or exchangeable shares or obligations) shall be less
than the Conversion Price immediately prior to the time of such issue or sale,
then such issue or sale shall be deemed to be an issue or sale (as of the date
of issue or sale of such convertible or exchangeable shares or obligations) of
the total maximum number of shares of Common Stock necessary to effect the
conversion or exchange of all such convertible or exchangeable shares or
obligations, and the total minimum amount received or receivable by the
Corporation in consideration of the issue or sale of such convertible or
exchangeable shares or obligations, plus the total minimum amount of premiums,
if any, payable to the Corporation upon exchange or conversion, shall be deemed
to be the consideration actually received (as of the date of the issue or sale
of such convertible or exchangeable shares or obligations) for the issue or sale
of such Common Stock.
C. In the case of any dividend or other distribution on the
Common Stock of the Corporation payable in property, securities of the
Corporation, other than Common
9
<PAGE>
Stock or securities of a corporation other than the Corporation, such dividend
or other distribution shall be deemed to have been paid or made at a value equal
to the fair value of the property or securities so distributed. Any dividend or
distribution referred to in this Subsection C shall be deemed to have been paid
or made as of the day following the date fixed for the determination of
stockholders entitled to receive such dividend or distribution, unless such
dividend or distribution is not ultimately paid or made.
D. In determining the amount of consideration received by the
Corporation for Common Stock, securities convertible thereinto or exchangeable
therefor, or rights or options for the purchase thereof, no deduction shall be
made for expenses or underwriting discounts or commissions paid by the
Corporation. The Board shall determine in good faith the fair value of the
amount of consideration other than money received by the Corporation upon the
issue by it of any of its securities. The Board shall also determine in good
faith the fair value of any dividend or other distribution made upon Common
Stock payable in property, securities of the Corporation other than Common Stock
or securities of a corporation other than the Corporation. The Board shall, in
case any Common Stock, securities convertible thereinto or exchangeable
therefor, or rights or options for the purchase thereof are issued with other
stock, securities or assets of the Corporation, determine in good faith what
part of the consideration received therefor is applicable to the issue of the
Common Stock, securities convertible thereinto or exchangeable therefor, or
rights or options for the purchase thereof. Any such determination by the Board
shall be conclusive.
E. If there shall be any change in (i) the price per share for
which Common Stock is deliverable upon exercise of the rights or options
referred to in Subsection 11(b)A, (ii) the consideration received by the
Corporation for such rights or options, (iii) the price per share for which
Common Stock is deliverable upon the conversion or exchange of the convertible
or exchangeable shares or obligations referred to in Subsection 11(b)B, (iv) the
number of shares which may be subscribed for or purchased pursuant to the rights
or options referred to in Subsection 11(b)B, or (v) the rate at which the
convertible or exchangeable shares or obligations referred to in Subsection
11(b)B are convertible into or exchangeable for Common Stock, then the
Conversion Price in effect at the time of such event shall be readjusted to the
Conversion Price which would have been in effect at such time had such rights,
options, or convertible or exchangeable shares or obligations still outstanding
provided for such changed consideration, price per share, number of shares, or
rate of conversion or exchange, as the case may be, at the time initially
offered, granted, issued or sold, but only if as a result of such adjustment the
Conversion Price then in effect hereunder is thereby reduced.
F. On the expiration of any such right or option referred to in
Subsection 11(b)A, or the termination of any such right to convert or exchange
the convertible or exchangeable shares or obligations referred to in Subsection
11(b)B (or the purchase by the Corporation and the retirement or cancellation of
such right or option or convertible or exchangeable shares or obligations), the
Conversion Price then in effect hereunder shall forthwith be readjusted to such
Conversion Price as would have obtained (i) had the adjustments made upon the
issuance or sale of such rights, options or convertible or exchangeable shares
or obligations been made upon the basis of the issuance of only the number of
shares of Common Stock theretofore actually delivered (and the total
consideration received therefor) upon the
10
<PAGE>
exercise of such rights or options or upon the conversion or exchange of such
convertible or exchangeable shares or obligations and (ii) had adjustments been
made on the basis of the Conversion Price as adjusted under clause (i) for all
transactions (which would have affected such adjusted Conversion Price) made
after the issuance or sale of such rights, options or convertible or
exchangeable shares or obligations.
G. No readjustments of the Conversion Price pursuant to subsections
10(b)E or F shall be applicable to conversion of Series B Preferred effected
prior to the occurrence of the event requiring such readjustment.
12. CERTIFICATE OF ADJUSTMENT. Whenever the Conversion Price is adjusted,
as herein provided, the Corporation shall promptly deliver to the Holder a
certificate of the Corporation's Chief Financial Officer setting forth the
Conversion Price after such adjustment and setting forth a brief statement of
the facts requiring such adjustment. No failure to give such notice nor any
defect therein or in the giving thereof shall affect the validity thereof except
to the extent a Holder shall have suffered actual damages as a result thereof.
The affidavit of an officer of the Corporation that such notice has been given
shall, in the absence of fraud, be prima facie evidence of the facts stated
therein.
13. RESERVATION OF SHARES; PAYMENT OF TAXES.
(a) The Corporation covenants that it will at all times reserve and
keep available out of its authorized Common Stock, solely for the purpose of
issue upon conversion of the Series B Preferred, 150% of such number of shares
of Common Stock as shall then be issuable upon the conversion of all outstanding
Series B Preferred. The Corporation covenants that all shares of Common Stock
which shall be issuable upon conversion of the Series B Preferred shall, at the
time of delivery, be duly and validly issued, fully paid, non-assessable and
free from all taxes, liens and charges with respect to the issue thereof (other
than those which the Corporation shall promptly pay or discharge, subject to
Section 13(b)).
(b) The Corporation shall pay all documentary, stamp or similar taxes
and other governmental charges that may be imposed with respect to the original
issuance (but not the subsequent transfer) of the Series B Preferred, or the
issuance or delivery of any shares of Common Stock upon conversion of the Series
B Preferred; PROVIDED, HOWEVER, if shares of Common Stock are to be delivered in
a name other than the name of the Holder of the certificate representing any
Series B Preferred being converted, then no such delivery shall be made unless
the person requesting the same has paid to the Corporation the amount of
transfer taxes or charges incident thereto, if any.
14. HOLDERS' PUT.
(a) In the event that, while any shares of Series B Preferred are
outstanding, there is a Change of Control, the Holders of shares of Series B
Preferred constituting a majority of the outstanding shares of Series B
Preferred shall have an option that is exercisable only one time (the "HOLDERS'
PUT"), to require the Corporation to redeem, in whole or in part, out of funds
legally available therefor, their shares of Series B Preferred at a price equal
to 105% of the Stated Value (the "PUT PRICE") plus accrued and unpaid dividends
as of the Put Redemption Date.
11
<PAGE>
(b) The Holders' Put may be exercised by giving notice to the
Corporation of the Holders' intent to require the Corporation to redeem a
specified portion of Series B Preferred (the "PUT NOTICE") on the date specified
therein (the "PUT REDEMPTION DATE"). The Put Notice shall be given by Holders of
a majority of the shares of Series B Preferred outstanding within 10 Business
Days after the date the Change of Control is publicly disclosed by the
Corporation and notice of the Change of Control has been given to the Holders of
Series B Preferred by the Corporation; which notice shall be given by the
Corporation by not later than five Business Days after such Change in Control is
publicly disclosed by the Corporation. The Put Redemption Date shall not be more
than 15 Business Days after the Put Notice is given. The number and names and
addresses of the Holders of the shares redeemed shall be as specified in the Put
Notice. The Holders giving the Put Notice shall surrender at the principal
office of the Corporation, not later than 10 Business Days after giving the Put
Notice, the certificate(s) representing not less than the number of shares of
Series B Preferred covered by the Put Notice, duly endorsed to the Corporation
or in blank; or if such certificate(s) cannot be found, an affidavit of loss and
indemnity in customary form.
(c) On the 5th Business Day following the giving of the Put Notice and
the surrender of the certificate(s) representing the Series B Preferred being
redeemed, but not earlier than the Put Redemption Date, the Corporation shall
deliver a check in the amount of the aggregate Put Price, plus accrued but
unpaid dividends, to and in the name of the Holder of the Series B Preferred
being redeemed. The Corporation shall cancel the certificate(s) for Series B
Preferred upon the surrender thereof and shall execute and deliver with its
payment of the Put Price a new certificate for Series B Preferred, representing
the balance, if any, of the number of shares evidenced by such certificate(s)
not so redeemed.
15. STATUS OF REACQUIRED SHARES. The shares of Series B Preferred which
have been issued and reacquired in any manner by the Corporation shall have the
status of authorized and unissued shares of Preferred Stock and may be
reclassified and reissued as a part of a new series of Preferred Stock to be
created by resolution or resolutions of the Board.
16. NO FRACTIONAL SHARES. The Corporation shall not be required to issue
fractional shares of Common Stock upon any conversion of Series B Preferred but
shall pay in lieu thereof an amount in cash equal to the same fraction of the
Current Market Price on the Conversion Date or Automatic Conversion Date, as the
case may be.
17. NOTICES. All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed given when delivered in person
(including by Federal Express or similar service), receipt confirmed, or sent by
telecopier, receipt confirmed, addressed as follows:
if to the Corporation, at the address or telecopier number of its
principal executive offices;
if to the Holder of Series B Preferred, to it at such address or
telecopier number as may have been furnished to the Corporation in writing by
such Holder;
12
<PAGE>
or, in any case, at such other address or telecopier number as shall have been
furnished in writing to the Corporation (in the case of a holder of Series B
Preferred) or to the Holders of Series B Preferred (in the case of the
Corporation) in accordance with the provisions of this Section.
18. PROTECTIVE PROVISIONS. The Corporation shall not, without the vote or
written consent of the holders of two-thirds of the then-outstanding shares of
the Series B Preferred (determined on an as converted basis):
(a) authorize or issue, or obligate itself to issue, or reclassify any
outstanding capital stock of the Corporation into, any other equity security
(including any other equity security exercisable for or convertible into an
equity security) senior to or on parity with the Series B Preferred as to
dividend rights, voting rights or liquidation preferences; PROVIDED, HOWEVER,
until the sixth month anniversary of the Closing Date ("6TH MONTH ANNIVERSARY"),
the Corporation shall have the right to issue, for gross cash proceeds of up to
an amount that equals $10 million minus any gross cash proceeds received by the
Corporation, prior to the 6th Month Anniversary, from the issuance of the
Additional Securities, any other equity securities of the Corporation that are
on a parity with the Series B Preferred as to dividend rights, voting rights and
liquidation preferences (together with any warrants or other securities issued
in connection therewith, the "OTHER SECURITIES"), provided the Corporation has
given each Holder of Series B Preferred, at least five Business Days prior to
issuing any of the Other Securities, notice of such proposed issuance that
includes the name(s) of the proposed purchaser(s), the kind, amount and purchase
price of the Other Securities to be issued and the anticipated date of issuance
thereof, and, further provided, that the Corporation thereafter provides the
Holders of Series B Preferred such other information regarding the issuance of
the Other Securities as any of them shall reasonably require (including, without
limitation, drafts and, by not later than the third Business Day following the
issuance of the Other Securities, final copies of the transaction documents in
connection with the issuance of the Other Securities) and, in addition, until
the 25th Business Day following the closing of the sale of the Other Securities,
also provides each Holder of Series B Preferred the opportunity to exchange all
or a portion of such Holder's shares of Series B Preferred and Warrants that
were originally issued to such Holder by the Corporation for an economically
equivalent portion of the Other Securities (such equivalence to be based solely
on the $10 million of cash proceeds to the Corporation from the sale of all the
Series B Preferred and Warrants and the gross cash proceeds to the Corporation
from the proposed sale of the Other Securities);
(b) issue additional shares of Series B Preferred; PROVIDED, HOWEVER,
until the 6th Month Anniversary, the Corporation shall have the right to issue,
for gross proceeds of up to an amount that equals $10 million minus any gross
proceeds received by the Corporation, prior to the 6th Month Anniversary, from
the issuance of Other Securities, up to an additional 100,000 shares of Series B
Preferred Stock and Warrants (in the form purchased by the Holders of Series B
Preferred which purchased the first 100,000 shares of Series B Preferred (the
"INITIAL HOLDERS")) (such additional shares of Series B Preferred and Warrants
being, collectively, the "ADDITIONAL SECURITIES") on terms and conditions that
are not more favorable than, and substantially similar to, the terms and
conditions of the Series B Preferred and Warrants purchased by the Initial
Holders, provided that, at least five business days prior to such issuance, the
Corporation gives notice thereof to the Initial Holders that specifies the
name(s) of the
13
<PAGE>
proposed purchaser(s); the kind, amount and purchase price of the Additional
Securities to be issued; the Initial Conversion Price of the Series B Preferred
Stock and the initial exercise price of the Warrants, constituting the
Additional Securities; copies of all transaction documents marked to show
changes against the transaction documents entered into by the Initial Holders;
and, in addition, that confirms the compliance of the terms of sale with this
Section 18(b);
(c) increase or decrease (other than by conversion) the total number of
authorized shares of any series of preferred stock or common stock;
(d) effect any sale, lease, assignment, transfer or other conveyance of
all or substantially all of the assets of the Corporation or any of its
subsidiaries in one or more related transactions, or any consolidation or merger
involving the Corporation or any of its subsidiaries or any reclassification,
voluntary liquidation or other change of any stock or recapitalization of the
Company;
(e) declare, redeem or pay any dividend, in cash or in kind, to the
holders of the Common Stock;
(f) incur Indebtedness (as defined below) in excess of $15,000,000;
(g) effect any substantial alteration (including cessation) of the
Company's business;
(h) amend its Certificate of Incorporation (including this Certificate
of Designations) or Bylaws if such amendment would change any of the rights,
preferences or privileges provided for herein for the benefit of the Series B
Preferred (other than to provide for PARI-PASSU rights, powers, privileges and
preferences for Parity Preferred pursuant to Section 18(a));
(i) effect the liquidation or dissolution of the Company;
(j) issue any additional capital stock, other than Excluded Shares, or
any debt security at a discount to the Current Market Price; or
(k) agree to any of the foregoing.
For the purposes of this Section 18, "Indebtedness" shall mean (i) all
indebtedness for borrowed money (exclusive of trade payables); (ii) that portion
of obligations with respect to capital leases that is properly classified as a
liability on a balance sheet in conformity with generally accepted accounting
principles; (iii) notes payable and drafts accepted representing extensions of
credit whether or not representing obligations for borrowed money; (iv) any
obligation owed for all or any part of the deferred purchase price of property
or services if the purchase price is due more than six months from the date the
obligation is incurred or is evidenced by a note or similar written instrument;
(v) obligations under forward contracts, future contracts, swaps, options or
other financing agreements or arrangements the value of which is dependent upon
interest rates, currency exchange rates, commodities or other indices; and (vi)
all regardless of whether the indebtedness
14
<PAGE>
secured thereby shall have been assumed by the Corporation or is non-recourse to
the credit of the Corporation.
19. ADDITIONAL PROTECTIVE PROVISIONS.
(a) Notwithstanding anything herein to the contrary, if and to the
extent that, on any date (the "Section 16 Determination Date"), the holding by a
Holder of shares of the Series B Preferred would result in the Holder's becoming
subject to the provisions of Section 16(b) of the Exchange Act by virtue of
being deemed the "beneficial owner" of more than 10% of the then outstanding
shares of Common Stock, then the Holder shall not have the right, and the
Corporation shall not have the obligation, to convert so many of such Holder's
shares of Series B Preferred (the "SECTION 16 REDEMPTION SHARES") as shall cause
such Holder to be deemed the beneficial owner of more than 10% of the then
outstanding shares of Common Stock during the period ending 60 days after the
Section 16 Determination Date. If a federal district court for the district in
which a Holder is domiciled, or the federal circuit court of the circuit in
which such district is located, or the Supreme Court of the United States (each,
a "BINDING COURT") shall determine that the foregoing limitation is ineffective
to prevent a Holder from being deemed the beneficial owner of more than 9.99% of
the then outstanding shares of Common Stock for the purposes of Section 16(b),
then the Corporation shall, at the option of the Holder exercised by giving
written notice to the Corporation, redeem the Section 16 Redemption Shares
within 20 Business Days from after the giving of such redemption notice. Upon
such redemption, the Section 16 Redemption Shares owned by such Holder shall
immediately and without further action be deemed returned to the status of
authorized but unissued shares of Series B Preferred, and the Holder shall have
no interest in or rights under such Section 16 Redemption Shares. Such
redemption shall be for cash at a redemption price equal to 105% of the Stated
Value of the Section 16 Redemption Shares together with any declared and unpaid
dividends to the date of such redemption.
(b) Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of NASDAQ or
the rules of any other stock market, which is the principal trading market for
the Common Stock, with which rules the Corporation shall be required to comply,
but only to the extent required thereby, the Corporation shall not issue shares
of Common Stock (i) upon conversion of any shares of Series B Preferred or (ii)
as a dividend on the Series B Preferred, if such issuance of Common Stock, when
added to the number of shares of Common Stock previously issued by the
Corporation (x) upon conversion of shares of the Series B Preferred, (y) upon
exercise of the Warrants and (z) in payment of dividends on the Series B
Preferred Stock, would equal or exceed 19.99% of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Issue Date
(the "MAXIMUM ISSUANCE AMOUNT"). In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (a)
converting the number of shares of Series B Preferred stated in the Conversion
Notice which is not in excess of the Maximum Issuance Amount and (b) redeeming
the remaining number of shares of Series B Preferred stated in the Conversion
Notice in cash at a price equal to 120% of the Stated Value thereof, together
with all accrued and unpaid dividends on the total number of shares stated in
the Conversion Notice.
15
<PAGE>
Notwithstanding the foregoing, the Corporation shall use its best efforts to
obtain the approval of its voting stockholders to an issuance of shares of
Series B Preferred in excess of the Maximum Issuance Amount and shall notify the
holders of the Series B Preferred Stock in writing upon obtaining such approval.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by its duly authorized officer on September 22, 2000.
EDUCATIONAL VIDEO CONFERENCING, INC.
By:/s/Dr. Arol I. Buntzman
-----------------------------------
Dr. Arol I. Buntzman
Chairman and Chief Executive Officer
16
