CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES H SENIOR CUMULATIVE
PARTICIPATING CONVERTIBLE PREFERRED STOCK
of
WINSTAR COMMUNICATIONS, INC.
Pursuant to Section 151 of the General Corporation Law
of the State of Delaware
Winstar Communications, Inc., a Delaware corporation (hereinafter
called the "Company"), hereby certifies that, pursuant to the authority
expressly vested in the Board of Directors of the Company by the Restated
Certificate of Incorporation, as amended (the "Restated Certificate of
Incorporation"), and in accordance with the provisions of Sections 103 and 151
of the General Corporation Law of the State of Delaware, the Board of Directors
has duly adopted the following resolutions.
RESOLVED, that, pursuant to Article Fourth of the Restated Certificate
of Incorporation (which authorizes 30,000,000 shares of preferred stock, $.01
par value per share ("Preferred Stock")), the Board of Directors hereby fixes
the powers, designations, preferences and relative, participating, optional and
other special rights, and the qualifications, limitations and restrictions, of a
series of Preferred Stock.
RESOLVED, that each share of such series of Preferred Stock shall rank
equally in all respects and shall be subject to the following provisions:
1. Number and Designation. 270,000 shares of the Preferred Stock of
the Company shall be designated as Series H Senior Cumulative Participating
Convertible Preferred Stock (the "Series H Preferred Stock").
2. Rank. The Series H Preferred Stock shall, with respect to dividend
rights and rights on liquidation, dissolution and winding up, rank (i) senior to
all classes of the Company's common stock, $.01 par value per share ("Common
Stock"), the Company's 6% Series A Cumulative Convertible Preferred Stock, $.01
par value per share (the "Series A Preferred Stock"), and the Company's Series E
Junior Convertible Preferred Stock, $.01 par value per share (the "Series E
Preferred Stock"), and to each other class of capital stock of the Company or
series of Preferred Stock of the Company established hereafter by the Board of
Directors of the Company, the terms of which do not expressly provide that it
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ranks senior to, or on a parity with, the Series H Preferred Stock as to
dividend rights and rights on liquidation, winding-up and dissolution of the
Company (the securities in this clause (i) collectively referred to as "Junior
Securities"); and (ii) on a parity with the Company's Series D 7% Senior
Cumulative Convertible Preferred Stock Due 2010, $.01 par value per share (the
"Series D Preferred Stock"), the Company's Series F 71/4% Senior Cumulative
Convertible Preferred Stock, $.01 par value per share (the "Series F Preferred
Stock"), and the Company's Series G Senior Cumulative Participating Convertible
Preferred Stock, $.01 par value per share (the "Series G Preferred Stock"), and
each other class of capital stock of the Company or series of Preferred Stock of
the Company established hereafter by the Board of Directors of the Company, the
terms of which expressly provide that such class or series will rank on a parity
with the Series H Preferred Stock as to dividend rights and rights on
liquidation, winding- up and dissolution (the securities in this clause (ii)
collectively referred to as "Parity Securities"). The respective definitions of
Junior Securities and Parity Securities shall also include any rights or options
exercisable for or convertible into any of the Junior Securities and Parity
Securities, as the case may be.
3. Dividends. (a) In addition to any amounts to which a holder of
Series H Preferred Stock is entitled to receive pursuant to paragraph 3(d), such
holder shall be entitled to receive, in respect of each Dividend Period, when,
as and if declared by the Board of Directors of the Company, out of funds
legally available for the payment of dividends, cumulative cash dividends in an
amount per share equal to the excess (if any) of (i) the Applicable Percentage
of the Accreted Value as of the immediately preceding Dividend Payment Date (or,
for the initial Dividend Period, as of the date of issuance) over (ii) the
amount of any regular cash dividends per share of Series H Preferred Stock that
have been paid during such Dividend Period pursuant to paragraph 3(d). Dividends
paid pursuant to this paragraph 3(a) shall be payable in cash in arrears
quarterly on March 15, June 15, September 15 and December 15 of each year (each
of such dates being a "Dividend Payment Date" and each such quarterly period
being a "Dividend Period"). Such dividends shall accrue from the date of issue
(except that dividends on any amounts added to Accreted Value pursuant to
paragraph 3(b) shall accrue from the date such amounts are added to Accreted
Value), whether or not in any Dividend Period or Periods there shall be funds of
the Company legally available for the payment of such dividends. Each such
dividend shall be payable to the holders of record of shares of the Series H
Preferred Stock on March 1, June 1, September 1 and December 1, as they appear
on the stock records of the Company at the close of business on such record
dates.
(b) If dividends are not paid in cash on any Dividend Payment Date for
the immediately preceding Dividend Period (or portion thereof if less than a
full Dividend Period), the unpaid amount shall be added to the Accreted Value
for purposes of calculating succeeding periods' dividends. Notwithstanding
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anything else contained herein, once any dividends for the immediately preceding
Dividend Period (or portion thereof if less than a full Dividend Period) are so
added to Accreted Value, such dividends will no longer be payable in cash.
(c) The Applicable Percentage for each full Dividend Period for the
Series H Preferred Stock shall be 3.125%. The Applicable Percentage for the
initial Dividend Period, or any other period shorter or longer than a full
Dividend Period, on the Series H Preferred Stock shall be computed on the basis
of a per annum rate of 12.5% and the actual number of days elapsed over 12
30-day months and a 360-day year. Holders of shares of Series H Preferred Stock
shall not be entitled to any dividends, whether payable in cash, property or
stock, in excess of dividends on the Series H Preferred Stock provided for in
this paragraph 3. No interest, or sum of money in lieu of interest, shall be
payable in respect of any dividend payment or payments on the Series H Preferred
Stock that may be in arrears.
(d) In case the Company shall fix a record date for the making of any
dividend or distribution to holders of Common Stock (other than dividends or
distributions payable solely in Common Stock), the holder of each share of
Series H Preferred Stock on such record date shall be entitled to receive an
equivalent dividend or distribution based on the number of shares of Common
Stock into which such share of Series H Preferred Stock is convertible on such
record date.
(e) So long as any shares of the Series H Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Parity Securities, for any
period unless full cumulative dividends have been or contemporaneously are
declared and paid or declared and a sum sufficient for the payment thereof set
apart for such payment on the Series H Preferred Stock (or the unpaid amount
shall have been added to the Accreted Value pursuant to paragraph 3(b)) for all
Dividend Periods terminating on or prior to the date of payment of the dividend
on such class or series of Parity Securities. When dividends are not paid in
full or a sum sufficient for such payment is not set apart, as aforesaid, all
dividends declared upon shares of the Series H Preferred Stock and all dividends
declared upon any other class or series of Parity Securities shall be declared
ratably in proportion to the respective amounts of dividends accrued on the
Series H Preferred Stock and accrued and unpaid on such Parity Securities.
(f) So long as any shares of the Series H Preferred Stock are
outstanding, no dividends (other than dividends paid in shares of, or options,
warrants or rights to subscribe for or purchase shares of, Junior Securities)
shall be declared or paid or set apart for payment or other distribution
declared or made upon Junior Securities, nor shall any Junior Securities be
redeemed, purchased or otherwise acquired for any consideration (or any moneys
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be paid to or made available for a sinking fund for the redemption of any shares
of any such stock) by the Company, directly or indirectly (except by conversion
into or exchange for Junior Securities), unless in each case (i) the full
dividends on all outstanding shares of the Series H Preferred Stock and any
Parity Securities shall have been paid or set apart for payment for all past
Dividend Periods with respect to the Series H Preferred Stock and all past
dividend periods with respect to such Parity Securities (or, in the case of the
Series H Preferred Stock, the unpaid amount shall have been added to the
Accreted Value pursuant to paragraph 3(b)) 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 H Preferred Stock and the current dividend
period with respect to such Parity Securities. Notwithstanding the foregoing,
the Company may (i) pay cash in lieu of fractional shares of Common Stock to be
issued upon conversion of convertible Preferred Stock constituting Junior
Securities and (ii) redeem for cash convertible Preferred Stock that constitutes
Junior Securities if, as of the date of the giving of the redemption notice
thereunder, the applicable conversion price of such convertible Preferred Stock
is less than the Current Market Price Per Common Share.
4. Liquidation Preference. (a) In the event of any liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
before any payment or distribution of the assets of the Company (whether capital
or surplus) shall be made to or set apart for the holders of Junior Securities,
the holder of each share of Series H Preferred Stock shall be entitled to
receive an amount per share equal to the Liquidation Value of such share on the
date of distribution, and such holders shall not be entitled to any further
payment. If, upon any liquidation, dissolution or winding up of the Company, the
assets of the Company, or proceeds thereof, distributable among the holders of
the shares of Series H Preferred Stock shall be insufficient to pay in full the
preferential amount aforesaid and liquidating payments on any Parity Securities,
then such assets, or the proceeds thereof, shall be distributed among the
holders of shares of Series H Preferred Stock and any such Parity Securities
ratably in accordance with the respective amounts that would be payable on such
shares of Series H Preferred Stock and any such Parity Securities if all amounts
payable thereon were paid in full. Solely for the purposes of this paragraph 4,
neither the sale, conveyance, exchange or transfer (for cash, shares of stock,
securities or other consideration) of all or substantially all of the property
or assets of the Company nor the consolidation or merger of the Company with or
into one or more other entities shall be deemed to be a liquidation, dissolution
or winding-up of the Company.
(b) Subject to the rights of the holders of any Parity Securities,
after payment shall have been made in full to the holders of the Series H
Preferred Stock, as provided in this paragraph 4, any other series or class or
classes of Junior Securities shall, subject to the respective terms and
provisions (if any) applying thereto, be entitled to receive any and all assets
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remaining to be paid or distributed to holders of capital stock of the Company,
and the holders of the Series H Preferred Stock shall not be entitled to share
therein.
5. Conversion. (a) Conversion at the Option of the Company. If on any
date after the fourth anniversary of the Closing Date, the Current Market Price
Per Common Share is at least equal to 155% of the "conversion price" (as defined
in the Series G Certificate) of the Series G Preferred Stock on such date, the
Company may elect, by written notice delivered to the Transfer Agent (with a
copy to each holder of Series H Preferred Stock), no later than five Market Days
after such date, to cause all outstanding shares of Series H Preferred Stock to
be converted into fully paid and nonassessable shares of Common Stock. Any such
conversion shall be deemed to have been effected, without further action by any
party, immediately prior to the close of business on the date such notice is
received by the Transfer Agent. The number of shares of Common Stock deliverable
upon conversion of one share of Series H Preferred Stock shall be equal to (i)
the Accreted Value of such share on the date of conversion, plus any dividends
accrued to such date (whether or not earned or declared) since the end of the
previous Dividend Period, divided by (ii) the Conversion Price on such date.
(b) Conversion at the Option of the Holder. Subject to the provisions
of this paragraph 5, each holder of shares of Series H Preferred Stock shall
have the right, at any time and from time to time, at such holder's option, to
convert its outstanding shares of Series H Preferred Stock, in whole or in part,
into fully paid and non-assessable shares of Common Stock. The number of shares
of Common Stock deliverable upon conversion of one share of Series H Preferred
Stock shall be equal to (i) the Accreted Value of such share on the date of
conversion, plus any dividends accrued to such date (whether or not earned or
declared) since the end of the previous Dividend Period, divided by (ii) the
Conversion Price on such date. No notice delivered by the Company pursuant to
paragraph 5(i), 5(j) or 6 will limit in any way the holders' rights to convert
pursuant to this paragraph 5(b). In order to exercise the conversion privilege
set forth in paragraph 5(b), the holder of the shares of Series H Preferred
Stock to be converted shall surrender the certificate representing such shares
at the office of the Company, with a written notice of election to convert
completed and signed, specifying the number of shares to be converted. Each
conversion pursuant to paragraph 5(b) shall be deemed to have been effected
immediately prior to the close of business on the date on which the certificates
for shares of Series H Preferred Stock shall have been surrendered and such
notice received by the Company as aforesaid, and the person in whose name or
names any certificate or certificates for shares of Common Stock shall be
issuable upon such conversion shall be deemed to have become the holder of
record of the shares of Common Stock represented thereby at such time on such
date. Effective upon such conversion, the shares of Series H Preferred Stock so
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converted shall no longer be deemed to be outstanding, and all rights of a
holder with respect to such shares surrendered for conversion shall immediately
terminate except the right to receive the Common Stock and other amounts payable
pursuant to this paragraph 5.
(c) (i) Unless the shares issuable on conversion pursuant to this
paragraph 5 are to be issued in the same name as the name in which such shares
of Series H Preferred Stock are registered, each share surrendered for
conversion shall be accompanied by instruments of transfer, in form reasonably
satisfactory to the Company, duly executed by the holder or the holder's duly
authorized attorney and an amount sufficient to pay any transfer or similar tax.
(ii) As promptly as practicable after the surrender by the
holder of the certificates for shares of Series H Preferred Stock as
aforesaid, the Company shall issue and shall deliver to such holder,
or on the holder's written order to the holder's transferee, a
certificate or certificates for the whole number of shares of Common
Stock issuable upon the conversion of such shares in accordance with
the provisions of this paragraph 5.
(iii) All shares of Common Stock delivered upon conversion
of the Series H Preferred Stock will upon delivery be duly and validly
issued and fully paid and non-assessable, free of all liens and
charges and not subject to any preemptive rights.
(d) (i) Upon delivery to the Company by a holder of shares of Series H
Preferred Stock of a notice of election to convert pursuant to paragraph 5(b)
above, the right of the Company to redeem such shares of Series H Preferred
Stock shall terminate, regardless of whether a notice of redemption has been
mailed pursuant to paragraph 6.
(ii) From the date of delivery by a holder of shares of
Series H Preferred Stock of such notice of election to convert, in
lieu of dividends on such Series H Preferred Stock pursuant to
paragraph 3, such Series H Preferred Stock shall participate equally
and ratably with the holders of shares of Common Stock in all
dividends paid on the Common Stock.
(iii) Except as provided herein, the Company shall make no
payment or adjustment for accrued dividends on shares of Series H
Preferred Stock, whether or not in arrears, on conversion of such
shares or for dividends in cash on the shares of Common Stock issued
upon such conversion.
(e) (i) The Company covenants that it will at all times reserve and
keep available, free from preemptive rights, such number of its authorized but
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unissued shares of Common Stock as shall be required for the purpose of
effecting conversion of the Series H Preferred Stock.
(ii) Prior to the delivery of any securities which the
Company shall be obligated to deliver upon conversion of the Series H
Preferred Stock, the Company shall comply with all applicable federal
and state laws and regulations which require action to be taken by the
Company.
(f) The Company will pay any and all documentary stamp or similar
issue or transfer taxes payable in respect of the issue or delivery of shares of
Common Stock on conversion of the Series H Preferred Stock pursuant hereto;
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issue or delivery of shares
of Common Stock in a name other than that of the holder of the Series H
Preferred Stock to be converted and no such issue or delivery shall be made
unless and until the person requesting such issue or delivery has paid to the
Company the amount of any such tax or has established, to the satisfaction of
the Company, that such tax has been paid.
(g) In connection with the conversion of any shares of Series H
Preferred Stock, no fractional shares of Common Stock shall be issued, but in
lieu thereof the Company shall round up any fractional shares to the nearest
whole number of shares of Common Stock.
(h) (i) In case the Company shall at any time after the date of issue
of the Series H Preferred Stock (A) declare a dividend or make a distribution on
Common Stock payable in Common Stock, (B) subdivide or split the outstanding
Common Stock, (C) combine or reclassify the outstanding Common Stock into a
smaller number of shares or (D) consolidate with, or merge with or into, any
other Person, or engage in any reorganization, reclassification or
recapitalization which, in the case of any such transaction is effected in such
a manner that the holders of Common Stock are entitled to receive stock,
securities, cash or other assets with respect to or in exchange for Common Stock
(other than as a dividend or distribution referred to in paragraph 3(d)), the
Conversion Price and the kind and amount of stock, securities, cash or other
assets issuable upon conversion of the Series H Preferred Stock in effect at the
time of the record date for such dividend or distribution or of the effective
date of such subdivision, split, combination, consolidation, merger,
reorganization, reclassification or recapitalization shall be adjusted so that
the conversion of the Series H Preferred Stock after such time shall entitle the
holder to receive the aggregate number of shares of Common Stock or securities,
cash and other assets which, if the Series H Preferred Stock had been converted
immediately prior to such time, such holder would have owned upon such
conversion and been entitled to receive by virtue of such dividend,
distribution, subdivision, split, combination, consolidation, merger,
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reorganization, reclassification or recapitalization, assuming such holder of
Common Stock (x) is not a Person with which the Company consolidated or into
which the Company merged or which merged into the Company or to which such
reorganization, reclassification, recapitalization, sale or transfer was made,
as the case may be ("constituent person"), or an affiliate of a constituent
person and (y) failed to exercise any rights of election as to the kind or
amount of securities, cash and other property receivable upon such
reclassification, change, consolidation, merger, reorganization or
recapitalization (provided that, if the kind or amount of securities, cash and
other property receivable upon such reclassification, change, consolidation,
merger, reorganization or recapitalization is not the same for each share of
Common Stock held immediately prior to such reclassification, change,
consolidation, merger, reorganization or recapitalization by other than a
constituent person or an affiliate thereof and in respect of which such rights
of election shall not have been exercised ("non-electing share"), then for the
purpose of this paragraph 5(h) the kind and amount of securities, cash and other
property receivable upon such reorganization, reclassification, change,
consolidation, merger or recapitalization by each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such adjustment shall be made successively whenever any
event listed above shall occur.
(ii) In case the Company shall issue or sell any Common
Stock (other than Common Stock issued (A) upon exercise of the
Warrants, (B) pursuant to the Company's stock option plans or pursuant
to any similar Common Stock-related compensation plan or arrangement
for employees, directors and/or individual consultants of the Company
and its Subsidiaries approved by the Company's Board of Directors, (C)
upon exercise or conversion of any security the issuance of which
caused an adjustment under paragraphs 5(h)(iii) or 5(h)(iv) hereof,
(D) pursuant to the securities and agreements of the Company existing
as of the date hereof and set forth on Section 3.21 of the Disclosure
Schedule to the Series H Subscription Agreement, (E) after the second
anniversary of the Closing Date, as a dividend payment on any series
of preferred stock of the Company that has not been authorized and
issued as of the Closing Date to the extent that such Common Stock has
been valued for the purposes of such dividend at no less than 97% of
the Current Market Price Per Common Share on the date the number of
shares to be issued is fixed, (F) upon exercise of warrants granted to
the lenders, lessors and other financing parties of the Company and
its Subsidiaries as additional consideration in connection with bona
fide financing arrangements which do not in the aggregate, on a
cumulative basis, exceed 0.333% of the outstanding Common Stock or (G)
in a transaction which results in an adjustment pursuant to paragraph
5(h)(i) above) without consideration or for a consideration per share
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less than the (x) the Conversion Price on the date of such issuance if
such issuance occurs on or before the second anniversary of the
Closing Date and (y) the Current Market Price Per Common Share on the
date on which the price of such securities is fixed if such issuance
occurs after the second anniversary of the Closing Date (the
applicable price for such issuance being referred to herein as the
"Applicable Price"), the Conversion Price to be in effect after such
issuance or sale shall be determined by multiplying the Conversion
Price in effect immediately prior to such issuance or sale by a
fraction, the numerator of which shall be the sum of (1) the number of
shares of Common Stock outstanding immediately prior to the time of
such issuance or sale multiplied by the Applicable Price immediately
prior to such issuance or sale and (2) the aggregate consideration, if
any, to be received by the Company upon such issuance or sale, and the
denominator of which shall be the product of the aggregate number of
shares of Common Stock outstanding immediately after such issuance or
sale and the Applicable Price immediately prior to such issuance or
sale, but in no event will such fraction exceed 1. In case any portion
of the consideration to be received by the Company shall be in a form
other than cash, the fair market value of such noncash consideration
shall be utilized in the foregoing computation. Such fair market value
shall be determined by the Board of Directors of the Company; provided
that if the holders of a majority of the outstanding shares of Series
H Preferred Stock shall object to any such determination, the Board of
Directors shall retain an independent appraiser reasonably
satisfactory to such holders to determine such fair market value. The
holders of the Series H Preferred Stock shall be notified promptly of
any consideration other than cash received by the Company and
furnished with a description of the consideration and the fair market
value thereof, as determined by the Board of Directors.
(iii) In case the Company shall fix a record date for the
issuance of any Equity-Linked Securities (other than the Company's
Series B Preferred Stock) to the holders of its Common Stock or other
securities entitling such holders to subscribe for or purchase shares
of Common Stock (or securities convertible into or exchangeable for
shares of Common Stock) at a price per share of Common Stock (or
having a conversion price or exchange price per share of Common Stock,
if it is a security convertible into or exchangeable for shares of
Common Stock) less than the Applicable Price on such record date, the
maximum number of shares of Common Stock issuable upon exercise,
conversion or exchange of such Equity-Linked Securities shall be
deemed to have been issued and outstanding as of such record date and
the Conversion Price shall be adjusted pursuant to paragraph 5(h)(ii)
hereof, as though such maximum number of shares of Common Stock had
been so issued for an aggregate consideration payable by the holders
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of such Equity-Linked Securities prior to their receipt of such shares
of Common Stock. In case any portion of such consideration shall be in
a form other than cash, the fair market value of such noncash
consideration shall be determined as set forth in paragraph 5(h)(ii)
hereof. Such adjustment shall be made successively whenever such
record date is fixed; and in the event (x) that such Equity-Linked
Securities are not so issued or expire unexercised, or (y) of a change
in the number of shares of Common Stock to which the holders of such
Equity-Linked Securities are entitled (other than pursuant to
adjustment provisions therein comparable to those contained in this
paragraph 5(h)), the Conversion Price shall again be adjusted to be
the Conversion Price which would then be in effect in the case of
clause (x), if such record date had not been fixed, or in the case of
clause (y), if such holder had initially been entitled to such changed
number of shares of Common Stock.
(iv) In case the Company shall sell or issue any
Equity-Linked Securities (other than pursuant to securities and
agreements of the Company existing on the Closing Date and set forth
on Section 3.21 of the Disclosure Schedule to the Series H
Subscription Agreement or options or other securities issued pursuant
to a plan or arrangement described in clause 5(h)(ii)(B)), and the
price per share of Common Stock of such Equity-Linked Securities
(including, if applicable, the price at which they may be exercised)
is less than the Applicable Price, the maximum number of shares of
Common Stock issuable upon exercise, conversion or exchange of such
Equity-Linked Securities shall be deemed to have been issued and
outstanding as of the date of such sale or issuance, and the
Conversion Price shall be adjusted pursuant to paragraph 5(h)(ii)
hereof as though such maximum number of shares of Common Stock had
been so issued for an aggregate consideration equal to the aggregate
consideration paid for such Equity-Linked Securities and the aggregate
consideration payable by the holders of such Equity-Linked Securities
prior to their receipt of such shares of Common Stock. In case any
portion of such consideration shall be in a form other than cash, the
fair market value of such noncash consideration shall be determined as
set forth in paragraph 5(h)(ii) hereof. Such adjustment shall be made
successively whenever such Equity-Linked Securities are issued; and in
the event (x) that such Equity-Linked Securities expire unexercised,
or (y) of a change in the number of shares of Common Stock to which
the holders of such Equity-Linked Securities are entitled (other than
pursuant to adjustment provisions therein comparable to those
contained in this paragraph 5(h) as they may be amended pursuant to
paragraph 5(h)(vii)), the Conversion Price shall again be adjusted to
be the Conversion Price which would then be in effect in the case of
clause (x), if such Equity-Linked Securities had not been issued, or
in the case of clause (y), if such holders had initially been
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entitled to such changed number of shares of Common Stock. No
adjustment of the Conversion Price shall be made pursuant to this
paragraph 5(h)(iv) to the extent that the Conversion Price shall have
been adjusted pursuant to paragraph 5(h)(iii) upon the setting of any
record date relating to such Equity-Linked Securities and such
adjustment fully reflects the number of shares of Common Stock to which
the holders of such Equity-Linked Securities are entitled and the price
payable therefor.
(v) No adjustment in the Conversion Price shall be required
unless such adjustment would require an increase or decrease of at
least two percent in such price; provided that any adjustments which
by reason of this paragraph 5(h)(v) are not required to be made shall
be carried forward and taken into account at such time when such
adjustments would in the aggregate require an increase or decrease of
at least two percent in such price. All calculations under this
paragraph 5(h) shall be made to the nearest four decimal points.
(vi) In the event that, at any time as a result of the
provisions of this paragraph 5(h), the holder of this Series H
Preferred Stock upon subsequent conversion shall become entitled to
receive any shares of capital stock of the Company other than Common
Stock, the number of such other shares so receivable upon conversion
of this Series H Preferred Stock shall thereafter be subject to
adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions contained herein.
(vii) Notwithstanding anything contained herein to the
contrary, in the event the Company issues securities to another Person
containing anti-dilution provisions that are materially more
favorable to holders of such securities than the provisions set forth
in this paragraph 5(h), the holders of a majority of the outstanding
shares of the Series H Preferred Stock may elect to have such more
favorable provisions apply to the Series H Preferred Stock with
respect to adjustments to the Conversion Price in connection with any
future issuance of securities by the Company. Materially more
favorable provisions shall include, without limitation, any
full-ratchet provision. In addition, if the Company issues any
securities with a re-set provision, any applicable adjustments to the
Conversion Price shall be made both at the time of the issuance of
such securities and at the time of the re-set, provided that if the
initial issuance occurs on or prior to the second anniversary of the
Closing Date, the "Applicable Price" for purposes of any such
adjustments made at the time of the re-set shall be the Conversion
Price at the time of the re-set, irrespective of when the re- set
occurs. Notwithstanding anything contained herein to the contrary, the
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resetting of the exercise price of the Warrants pursuant to Section
8(o) thereof shall not result in any adjustment of the Conversion
Price.
(viii) The Company shall not take any action that would
cause an adjustment of the Conversion Price pursuant to this paragraph
5(h) unless it has complied with all statutes, rules and regulations
applicable thereto at that time, including any and all regulations or
the principal trading market on which the Common Stock is then
trading, including, if necessary, any shareholder approval requirement
under NASD Rule 4460(i), as it may be amended from time to time.
(i) All adjustments pursuant to this paragraph 5 shall be notified to
the holders of Series H Preferred Stock promptly following the making thereof
and such notice shall be accompanied by a schedule of computations of the
adjustments.
(j) Change of Control Offer. (i) Promptly after the occurrence of a
Change of Control (the date of such occurrence being the "Change of Control
Date"), the Company shall commence (or cause to be commenced) an offer to
purchase any or all outstanding shares of Series H Preferred Stock pursuant to
the terms described in paragraph 5(j)(iv) (the "Change of Control Offer") at a
purchase price per holder equal to the Change of Control Amount on the Change of
Control Payment Date, and shall purchase (or cause the purchase of) any shares
of Series H Preferred Stock and shares of Series G Preferred Stock tendered in
the Change of Control Offer pursuant to the terms hereof.
(ii) The Change of Control Amount shall be payable, at the
Company's option, in cash or in shares of Common Stock (or the
securities of the entity into which the Common Stock became converted
in connection with the Change of Control), which shares shall be
valued for purposes of this paragraph 5(j) at the Current Market Price
Per Common Share on the Change of Control Payment Date.
(iii) If the Company elects to pay the Change of Control
Amount in cash, prior to the mailing of the notice referred to in
paragraph 5(j)(iv), but in any event within 30 days following the date
on which a Change of Control has occurred, the Company shall (A)
promptly determine if the purchase of the Series H Preferred Stock or
the Series G Preferred Stock for cash would violate or constitute a
default under the indebtedness of the Company or the terms of any
other series of the Company's outstanding preferred stock and (B)
either shall repay to the extent necessary all such indebtedness or
preferred stock of the Company that would prohibit the repurchase of
the Series H Preferred Stock or the Series G Preferred Stock pursuant
to a Change of Control Offer or obtain any requisite consents or
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approvals under instruments governing any indebtedness or preferred
stock of the Company to permit the repurchase of the Series H Preferred
Stock and the Series G Preferred Stock for cash. The Company shall
first comply with this paragraph 5(j)(iii) before it shall repurchase
for cash any Series H Preferred Stock and the Series G Preferred Stock
pursuant to this paragraph 5(j).
(iv) Within 30 days following the date on which a Change in
Control has occurred, the Company shall send, by first-class mail,
postage prepaid, a notice to each holder of Series H Preferred Stock.
If applicable, such notice shall contain all instructions and
materials necessary to enable such holders to tender all or any
portion of the Series H Preferred Stock and the Series G Preferred
Stock pursuant to the Change of Control Offer. Such notice shall
state:
(A) that a Change of Control has occurred, that a
Change of Control Offer is being made pursuant to this
paragraph 5(j) and that all Series H Preferred Stock and
Series G Preferred Stock validly tendered and not withdrawn
will be accepted for payment;
(B) that a holder who elects to accept a Change of
Control Offer shall be required to surrender in connection
with such acceptance its shares of the Series G Preferred
Stock that are being tendered in connection therewith;
(C) the purchase price (including the amount of
accrued dividends, if any) and the purchase date (which must
be no earlier than 30 days nor later than 60 days from the
date such notice is mailed, other than as may be required by
law) (the "Change of Control Payment Date");
(D) that any shares of Series H Preferred Stock
not tendered will continue to accrue dividends;
(E) that, unless the Company defaults in making
payment therefor, any share of Series H Preferred Stock and
any share of Series G Preferred Stock accepted for payment
pursuant to the Change of Control Offer shall cease to
accrue dividends after the Change of Control Payment Date;
(F) that holders electing to have any share of
Series H Preferred Stock and any share of Series G Preferred
Stock purchased pursuant to a Change of Control Offer will
be required to surrender stock certificates representing
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such shares of Series H Preferred Stock and shares of Series
G Preferred Stock, properly endorsed for transfer, together
with such other customary documents as the Company and the
Transfer Agent may reasonably request to the Transfer Agent
and registrar for the Series H Preferred Stock at the
address specified in the notice prior to the close of
business on the business day prior to the Change of Control
Payment Date;
(G) that holders will be entitled to withdraw
their election if the Company receives, not later than five
business days prior to the Change of Control Payment Date, a
telegram, facsimile transmission or letter setting forth the
name of the holder, the number of shares of Series H
Preferred Stock and shares of Series G Preferred Stock the
holder delivered for purchase and a statement that such
holder is withdrawing its election to have such shares of
Series H Preferred Stock and shares of Series G Preferred
Stock purchased;
(H) that holders who tender only a portion of the
shares of Series H Preferred Stock or shares of Series G
Preferred Stock represented by a certificate delivered will,
upon purchase of the shares tendered, be issued a new
certificate representing the unpurchased shares of Series H
Preferred Stock or shares of Series G Preferred Stock, as
the case may be; and
(I) the circumstances and relevant facts regarding
such Change of Control (including information with respect
to pro forma historical income, cash flow and capitalization
after giving effect to such Change of Control).
(v) The Company will comply with any tender offer rules
under the Exchange Act which then may be applicable in connection with
any offer made by the Company to repurchase the shares of Series H
Preferred Stock and the Series G Preferred Stock as a result of a
Change of Control. To the extent that the provisions of any securities
laws or regulations conflict with provisions of this Certificate of
Designations, the Company shall comply with the applicable securities
laws and regulations and shall not be deemed to have breached its
obligation under this Certificate of Designations by virtue thereof.
(vi) On the Change of Control Payment Date, the Company
shall (A) accept for payment the shares of Series H Preferred Stock
and the shares of Series G Preferred Stock validly tendered pursuant
to the Change of Control Offer, (B) pay to the holders of shares so
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<PAGE>
accepted the purchase price therefor in cash or Common Stock (or the
securities of the entity into which the Common Stock became converted
in connection with the Change of Control) as provided above and (C)
cancel each surrendered certificate and retire the shares represented
thereby. Unless the Company defaults in the payment for the shares of
Series H Preferred Stock and the shares of Series G Preferred Stock
tendered pursuant to the Change of Control Offer, dividends will cease
to accrue with respect to the shares of Series H Preferred Stock and
the shares of Series G Preferred Stock tendered and all rights of
holders of such tendered shares will terminate, except for the right
to receive payment therefor on the Change of Control Payment Date.
(vii) To accept the Change of Control Offer, the holder of a
share of Series H Preferred Stock shall deliver, prior to the close of
business on the business day prior to the Change of Control Payment
Date, written notice to the Company (or an agent designated by the
Company for such purpose) of such holder's acceptance, together with
certificates evidencing the shares of Series H Preferred Stock and the
shares of Series G Preferred Stock with respect to which the Change of
Control Offer is being accepted, duly endorsed for transfer.
(viii) For the avoidance of doubt, nothing in this paragraph
5(j) shall restrict the right of the holders of Series H Preferred
Stock, in connection with a Change of Control, to convert and to
receive the kind and amount of consideration payable to holders of
Common Stock in respect of the Common Stock into which the Series H
Preferred Stock may be converted.
(k) Certain Mergers. In connection with any consolidation with or
merger with or into, any person in a transaction where the Common Stock is
converted into or exchanged for securities of such person or an affiliate of
such person, the Company covenants that the person issuing such securities will
be organized and existing under the laws of a jurisdiction which allows for the
issuance of preference stock and that the Series H Preferred Stock shall be
converted into or exchanged for and shall become shares of such person having in
respect of such person substantially the same powers, preference and relative
participating, optional or other special rights and the qualifications,
limitations or restrictions thereon that the Series H Preferred Stock had
immediately prior to such transaction.
6. Redemption. (a) On April 1, 2010, the Company will be required to
redeem all of the outstanding shares of Series H Preferred Stock at a redemption
price per share equal to the greater of (i) the Accreted Value on such date,
plus all dividends accrued to such date (whether or not earned or declared)
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<PAGE>
accepted the purchase recent Dividend Payment Date and (ii) the aggregate
Current Market Price Per Common Share on such date for the number of shares of
Common Stock into which a share of Series H Preferred Stock is convertible on
such date. The redemption price will be payable, solely at the Company's option,
in cash or in shares of Common Stock, which shares shall be valued for purposes
of this paragraph 6 at 97% of the Current Market Price Per Common Share on April
1, 2010, or in some combination thereof.
(b) Notice of such redemption shall be given by the Company by first
class mail, postage prepaid, mailed not less than 30 days nor more than 60 days
prior to the redemption date, to each holder of record of the shares to be
redeemed at such holder's address as the same appears on the stock register of
the Company; provided that neither the failure to give such notice nor any
defect therein shall affect the validity of the giving of notice for the
redemption of any share of Series H Preferred Stock to be redeemed except as to
the holder to whom the Company has failed to give said notice or except as to
the holder whose notice was defective. Each such notice shall state: (i) the
redemption date; (ii) the redemption price; (iii) the place or places where
certificates for such shares are to be surrendered for payment of the redemption
price; and (iv) that dividends on the shares to be redeemed will cease to accrue
on such redemption date.
(c) Notice having been mailed as aforesaid, from and after the
redemption date (unless default shall be made by the Company in providing money
for the payment of the redemption price of the shares called for redemption),
dividends on the shares of Series H Preferred Stock so called for redemption
shall cease to accrue, and all rights of the holders thereof as stockholders of
the Company (except the right to receive from the Company the redemption price)
shall cease. Upon surrender in accordance with said notice of the certificates
for any shares so redeemed (properly endorsed or assigned for transfer, if the
Board of Directors of the Company shall so require and the notice shall so
state), such share shall be redeemed by the Company at the redemption price
aforesaid.
7. Voting Rights. (a) Except as otherwise provided in paragraph 7(b)
or as required by law, each holder of Series H Preferred Stock shall be entitled
to vote on all matters and shall be entitled to that number of votes equal to
the number of shares of Common Stock into which such holder's shares of Series H
Preferred Stock could be converted, pursuant to the provisions of paragraph 5
hereof, on the record date for the determination of shareholders entitled to
vote on such matter or, if no such record date is established, on the date such
vote is taken or any written consent of shareholders is solicited; provided that
if such number of votes for such holder would cause a violation of the voting
rights rule set forth in NASD Rule 4460(j), as it may be amended from time to
time, such holder shall be entitled only to the number of votes that is
permitted by such NASD Rule 4460(j).
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Except as otherwise expressly provided herein or as required by law, the holders
of shares of Series H Preferred Stock and Common Stock shall vote together as a
single class on all matters.
(b) In addition, so long as any of the Series H Preferred Stock is
outstanding, the affirmative vote of the holders of a majority of the
outstanding shares of Series H Preferred Stock, voting together as a single
class, shall be necessary to, (i) amend, alter or repeal any provision of the
Restated Certificate of Incorporation (whether by amendment, merger or
otherwise) or the By-laws so as to adversely affect the preferences, rights or
powers of the Series H Preferred Stock, including, without limitation, the
voting powers and liquidation preference of the Series H Preferred Stock, or
change the Series H Preferred Stock into any other securities (other than as
required by paragraph 5(k)), cash or other property, (ii) issue any additional
Series H Preferred Stock or create, authorize or issue any capital stock that
ranks prior (whether with respect to dividends or upon liquidation, dissolution,
winding up or otherwise) to the Series H Preferred Stock or (iii) redeem for
cash any Junior Securities, other than the redemption of any convertible
preferred stock, if at the time of the redemption notice, the applicable
conversion price of such convertible preferred stock is less than the Current
Market Price Per Common Share. Except as otherwise required by law, the vote of
holders of shares of Common Stock shall not be necessary to accomplish any of
the actions contemplated by this paragraph 7(b).
8. Miscellaneous. (a) If, in connection with a Change of Control
Offer pursuant to paragraph 5(j) or a redemption pursuant to paragraph 6, the
Company determines to pay the Change of Control Amount or the redemption price
in shares of Common Stock ("Stock Election"), the Company will use its best
efforts to (i) register such shares of Common Stock under the Securities Act of
1933, as amended, (ii) cause such registration statement to be effective at or
prior to the time that the Company will deliver such shares to the holders of
Series H Preferred Stock, (iii) have such shares listed on the principal trading
market for the Common Stock and (iv) take such other actions as may reasonably
be required to register the issuance (or, as appropriate, the re-sale) of the
shares of Common Stock to be delivered to the holders of the Series H Preferred
Stock.
(b) If the Company makes a Stock Election, it shall comply with all
statutes, rules and regulations applicable thereto at that time, including any
and all regulations of the principal trading market on which the Common Stock is
then trading, including, if necessary, any shareholder approval requirement
under NASD Rule 4460(i), as it may be amended from time to time.
(c) Any provision hereof may be waived if, and only if, such waiver is
in writing and signed by the Company and the holders of a majority of the
outstanding shares of the Series H Preferred Stock.
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<PAGE>
9. Definitions. The following terms, as used herein, shall have the
following meanings:
"Accreted Value" equals, with respect to one share of Series H
Preferred Stock, $1,000, plus the amount of any dividends added to Accreted
Value in accordance with paragraph 3(b) (which aggregate amount shall be subject
to adjustment whenever there shall occur a stock split, combination,
re-classification or other similar event involving the Series H Preferred
Stock).
"Affiliate" of any holder means any other Person directly or indirectly
controlling, controlled by or under common control with such holder; provided
that the Company shall not be considered an Affiliate of any holder.
"Change of Control" means: (i) the sale, lease, transfer, conveyance or
other disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all the assets of the
Company and its Subsidiaries, taken as a whole, to any "person" (as such term is
used in Section 13(d)(3) of the Exchange Act), (ii) the consummation of any
transaction or series of related transactions (including any merger or
consolidation) the result of which is that any "person" (as defined above),
other than William J. Rouhana, Jr., becomes the beneficial owner (as determined
in accordance with Rules 13d-3 and 13d-5 under the Exchange Act, except that a
person will be deemed to have beneficial ownership of all shares that such
person has the right to acquire, whether such right is exercisable immediately
or only after the passage of time), directly or indirectly, of more than 50% of
the Voting Securities of the Company, (iii) the first day on which a majority of
the members of the board of directors are not Continuing Directors, or (iv) any
transaction or series of related transactions with or involving any "person" (as
defined above) if, immediately following such transaction or series of related
transactions, holders of the Common Stock outstanding immediately prior to such
transaction or series of related transactions own 50% or less of the outstanding
voting securities of the surviving or transferee corporation (or its parent
corporation).
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"Change of Control Amount" means, with respect to any holder,
1.25 H + [(1.25 G - C) x A ]
----------------------------------
B x $250,000,000
------------
$900,000,000
where
H = the aggregate Accreted Value on the Change of Control
Payment Date of each share of Series H Preferred Stock
tendered by such holder pursuant to the Change of Control
Offer, plus all dividends accrued since the previous
dividend payment date; provided that if the Change of
Control Payment Date occurs prior to the fourth anniversary
of the Closing Date, "H" shall be calculated as if the
Change of Control Payment Date occurred on such fourth
anniversary date
G = the aggregate "accreted value" (as defined in the Series G
Certificate) on the Change of Control Payment Date of each
Initial Series G Share tendered by such holder pursuant to
the Change of Control Offer, plus all dividends accrued
since the previous dividend payment date
C = any aggregate "change of control amount" (as defined in
the Series G Certificate) actually paid on the Change of
Control Payment Date pursuant to the Series G Certificate on
each Initial Series G Share tendered by such holder pursuant
to the Change of Control Offer
A = the aggregate purchase price (measured at the time of
issuance by the Company pursuant to the Series H
Subscription Agreement) of the Initial Series H Shares of
such holder
B = the aggregate purchase price (measured at the time of
issuance by the Company pursuant to the Series G
Subscription Agreement) of the Initial Series G Shares of
such holder.
"Closing Date" means the date of initial issuance of the Series H
Preferred Stock.
"Continuing Directors" means individuals who constituted the Board of
Directors of the Company on the Closing Date (the "Incumbent Directors");
provided that any individual becoming a director during any year shall be
considered to be an Incumbent Director if such individual's election,
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<PAGE>
appointment or nomination was recommended or approved by at least two-thirds of
the other Incumbent Directors continuing in office following such election,
appointment or nomination present, in person or by telephone, at any meeting of
the Board of Directors of the Company, after the giving of a sufficient notice
to each Incumbent Director so as to provide a reasonable opportunity for such
Incumbent Directors to be present at such meeting.
"Conversion Price" means $25.00, subject to adjustment from time to
time as provided in paragraph 5.
"Current Market Price Per Common Share" means, as of any date, the
average (weighted by daily trading volume) of the Daily Prices per share of
Common Stock for the 20 consecutive trading days immediately prior to such date.
"Daily Price" means, as of any date, (i) if the shares of such class of
Common Stock then are listed and traded on the New York Stock Exchange, Inc.
("NYSE"), the closing price on such date as reported on the NYSE Composite
Transactions Tape; (ii) if the shares of such class of Common Stock then are not
listed and traded on the NYSE, the closing price on such date as reported by the
principal national securities exchange on which the shares are listed and
traded; (iii) if the shares of such class of Common Stock then are not listed
and traded on any such securities exchange, the last reported sale price on such
date on the National Market of the National Association of Securities Dealers,
Inc. Automated Quotation System ("NASDAQ"); or (iv) if the shares of such class
of Common Stock then are not traded on the NASDAQ National Market, the average
of the highest reported bid and lowest reported asked price on such date as
reported by NASDAQ.
"Equity-Linked Securities" shall mean any rights, options, warrants, or
other securities convertible into or exercisable or exchangeable for shares of
Common Stock.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Initial Series G Shares" means, with respect to any holder, the number
of shares of Series G Preferred Stock (i) issued to such holder pursuant to the
Series G Subscription Agreement (other than such shares that are Transferred to
an Affiliate of such holder prior to the Closing Date) or (ii) Transferred to
such holder prior to the Closing Date by an Affiliate of such holder that
purchased such shares pursuant to the Series G Subscription Agreement.
"Initial Series H Shares" means, with respect to any holder, the number
of shares of Series H Preferred Stock (i) issued to such holder pursuant to the
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<PAGE>
Series H Subscription Agreement (other than such shares that are Transferred to
an Affiliate of such holder within 60 days after the Closing Date) or (ii)
Transferred to such holder within 60 days after the Closing Date by an Affiliate
of such holder that purchased such shares pursuant to the Series H Subscription
Agreement.
"Liquidation Value" on any date means, with respect to one share of
Series H Preferred Stock, the greater of (i) the Accreted Value on such date,
plus all dividends (whether or not earned or declared) accrued since the end of
the previous Dividend Period and (ii) the amount that would have been payable on
a number of shares of Common Stock equal to the number of shares of Common Stock
into which a share of Series H Preferred Stock was convertible immediately prior
to such date.
"Market Day" means a day on which the principal national securities
market or exchange on which the Common Stock is listed or admitted for trading
is open for the transaction of business.
"Person" as used herein means any corporation, limited liability
company, partnership, trust, organization, association, other entity or
individual.
"Securities Act" means the Securities Act of 1933, as amended.
"Series G Certificate" means the Certificate of Designations,
Preferences and Rights of Series G Preferred Stock.
"Series G Subscription Agreement" means the Securities Purchase
Agreement dated as of December 15, 1999 among the Company and the investors
party thereto.
"Series H Subscription Agreement" means the Securities Purchase
Agreement dated as of November 7, 2000 among the Company and the investors party
thereto.
"Subsidiary" means, with respect to any Person, any entity of which
Voting Securities having ordinary voting power to elect a majority of the board
of directors or other persons performing similar functions are at the time
directly or indirectly owned by such Person.
"Transfer" means, with respect to any security, (i) when used as a
verb, to sell, assign, dispose of, exchange or otherwise transfer such security
or any interest therein, whether directly or indirectly, or agree or commit to
do any of the foregoing and (ii) when used as a noun, a direct or indirect sale,
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assignment, disposition, exchange or other transfer of such security or any
interest therein or any agreement or commitment to do any of the foregoing.
"Transfer Agent" means the transfer agent for the Series H Preferred
Stock appointed by the Company.
"Voting Securities" means securities of the Company ordinarily having
the power to vote for the election of directors of the Company; provided that
when the term "Voting Securities" is used with respect to any other Person it
means the capital stock or other equity interests of any class or kind
ordinarily having the power to vote for the election of directors or other
members of the governing body of such Person.
"Warrants" means the Warrants issued to the subscribers pursuant to the
Series H Subscription Agreement.
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IN WITNESS WHEREOF, Winstar Communications, Inc. has caused this
Certificate of Designations to be signed and attested by the undersigned this
[ ] day of [ ], 2000.
WINSTAR COMMUNICATIONS, INC.
By:
---------------------------
Name:
Title:
ATTEST:
------------------------------
Name:
Title:
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