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CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A PREFERRED STOCK
OF
WIRE ONE TECHNOLOGIES, INC.
WIRE ONE TECHNOLOGIES, INC. (the "Company"), a corporation organized
and existing under the General Corporation Law of the State of Delaware, does
hereby certify that, pursuant to authority contained in Article FOURTH of its
Certificate of Incorporation, and pursuant to Section 151 of the General
Corporation Law of the State of Delaware, the Board of Directors of the Company
at a meeting duly held, adopted resolutions providing for the designations,
preferences and relative, participating, optional or other rights, and the
qualifications, limitations or restrictions thereof, of two thousand two hundred
(2,500) shares of Series A Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 2,500 shares
of Series A Preferred Stock (the "Preferred Shares"), par value $.0001
per share, which shall have the following powers, designations,
preferences and other special rights:
1. Conversion of Preferred Shares. Preferred Shares shall be
convertible into shares of Common Stock on the terms and conditions set forth in
this Section 1.
(a) Certain Defined Terms. For purposes of this Certificate of
Designations, the following terms shall have the following meanings:
(i) "Alternative Conversion Price" means, on any
Conversion Date, the higher of (i) seventy percent (70%) of the
Conversion Price then in effect or (ii) the Market Price, subject to
adjustment as provided herein.
(ii) "Closing Sale Price" means, for any security as of
any date, the last closing trade price for such security at 4:00 p.m.
Eastern Standard Time on the Nasdaq National Market as reported by
Bloomberg, or, if the Nasdaq National Market is not the principal
securities exchange or trading market for such security, the last
closing trade price of such security at 4:00 p.m. Eastern Standard Time
on the principal securities exchange or trading market where such
security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last closing trade price of such security
at 4:00 p.m. Eastern Standard Time in the over-the-counter market on
the electronic
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bulletin board for such security as reported by Bloomberg, or, if no
last closing trade price is reported for such security by Bloomberg,
the average of the bid and ask prices of such security as reported by
Bloomberg, or, if no bid or ask prices are reported for such security
by Bloomberg, the average of the bid and ask prices of any market
makers for such security as reported in the "pink sheets" by the
National Quotation Bureau, Inc. If the Closing Sale Price cannot be
calculated for such security on such date on any of the foregoing
bases, the Closing Sale Price of such security on such date shall be
the fair market value as determined in good faith by the Board of
Directors of the Company.
(iii) "Conversion Price" means, as of any Conversion Date
(as defined below) or other date of determination, $7.00 per share,
subject to adjustment as provided herein.
(iv) "Issuance Date" means, with respect to each Preferred
Share, the date of issuance of the applicable Preferred Share.
(v) "Mandatory Conversion Date" means the date which is
the earlier of (i) the consummation of the company's sale of its Common
Stock in a firm commitment underwritten public offering pursuant to a
registration statement under the Securities Act of 1933, as amended,
the public offering price of which is not less than $12.00 per share
(adjusted for any stock splits, stock dividends, combinations,
recapitalizations or the like after the date hereof) and the aggregate
gross proceeds to the Company is not less than $40,000,000 or (ii) the
conclusion of a 20 consecutive trading day period where the Closing
Sale Price of the Company's Common Stock equals or exceeds $12.50.
(vi) "Market Price" means, with respect to any security
for any period, that price which shall be computed as the arithmetic
average of the Closing Sale Prices for such security during the 20
consecutive trading days immediately preceding such date of
determination. (All such determinations to be appropriately adjusted
for any stock dividend, stock split or other similar transaction during
such period).
(vii) "Person" means an individual, a limited liability
company, a partnership, a joint venture, a corporation, a trust, an
unincorporated organization and a government or any department or
agency thereof.
(viii) "Stated Value" means $7,000 per share.
(b) Holder's Conversion Right; Mandatory Conversion. Subject
to the provisions of Section 1(d) below, at any time or times on or after June
__, 2000, any holder of Preferred Shares shall be entitled to convert any whole
number of Preferred Shares into fully paid and nonassessable shares of Common
Stock in accordance with Section 1(e), at the Conversion Rate (as defined
below). If any Preferred Shares remain outstanding on the Mandatory Conversion
Date, then all such Preferred Shares shall, automatically without any action on
the part of the Company or the holders of the Preferred Shares, be converted at
the Conversion Rate as of such date in accordance with Section 1(e). The Company
shall not issue any fraction of a share of Common Stock upon any conversion. All
shares of Common Stock (including fractions thereof)
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issuable upon conversion of more than one Preferred Share by a holder thereof
shall be aggregated for purposes of determining whether the conversion would
result in the issuance of a fraction of a share of Common Stock. If, after the
aforementioned aggregation, the issuance would result in the issuance of a
fraction of a share of Common Stock, the Company shall round such fraction of a
share of Common Stock up or down to the nearest whole share.
(c) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each Preferred Share pursuant to Section 1(b) shall
be determined by dividing the Stated Value by the Conversion Price (the
"Conversion Rate").
(d) Limitations on Conversion.
(i) The Company shall not effect any conversion of
Preferred Shares and no holder of Preferred Shares shall have the right
to convert any Preferred Shares pursuant to Section 1(b) to the extent
that after giving effect to such conversion such Person (together with
such Person's affiliates) (A) would beneficially own in excess of 4.99%
of the outstanding shares of the Common Stock following such conversion
and (B) would have acquired, through conversion of Preferred Shares or
otherwise, in excess of 4.99% of the outstanding shares of the Common
Stock following such conversion during the 60-day period ending on and
including such Conversion Date (as defined below). For purposes of the
foregoing sentence, the number of shares of Common Stock beneficially
owned by a Person and its affiliates or acquired by a Person and its
affiliates, as the case may be, shall include the number of shares of
Common Stock issuable upon conversion of the Preferred Shares with
respect to which the determination of such sentence is being made, but
shall exclude the number of shares of Common Stock which would be
issuable upon (i) conversion of the remaining, unconverted Preferred
Shares beneficially owned by such Person and its affiliates and (ii)
exercise or conversion of the unexercised or unconverted portion of any
other securities of the Company (including, without limitation, any
warrants) subject to a limitation on conversion or exercise analogous
to the limitation contained herein. Except as set forth in the
preceding sentence, for purposes of this Section 1(d)(i), beneficial
ownership shall be calculated in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended. Notwithstanding anything
to the contrary contained herein, each Conversion Notice (as defined
below) shall constitute a representation by the holder submitting such
Conversion Notice that, after giving effect to such Conversion Notice,
(A) the holder will not beneficially own (as determined in accordance
with this Section 1(d)(i)) and (B) during the 60-day period ending on
and including such Conversion Date, the holder will not have acquired,
through conversion of Preferred Shares or otherwise, a number of shares
of Common Stock in excess of 4.99% of the outstanding shares of Common
Stock as reflected in the Company's most recent Form 10-Q or Form 10-K,
as the case may be, or more recent public press release or other public
notice by the Company setting forth the number of shares of Common
Stock outstanding, but after giving effect to conversions of Preferred
Shares by such holder since the date as of which such number of
outstanding shares of Common Stock was reported.
(ii) The Company shall not effect any mandatory conversion
of Preferred Shares unless and until the registration statement (the
"Registration
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Statement") covering the resale of the shares of Common Stock issuable
upon conversion of the Preferred Shares required to be filed by the
Company pursuant to the Registration Rights Agreement between the
Company and the original purchasers of the Preferred Shares (the
"Registration Rights Agreement") is declared effective by the
Securities and Exchange Commission (the "SEC").
(e) Mechanics of Conversion. The conversion of Preferred
Shares shall be conducted in the following manner:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into shares of Common Stock on any date (the "Conversion Date"),
the holder thereof shall (A) transmit by facsimile (or otherwise
deliver), for receipt on or prior to 11:59 p.m., Eastern Standard Time
on such date, a copy of a fully executed notice of conversion in the
form attached hereto as Exhibit I (the "Conversion Notice") to the
Company's designated transfer agent (the "Transfer Agent") with a copy
thereof to the Company and (B) surrender to a common carrier for
delivery to the Transfer Agent as soon as practicable following such
date the original certificates representing the Preferred Shares being
converted (or an indemnification undertaking with respect to such
shares in the case of their loss, theft or destruction) (the "Preferred
Stock Certificates").
(ii) Company's Response. Upon receipt by the Company of a
copy of a Conversion Notice, the Company shall promptly send, via
facsimile, a confirmation of receipt of such Conversion Notice to such
holder and the Transfer Agent, which confirmation shall constitute an
instruction to the Transfer Agent to process such Conversion Notice in
accordance with the terms herein. Upon receipt by the Transfer Agent of
the Preferred Stock Certificates to be converted pursuant to a
Conversion Notice, the Transfer Agent shall, no later than the second
business day following the date of receipt (or the third business day
following the date of receipt if received after 11:00 a.m. local time
of the Transfer Agent), (A) issue and surrender to a common carrier for
overnight delivery to the address as specified in the Conversion
Notice, a certificate, registered in the name of the holder or its
designee, for the number of shares of Common Stock to which the holder
shall be entitled, or (B) provided the Transfer Agent is participating
in The Depository Trust Company ("DTC") Fast Automated Securities
Transfer Program, upon the request of the holder, credit such aggregate
number of shares of Common Stock to which the holder shall be entitled
to the holder's or its designee's balance account with DTC through its
Deposit Withdrawal Agent Commission system. If the number of Preferred
Shares represented by the Preferred Stock Certificate(s) submitted for
conversion is greater than the number of Preferred Shares being
converted, then the Transfer Agent shall, as soon as practicable and in
no event later than three business days after receipt of the Preferred
Stock Certificate(s) and at the Company's expense, issue and deliver to
the holder a new Preferred Stock Certificate representing the number of
Preferred Shares not converted.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Market Price or the arithmetic calculation of
the Conversion Rate, the Company shall instruct the Transfer Agent to
issue to the holder the number of shares of Common Stock that is not
disputed and shall submit the disputed determinations or
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arithmetic calculations to the holder via facsimile within two (2)
business days of receipt of such holder's Conversion Notice. If such
holder and the Company are unable to agree upon the determination of
the Market Price or arithmetic calculation of the Conversion Rate
within two (2) business days of such disputed determination or
arithmetic calculation being submitted to the holder, then the Company
shall within two (2) business days submit via facsimile (A) the
disputed determination of the Market Price to an independent, reputable
investment bank selected by the Company or (B) the disputed arithmetic
calculation of the Conversion Rate to the Company's independent,
outside accountant. The Company shall cause the investment bank or the
accountant, as the case may be, to perform the determinations or
calculations and notify the Company and the holder of the results no
later than five (5) business days from the time it receives the
disputed determinations or calculations. Such investment bank's or
accountant's determination or calculation, as the case may be, shall be
binding upon all parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of
Preferred Shares shall be treated for all purposes as the record holder
or holders of such shares of Common Stock on the Conversion Date.
(v) Pro Rata Conversion and Redemption. In the event the
Company receives a Conversion Notice from more than one holder of
Preferred Shares for the same Conversion Date and the Company can
convert some, but not all, of such Preferred Shares, the Company shall
convert from each holder of Preferred Shares electing to have Preferred
Shares converted at such time a pro rata amount of such holder's
Preferred Shares submitted for conversion based on the number of
Preferred Shares submitted for conversion on such date by such holder
relative to the total number of Preferred Shares submitted for
conversion on such date.
(vi) Mechanics of Mandatory Conversion. On the Mandatory
Conversion Date, all holders of Preferred Shares shall surrender all
Preferred Stock Certificates, duly endorsed for cancellation, to the
Transfer Agent and all outstanding Preferred Shares shall be converted
as of such date as if the holders of such Preferred Shares had given
the Conversion Notice for all such shares on the Mandatory Conversion
Date; provided that the Mandatory Conversion Date shall be extended for
any Preferred Shares for as long as the conversion of such Preferred
Shares would violate the provisions of Section 1(d).
(f) Taxes. The Company shall pay any and all taxes that may be
payable with respect to the issuance and delivery of Common Stock upon the
conversion of Preferred Shares.
(g) Adjustments to Conversion Price. The Conversion Price will
be subject to adjustment from time to time as provided in this Section 1(g).
(i) Adjustment of Conversion Price upon Issuance of Common
Stock. If and whenever on or after the Issuance Date of the Preferred
Shares, the Company issues or sells, or in accordance with this Section
1(g) is deemed to have issued or sold,
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any shares of Common Stock, (excluding shares of Common Stock deemed to
have been issued by the Company in connection with an Approved Stock
Plan (as defined below) or upon conversion of the Preferred Shares) for
a consideration per share less than the Conversion Price in effect
immediately prior to such time, then immediately after such issue or
sale, the Conversion Price then in effect shall be reduced to an amount
equal to the product of (x) the Conversion Price in effect immediately
prior to such issuance or sale and (y) the quotient of (1) the sum of
(I) the product of the Conversion Price and the number of shares of
Common Stock Deemed Outstanding (as defined below) immediately prior to
such issuance or sale and (II) the consideration, if any, received by
the Company upon such issuance or sale, divided by (2) the product of
(I) the Conversion Price multiplied by (II) the number of shares of
Common Stock Deemed Outstanding immediately after such issue or sale.
For purposes of determining the adjusted Conversion Price under this
Section 1(g)(i), the following shall be applicable:
(A) Issuance of Options. If the Company in any manner
grants or sells any Options and the lowest price per share for
which one share of Common Stock is issuable upon the exercise
of any such Option or upon conversion or exchange of any
Convertible Securities issuable upon exercise of such Option
is less than the Conversion Price, then such share of Common
Stock shall be deemed to be outstanding and to have been
issued and sold by the Company at the time of the granting or
sale of such Option for such price per share. For purposes of
this Section 1(g)(i)(A), the "lowest price per share for which
one share of Common Stock is issuable upon the exercise of any
such Option or upon conversion or exchange of any Convertible
Securities issuable upon exercise of such Option" shall be
equal to the sum of the lowest amounts of consideration (if
any) received or receivable by the Company with respect to any
one share of Common Stock upon granting or sale of the Option,
upon exercise of the Option and upon conversion or exchange of
any Convertible Security issuable upon exercise of such
Option. No further adjustment of the Conversion Price shall be
made upon the actual issuance of such Common Stock or of such
Convertible Securities upon the exercise of such Options or
upon the actual issuance of such Common Stock upon conversion
or exchange of such Convertible Securities. Upon the
expiration or termination of any unexercised Option, such
Conversion Price shall be readjusted to such amount as would
have obtained had the adjustment made upon the granting or
issuance of such Option been made based upon the issuance of
only the number of shares of Common Stock actually issued on
exercise of such Option. Notwithstanding the foregoing, no
adjustment shall be made pursuant to this Section 1(g)(i)(A)
to the extent that such adjustment is based solely on the fact
that the Convertible Securities issuable upon exercise of such
Option are convertible into or exchangeable for Common Stock
at a price which varies with the market price of the Common
Stock.
(B) Issuance of Convertible Securities. If the
Company in any manner issues or sells any Convertible
Securities and the lowest price per share for which one share
of Common Stock is issuable upon such conversion or exchange
thereof is less than the Conversion Price, then such share of
Common Stock shall be deemed to be outstanding and to have
been issued and sold by the
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Company at the time of the issuance of sale of such
Convertible Securities for such price per share. For the
purposes of this Section 1(g) (i) (B), the "price per share
for which one share of Common Stock is issuable upon such
conversion or exchange" shall be equal to the sum of the
lowest amounts of consideration (if any) received or
receivable by the Company with respect to any one share of
Common Stock upon the issuance or sale of the Convertible
Security and upon the conversion or exchange of such
Convertible Security. No further adjustment of the Conversion
Price shall be made upon the actual issuance of such Common
Stock upon conversion or exchange of such Convertible
Securities, and if any such issuance or sale of such
Convertible Securities is made upon exercise of any Options
for which adjustment of the Conversion Price had been or are
to be made pursuant to other provisions of this Section
1(g)(i), no further adjustment of the Conversion Price shall
be made by reason of such issue or sale. Upon the expiration
of any rights of conversion or exchange under such Convertible
Securities, such Conversion Price shall be readjusted to such
amount as would have obtained had the adjustment made upon the
granting or issuance of such Convertible Securities been made
based upon the issuance of only the number of shares of Common
Stock actually issued on conversion of such Convertible
Securities. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 1(g)(i)(B) to the extent that
such adjustment is based solely on the fact that such
Convertible Securities are convertible into or exchangeable
for Common Stock at a price which varies with the market price
of the Common Stock.
(C) Change in Option Price or Rate of Conversion. If
the purchase price provided for in any Options, the additional
consideration, if any, payable upon the issue, conversion or
exchange of any Convertible Securities, or the rate at which
any Convertible Securities are convertible into or
exchangeable for Common Stock changes at any time, the
Conversion Price in effect at the time of such change shall be
adjusted to the Conversion Price which would have been in
effect at such time had such Options or Convertible Securities
provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold. For purposes of
this Section 1(g)(i)(C), if the terms of any Option or
Convertible Security that was outstanding as of the date of
issuance of the Preferred Shares are changed in the manner
described in the immediately preceding sentence, then such
Option or Convertible Security and the Common Stock deemed
issuable upon exercise, conversion or exchange thereof shall
be deemed to have been issued as of the date of such change.
(D) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1)
to receive a dividend or other distribution payable in Common
Stock, Options or in Convertible Securities or (2) to
subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date will be deemed to be the
date of the issuance or sale of the shares of Common Stock
deemed to have been issued or sold upon the declaration
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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.
(E) Certain Definitions. For purposes of this Section
1(g)(i), the following terms have the respective meanings set
forth below:
(I) "Approved Stock Plan" shall mean any employee
benefit plan which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider for services provided to
the Company.
(II) "Common Stock Deemed Outstanding" means, at
any given time, the number of shares of Common Stock actually outstanding at
such time, plus the number of shares of Common Stock deemed to be outstanding
pursuant to Sections 1(g)(i)(A) and 1(g)(i)(B) hereof regardless of whether the
Options or Convertible Securities are actually exercisable at such time, but
excluding any shares of Common Stock owned or held by or for the account of the
Company or issuable upon conversion of the Preferred Shares.
(III) "Options" means any rights, warrants or
options to subscribe for or purchase Common Stock or Convertible Securities.
(IV) "Convertible Securities" means any stock or
securities (other than Options) directly or indirectly convertible into or
exchangeable for Common Stock.
(ii) Adjustment of Conversion Price upon Subdivision or
Combination of Common Stock. If the Company at any time subdivides (by
any stock split, stock dividend, recapitalization or otherwise) one or
more classes of its outstanding shares of Common Stock into a greater
number of shares, the Conversion Price in effect immediately prior to
such subdivision will be proportionately reduced. If the Company at any
time combines (by combination, reverse stock split or otherwise) one or
more classes of its outstanding shares of Common Stock into a smaller
number of shares, the Conversion Price in effect immediately prior to
such combination will be proportionately increased. If, at any time or
from time to time, the number of shares of Common Stock outstanding is
increased by a stock dividend payable in shares of Common Stock or any
Convertible Securities, then, following the record date fixed for the
determination of holders of Common Stock entitled to receive such stock
dividend, a provision shall be made so that the holder of the Preferred
Shares shall receive upon exercise thereof in addition to the number of
shares of Common Stock receivable thereupon, the amount of securities
of the Company that it would have received if (A) the Preferred Shares
had been converted into Common Stock on the date of such event and (B)
it had thereafter retained such securities and all rights and
distributions relating to them.
(iii) Adjustment of Conversion Price Upon Major Corporate
Event Announcement. In the event (A) the Company makes a public
announcement that it intends to consolidate or merge with or into
another Person or engage in a business
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combination involving the issuance or exchange of more than thirty
percent (30%) of the Company's outstanding Common Stock, (B) the
Company makes a public announcement that it intends to sell or transfer
all or substantially all of the Company's assets, or (C) any Person
(including the Company) publicly announces a purchase, tender or
exchange offer for more than thirty percent (30%) of the Company's
outstanding Common Stock (the transactions described in clauses (A),
(B) and (C) above are hereinafter referred to as "Major Corporate
Events" and the date of the announcement referred to in clause (A), (B)
or (C) is hereinafter referred to as the "Announcement Date"), then the
Conversion Price shall, effective upon the Announcement Date and
continuing through and including the Adjusted Conversion Price
Termination Date (as defined below), be equal to the Conversion Price
which would have been applicable for a conversion by the holder on the
Announcement Date. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth
in Section 1(c). For purposes hereof, "Adjusted Conversion Price
Termination Date" shall mean, with respect to any proposed Major
Corporate Event for which a public announcement as contemplated by this
Section 1(g)(iii) has been made, the date upon which the Company or
other Person (in the case of clause (C) above) consummates or publicly
announces the termination or abandonment of the proposed Major
Corporate Event which was the subject of the previous public
announcement.
(iv) Holder's Right of Alternative Conversion Price. From
and after June __, 2001, a holder of Preferred Shares shall have the
right, but not the obligation, in its sole discretion to substitute the
Alternative Conversion Price for the Conversion Price upon conversion
of any Preferred Shares by designating in the Conversion Notice
delivered upon conversion of such Preferred Shares that solely for
purposes of such conversion the holder is relying on the Alternative
Conversion Price rather than the Conversion Price then in effect. A
holder's election to rely on an Alternative Conversion Price for a
particular conversion of Preferred Shares shall not obligate the holder
to rely on an Alternative Conversion Price for any future conversions
of Preferred Shares.
(v) Other Events. If any event occurs of the type
contemplated by the provisions of this Section 1(g)(v) but not
expressly provided for by such provisions (including, without
limitation, the granting of stock appreciation rights, phantom stock
rights or other rights with equity features), then the Company's Board
of Directors will make an appropriate adjustment in the Conversion
Price so as to protect the rights of the holders of the Preferred
Shares; provided that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 1(g)(v).
(vi) Notices.
(A) Promptly upon any adjustment of the Conversion
Price, the Company will give written notice thereof to each
holder of Preferred Shares, setting forth in reasonable
detail, and certifying, the calculation of such adjustment.
(B) The Company will give written notice to each
holder of Preferred Shares at least twenty (20) days prior to
the date on which the Company
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closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with
respect to any pro rata subscription offer to holders of
Common Stock or (III) for determining rights to vote with
respect to any Organic Change, dissolution or liquidation,
provided that such information shall be made known to the
public prior to or in conjunction with such notice being
provided to such holder.
(C) The Company will also give written notice to each
holder of Preferred Shares at least twenty (20) days prior to
the date on which any Organic Change, dissolution or
liquidation will take place, provided that such information
shall be made known to the public prior to or in conjunction
with such notice being provided to such holder.
2. Other Rights of Holders.
(a) Reorganization. Reclassification, Consolidation. Merger or
Sale. Any recapitalization, reorganization, reclassification, consolidation,
merger, sale of all or substantially all of the Company's assets to another
Person or other transaction which is effected in such a way that holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change" Prior to the consummation
of any (i) sale of all or substantially all of the Company's assets to an
acquiring Person or (ii) other Organic Change following which the Company is not
a surviving entity, the Company will secure from the Person purchasing such
assets or the successor resulting from such Organic Change (in each case, the
"Acquiring Entity") a written agreement (in form and substance satisfactory to
the holders of a majority of the Preferred Shares then outstanding) to deliver
to each holder of Preferred Shares in exchange for such shares, a security of
the Acquiring Entity evidenced by a written instrument substantially similar in
form and substance to the Preferred Shares, including, without limitation,
having a stated value and liquidation preference equal to the Stated Value and
the Liquidation Preference of the Preferred Shares held by such holder, and
otherwise satisfactory to the holders of a majority of the Preferred Shares then
outstanding. Prior to the consummation of any other Organic Change, the Company
shall make appropriate provision (in form and substance satisfactory to the
holders of a majority of the Preferred Shares then outstanding) to insure that
each of the holders of the Preferred Shares will thereafter have the right to
acquire and receive in lieu of or in addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
conversion of such holder's Preferred Shares such shares of stock, securities or
assets that would have been issued or payable in such Organic Change with
respect to or in exchange for the number of shares of Common Stock which would
have been acquirable and receivable upon the conversion of such holder's
Preferred Shares as of the date of such Organic Change (without taking into
account any limitations or restrictions on the convertibility of the Preferred
Shares).
(b) Purchase Rights. If at any time the Company grants, issues
or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the holders of Preferred
Shares will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such
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holder had held the number of shares of Common Stock acquirable upon complete
conversion of the Preferred Shares (without taking into account any limitations
or restrictions on the convertibility of the Preferred Shares) immediately
before the date on which a record is taken for the grant, issuance or sale of
such Purchase Rights, or, if no such record is taken, the date as of which the
record holders of Common Stock are to be determined for the grant, issue or sale
of such Purchase Rights.
3. Redemption at Option of Holders.
(a) Redemption Option Upon Triggering Event or Major
Transaction. In addition to all other rights of the holders of Preferred Shares
contained herein, after a Triggering Event or upon consummation of a Major
Transaction (each, as defined below), each holder of Preferred Shares shall have
the right, at such holder's option, to require the Company to redeem all or a
portion of such holder's Preferred Shares at a price per Preferred Share equal
to one hundred and ten percent (110%) of the Stated Value ("Redemption Price").
(b) "Triggering Event". A "Triggering Event" shall be deemed
to have occurred at such time as any of the following events:
(i) the Registration Statement is not declared effective
by the SEC on or before one hundred eighty (180) days after the
Issuance Date;
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights
Agreement, the effectiveness of the Registration Statement lapses for
any reason (including, without limitation, the issuance of a stop
order) or is unavailable to the holder of the Preferred Shares for sale
of all of the Registrable Securities (as defined in the Registration
Rights Agreement) in accordance with the terms of the Registration
Rights Agreement, and such lapse or unavailability continues for a
period of ten (10) consecutive trading days or for more than an
aggregate of thirty (30) trading days in any 365-day period, provided
that the cause of such lapse or unavailability is not due to factors
solely within the control of such holder of Preferred Shares;
(iii) the suspension from trading or failure of the Common
Stock to be listed on the Nasdaq National Market, The New York Stock
Exchange, Inc. or The American Stock Exchange, Inc. for a period of
five (5) consecutive trading days (excluding disruptions from business
announcements that result in any halt(s) in trading of not more than
three (3) days on each occasion) and other than as a result of the
suspension of trading in securities on such market in general;
(iv) the Company's or the Transfer Agent's notice to any
holder of Preferred Shares, including by way of public announcement, at
any time, of its intention not to comply with a request for conversion
of any Preferred Shares into shares of Common Stock that is properly
tendered in accordance with the provisions of this Certificate of
Designations, or the failure of the Transfer Agent to comply with a
Conversion Notice properly tendered in accordance with the provisions
of this Certificate
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of Designations within 10 business days after the receipt by the
Transfer Agent of the Conversion Notice;
(v) upon the Company's receipt of a Conversion Notice, the
Company shall not be obligated to issue the Conversion Shares due to
the provisions of Section 9;
(vi) the Company breaches any representation, warranty,
covenant or other term or condition of the Securities Purchase
Agreement between the Company and the initial holders of the Preferred
Shares (the "Securities Purchase Agreement"), the Registration Rights
Agreement, this Certificate of Designations or any other agreement,
document, certificate or other instrument delivered in connection with
the transactions contemplated thereby and hereby, except to the extent
that such breach would not have a Material Adverse Effect (as defined
in Section 3(a) of the Securities Purchase Agreement) and except, in
the case of a breach of a covenant which is curable, only if such
breach continues for a period of at least 10 days; or
(vii) any of the Preferred Shares have not been converted
into Common Stock of June __, 2003.
(c) "Major Transaction." A "Major Transaction" shall be deemed
to have occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than
pursuant to a migratory merger effected solely for the purpose of
exchanging the jurisdiction of incorporation of the Company) involving
the issuance, exchange or sale of more than thirty (30%) of the shares
of Common Stock then outstanding;
(ii) the sale or transfer of more than 50% of the
Company's assets; or
(iii) a purchase, tender or exchange offer made to the
holders of more than thirty percent (30%) of the outstanding shares of
Common Stock.
(d) Mechanics of Redemption at Option of Buyer Upon Triggering
Event. Within three (3) business days after the occurrence of a Triggering
Event, the Company shall deliver written notice thereof via facsimile and/or
overnight courier ("Notice of Triggering Event") to each holder of Preferred
Shares. At any time after the earlier of a holder's receipt of a Notice of
Triggering Event and such holder becoming aware of a Triggering Event, any
holder of Preferred Shares then outstanding may require the Company to redeem
all of the Preferred Shares by delivering written notice thereof via facsimile
and overnight courier ("Notice of Redemption at Option of Buyer Upon Triggering
Event") to the Company, which Notice of Redemption at Option of Buyer Upon
Triggering Event shall indicate (i) the number of Preferred Shares that such
holder is electing to redeem and (ii) the Redemption Price.
(e) Mechanics of Redemption at Option of Buyer Upon Major
Transaction. No sooner than 15 days nor later than 10 days prior to the
consummation of a Major Transaction, the Company shall deliver written notice
thereof via facsimile and overnight courier ("Notice of Major Transaction") to
each holder of Preferred Shares, which notice shall include a detailed
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description of the Major Transaction and the date by which a holder receiving a
Notice of Major Transaction must provide the Company with notice of its intent
to exercise its redemption rights hereunder (which date shall not be sooner than
five business days after the date of the Notice of Major Transaction (the "Major
Transaction Response Date")). The Company shall publicly disclose the material
facts of such Major Transaction prior to or concurrently with providing the
Notice of Major Transaction, such public disclosure to be made not later than 10
days prior to the consummation of such Major Transaction. At any time after
receipt of a Notice of Major Transaction and prior to the Major Transaction
Response Date (or, in the event a Notice of Major Transaction is not delivered
at least 10 days prior to a Major Transaction, at any time prior to the
consummation of a Major Transaction) any holder of Preferred Shares then
outstanding may require the Company to redeem all of the holder's Preferred
Shares then outstanding by delivering written notice thereof via facsimile and
overnight courier ("Notice of Redemption at Option of Buyer Upon Major
Transaction") to the Company, which Notice of Redemption at Option of Buyer Upon
Major Transaction shall indicate (i) the number of Preferred Shares that such
holder is electing to redeem and (ii) the Redemption Price.
(f) Payment of Redemption Price. Upon the Company's receipt of
a Notice(s) of Redemption at Option of Buyer Upon Major Transaction or a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event, as the case
may be, from any holder of Preferred Shares, the Company shall immediately
notify each holder of Preferred Shares by facsimile of the Company's receipt of
such notices and each holder which has sent such a notice shall promptly submit
to the Transfer Agent such holder's Preferred Stock Certificates which such
holder has elected to have redeemed. The Company shall deliver the applicable
Redemption Price to such holder within five (5) business days after the
Company's receipt of a Notice of Redemption at Option of Buyer Upon Triggering
Event or Notice of Redemption at Option of Buyer Upon Major Transaction;
provided that a holder's Preferred Stock Certificates shall have been so
delivered to the Transfer Agent. If the Company is unable to redeem all of the
Preferred Shares submitted for redemption, the Company shall redeem a pro rata
amount from each holder of Preferred Shares based on the number of Preferred
Shares submitted for redemption by such holder relative to the total number of
Preferred Shares submitted for redemption by all holders of Preferred Shares.
(g) Disputes; Miscellaneous. In the event of a dispute as to
the determination of the Closing Sale Price or the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 1(e)(iii)
above with the term "Closing Sale Price", as the case may be, being substituted
for the term "Market Price" and the term "Redemption Price" being substituted
for the term "Conversion Rate". In the event of a redemption pursuant to this
Section 3 of less than all of the Preferred Shares represented by a particular
Preferred Stock Certificate, the Company shall promptly cause to be issued and
delivered to the holder of such Preferred Shares a certificate representing the
remaining Preferred Shares which have not been redeemed.
4. Dividends. The Company shall not be required to declare or pay a
dividend on the Preferred Shares, except as set forth in this Section 4.
Dividends on the Preferred Shares shall be payable when, as and if declared by
the Board of Directors and shall not be cumulative. No cash dividend or other
distribution (other than a stock dividend giving rise to an adjustment under
Section 1(g) hereof) shall be paid, or declared and set apart for payment, on
any share of
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any series of preferred stock ranking junior to the Preferred Shares or on any
Common Stock, unless a pro rata cash dividend or other distribution is paid, or
declared and set apart for payment, with respect to all outstanding Preferred
Shares based on the number of shares of Common Stock into which such Preferred
Shares are convertible pursuant to Section 1 hereof as of the record date for
determination of the holders of capital stock of the Company entitled to such
dividend or distribution. In the event of the conversion of any Preferred Shares
pursuant to Section 3 hereof, all accrued and unpaid dividends on such Preferred
Shares shall be paid in cash unless any holder thereof, by written notice to the
Company, requests that such dividends be converted into Common Stock, the amount
of such accrued but unpaid dividends on such Preferred Shares shall be taken
into account in determining the number of shares of Common Stock into which such
Preferred Shares are convertible, as provided in Section 1(c) hereof.
5. Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding.
6. Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
7. Liquidation. Dissolution. Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "Liquidation Funds"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the Stated Value of such
Preferred Share (the "Liquidation Preference"); provided that, if the
Liquidation Funds are insufficient to pay the full amount due to the holders of
Preferred Shares and holders of shares of other classes or series of preferred
stock of the Company that are of equal rank with the Preferred Shares as to
payments of Liquidation Funds (the "Pari Passu Shares"), then each holder of
Preferred Shares and Pari Passu Shares shall receive a percentage of the
Liquidation Funds equal to the full amount of Liquidation Funds payable to such
holder as a liquidation preference, in accordance with their respective
Certificate of Designations, Preferences and Rights, as a percentage of the full
amount of Liquidation Funds payable to all holders of Preferred Shares and Pari
Passu Shares. In addition to the receipt of the Liquidation Preference, in the
event of any voluntary or involuntary liquidation, dissolution or winding up of
the Company, the holders of the Preferred Shares shall be entitled to receive
Liquidation Funds distributed to holders of Common Stock, after the Liquidation
Preference has been paid, to the same extent as if such holders of Preferred
Shares had converted the Preferred Shares into Common Stock (without regard to
any limitations on conversions herein or elsewhere) and had held such shares of
Common Stock on the record date for such distribution of the remaining
Liquidation Funds. The purchase or redemption by the Company of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Company. Neither the
consolidation or merger of
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the Company with or into any other Person, nor the sale or transfer by the
Company of less than substantially all of its assets, shall, for the purposes
hereof, be deemed to be a liquidation, dissolution or winding up of the Company.
No holder of Preferred Shares shall be entitled to receive any amounts with
respect thereto upon any liquidation, dissolution or winding up of the Company
other than the amounts provided for herein; provided that a holder of Preferred
Shares shall be entitled to all amounts previously accrued with respect to
amounts owed hereunder.
8. Preferred Rank. All shares of Common Stock shall be of junior rank
to all Preferred Shares in respect to the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company. The
rights of the shares of Common Stock shall be subject to the preferences and
relative rights of the Preferred Shares. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or issue additional
or other capital stock that ranks senior to the Preferred Shares in respect of
the preferences as to distributions and payments upon the liquidation,
dissolution and winding up of the Company. Without the prior express written
consent of the holders of not less than two-thirds (2/3) of the then outstanding
Preferred Shares, the Company shall not hereafter authorize or make any
amendment to the Company's Certificate of Incorporation or bylaws, or file any
resolution of the board of directors of the Company with the Secretary of State
or enter into any agreement containing any provisions, which would adversely
affect or otherwise impair the rights or relative priority of the holders of the
Preferred Shares relative to the holders of the Common Stock or the holders of
any other class of capital stock. In the event of the merger or consolidation of
the Company with or into another corporation, the Preferred Shares shall
maintain their relative powers, designations and preferences provided for herein
and no merger shall result inconsistent therewith.
9. Limitation on Number of Conversion Shares. The Company shall not be
obligated to issue any shares of Common Stock upon conversion of the Preferred
Shares if the issuance of such shares of Common Stock would exceed that number
of shares of Common Stock which the Company may issue upon Conversion of the
Preferred Shares (the "Exchange Cap") without breaching the Company's
obligations under the rules or regulations of the Nasdaq National Market, or the
market or exchange where the Common Stock is then traded, except that such
limitation shall not apply in the event that the Company (a) obtains the
approval of its stockholders as required by the applicable rules of the Nasdaq
National Market, or the market or exchange where the Common Stock is then traded
(or any successor rule or regulation), for issuances of Common Stock in excess
of such amount or (b) obtains a written opinion from outside counsel to the
Company that such approval is not required, which opinion shall be reasonably
satisfactory to the holders of a majority of the Preferred Shares then
outstanding. Until such approval or written opinion is obtained, no purchaser of
Preferred Shares pursuant to the Securities Purchase Agreement (the
"Purchasers") shall be issued, upon conversion of Preferred Shares, shares of
Common Stock in an amount greater than the product of (i) the Exchange Cap
amount multiplied by (ii) a fraction, the numerator of which is the number of
Preferred Shares issued to such Purchaser pursuant to the Securities Purchase
Agreement and the denominator of which is the aggregate amount of all the
Preferred Shares issued to the Purchasers pursuant to the Securities Purchase
Agreement (the "Cap Allocation Amount"). In the event that any Purchaser shall
sell or otherwise transfer any of such Purchaser's Preferred Shares, the
transferee shall be allocated a pro rata portion of such Purchaser's Cap
Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's
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Preferred Shares into a number of shares of Common Stock which, in the
aggregate, is less than such holder's Cap Allocation Amount, then the difference
between such holder's Cap Allocation Amount and the number of shares of Common
Stock actually issued to such holder shall be allocated to the respective Cap
Allocation Amounts of the remaining holders of Preferred Shares on a pro rata
basis in proportion to the number of Preferred Shares then held by each such
holder.
10. Vote to Change the Terms of Preferred Shares. The affirmative vote
at a meeting duly called for such purpose, or the written consent without a
meeting, of the holders of not less than two-thirds (2/3) of the then
outstanding Preferred Shares, shall be required for any change to this
Certificate of Designations or the Company's Certificate of Incorporation which
would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Preferred Shares.
11. Lost or Stolen Certificates. Upon receipt by the Company of
evidence reasonably satisfactory to the Company of the loss, theft, destruction
or mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of an indemnification
undertaking by the holder to the Company in customary form and, in the case of
mutilation, upon surrender and cancellation of the Preferred Stock
Certificate(s), the Company shall execute and deliver new preferred stock
certificate(s) of like tenor and date; provided, however, the Company shall not
be obligated to re-issue preferred stock certificates if the holder
contemporaneously requests the Company to convert such Preferred Shares into
Common Stock.
12. Remedies. Characterizations, Other Obligations. Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief); no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach, without the necessity of showing economic loss and without any bond or
other security being required.
13. Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and the Buyer and shall not
be construed against any person as the drafter hereof.
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14. Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations, Preferences and Rights of Series A Preferred Stock to be signed by
Richard Reiss, its President and Chief Executive Officer, as of the 14th day of
June 2000.
WIRE ONE TECHNOLOGIES, INC.
By: /s/ Richard Reiss
--------------------------
Name: Richard Reiss
Title: President and CEO
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EXHIBIT I
ISSUER
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
WIRE ONE TECHNOLOGIES INC. (the "Certificate of Designations"). In accordance
with and pursuant to the Certificate of Designations, the undersigned hereby
elects to convert the number of shares of SERIES A PREFERRED STOCK, par value
$.0001 per share (the "Preferred Shares"), of WIRE ONE TECHNOLOGIES INC., a
Delaware corporation (the "Company"), indicated below into shares of Common
Stock, par value $.0001 per share (the "Common Stock"), of the Company, by
tendering the stock certificate(s) representing the share(s) of Preferred Shares
specified below as of the date specified below.
Date of Conversion: ___________________________________________
Number of Preferred Shares to be converted: __________________________
Stock certificate no(s). of Preferred Shares to be converted: ________
Please confirm the following information:
Conversion Price: ___________________________________________
Number of shares of Common Stock to be issued: _______________________
Is the Alternative Conversion Price being relied on pursuant to Section 1(g)(iv)
of the Certificate of Designations? (check one) YES________ NO_________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: ______________________________
______________________________
______________________________
Facsimile Number: ______________________________
Authorization: ______________________________
By:___________________________
Title:________________________
Dated: ______________________________
Account Number:
(if electronic book entry transfer): ______________________________
Transaction Code Number
(if electronic book entry transfer): ______________________________
18
