<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 16, 1996
----------------
COMMUNICATIONS WORLD INTERNATIONAL, INC.
-------------------------------------------
(Exact Name of Registrant as Specified in Charter)
Commission file number: 0-13652
Colorado 84-0917382
-------------------------------- ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6025 South Quebec, Suite 300, Englewood, Colorado 80111
- --------------------------------------------------- --------------------
(Address of principal executive offices) (Zip Code)
(303) 721-8200
--------------------------------------------------
Registrant's telephone number, including area code
<PAGE>
ITEM 5. OTHER EVENTS
Effective September 30, 1996, the Company acquired the assets of its
franchise in Tucson, Arizona, CommWorld of Tucson (CWT). The operations of CWT
will be continued as part of the operations of the Company's wholly owned
subsidiary, CommWorld of Phoenix, Inc. The Company acquired inventory of
approximately $41,000 and fixed assets with a net book value of approximately
$21,000. The Company issued 74,222 shares of common stock, valued at the market
price of the common stock of $1.125 per share on the date of the letter of
intent, 83,500 shares of Series G Preferred Stock, valued at the par value of
$1.00 per share, and 133,000 shares of Series F Preferred Stock, valued at the
par value of $1.00 per share.
In September 1996, the Company also completed the conversion of certain
notes payable in the aggregate principal amount of $169,819 into 169,819 shares
of Series F Preferred Stock. The notes, which were issued in connection with
previous acquisitions of certain operating subsidiaries, were converted on a
dollar for dollar basis into shares of the Series F Preferred Stock valued at
the par value of $1.00 per share. The Company also agreed with the former
noteholders to reduce the conversion price of their Series B and Series C
Preferred Stock from $6.75 and $6.25 per share, respectively, to $4.00 per
share.
Shares of the Series F Preferred Stock will automatically be converted
into common stock at a conversion price equal to 60% of the then current market
price of the common stock. The conversion will occur upon the effective date of
a registration statement to be filed by the Company under the Securities Act of
1933, as amended, covering the offer and sale of the common stock received upon
conversion. If the Company has not filed a registration statement by February
28, 1997 to register for resale the common stock to be received upon conversion,
the conversion price will be equal to 50% of the then current market price.
However, the maximum number of shares of common stock to be received for each
share of Preferred Stock shall be two. The current market price will be
determined by calculating the average of the daily closing bid prices of the
common stock for 30 consecutive trading days ending no more than 15 business
days before the date of calculation. The holders of the Series F Preferred Stock
may convert earlier at their option, but in no event may conversion occur until
the Company has amended its Articles of Incorporation or other action has
occurred such that there are a sufficient number of shares of authorized and
unissued shares of common stock for the conversion of all outstanding shares of
Series F Preferred Stock.
If conversion has not occurred by November 28, 1997, the holders of
shares of the Series F Preferred Stock will be entitled to receive cumulative
dividends, when and as declared by the Board of Directors, at the rate of $.08
per share per annum, from the later of November 28, 1996 and the date of
issuance of such shares, until such shares are converted. Dividends on the
Series F Preferred Stock will be paid before any dividends on shares of the
Company's common stock are paid. Upon liquidation, dissolution or winding up of
the Company, the Series F Preferred Stock shall have a preference of $1.00 per
share plus accumulated and unpaid dividends, payable from the proceeds of sale
or distribution of the Company's assets prior to distribution to the holders of
common stock.
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(b) Pro Forma Financial Information
Attached as Exhibit 1.
(c) Exhibits
Exhibit 2 - Articles of Amendment to Articles of Incorporation of
Communications World International, Inc. with Statement of
Designation of the Series F Preferred Stock.
Exhibit 3 - Articles of Amendment to Articles of Incorporation of
Communications World International, Inc. with Statement of
Designation of the Series G Preferred Stock.
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
Communications World International, Inc.
---------------------------------------
(Registrant)
Date: October 16, 1996 /s/ Richard D. Olson
---------------- ---------------------------------------
Richard D. Olson, President and C.E.O.
Date: October 16, 1996 /s/ Scott E. Harris
---------------- ----------------------------------------------
Scott E. Harris, Executive Vice President, CFO
<PAGE>
EXHIBIT 1
(b) Pro Forma Financial Information
Following is the Pro Forma Unaudited Balance Sheet of Communications World
International, Inc. as of September 30, 1996 and the Unaudited Consolidated
Statement of Operations for the five month period then ended. The Unaudited
Balance Sheet at September 30, 1996 reflects conversion of notes payable into
shares of Series F Preferred Stock ; the Pro Forma adjustments reflect the
acquisition of CommWorld of Tucson.
<TABLE>
<CAPTION>
Pro Forma Pro Forma
ASSETS Sept. 30, 1996 Adjustments Sept. 30, 1996
- ------ -------------- ----------- --------------
<S> <C> <C> <C>
Current assets:
Cash $ 47,250 $ 47,250
Trade accounts and current portion
of notes receivable, less allowance
for doubtful accounts of $ 214,687 2,362,714 2,362,714
Inventories 983,306 $ 41,000 1,024,306
Prepaid expenses 75,565 75,565
----------- -------- -----------
Total current assets 3,475,835 $ 41,000 3,509,835
Property and equipment, net 440,495 21,000 461,495
Deposits and other assets 29,380 29,380
Notes receivable 71,442 71,442
Intangible assets, net 1,199,537 248,000 1,447,537
----------- -------- -----------
$ 5,209,689 $310,000 $ 5,519,689
=========== ======== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------
Current liabilities:
Trade accounts payable $ 1,648,245 $ 1,648,245
Revolving line of credit 629,267 629,267
Current portion of notes payable,
including amounts due to related
parties of $ 84,570 371,473 371,473
Accrued expenses 200,449 200,449
Current portion of capital lease
obligations 5,452 5,452
Deposits and other current
liabilities 226,264 226,264
----------- -----------
Total current liabilities 3,081,150 3,081,150
Capital lease obligations and deferred
revenue 73,436 73,436
Notes payable, including amounts due
to related parties of $ 299,338 1,289,247 1,289,247
----------- -----------
Total liabilities 4,443,833 4,443,833
----------- -----------
Stockholders' equity:
Preferred stock, cumulative,
convertible. $1.00 par value,
3,000,000 shares authorized, Series
B - 80,088 issued and outstanding,
Series C - 426,678 issued and
outstanding 676,585 226,500 903,085
Common stock, no par value, 2,000,000
shares authorized, 1,546,038 shares
issued and outstanding 4,141,012 83,500 4,224,512
Additional paid-in capital 452,884 452,884
Accumulated deficit (4,504,625) (4,504,625)
----------- -------- -----------
Total stockholders' equity 765,856 310,000 1,075,856
----------- -------- -----------
Commitments and contingencies $ 5,209,689 $310,000 $ 5,519,689
=========== ======== ===========
</TABLE>
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FIVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Revenue:
<S> <C>
Initial franchise fees $ 12,500
Equipment and related service revenue 3,405,441
Royalty fees 80,564
Direct equipment and service sales 3,487,737
Other revenue 195,812
----------
Total revenue 6,106,176
Costs and expenses:
Cost of equipment and related service revenue 2,041,544
Cost of direct equipment and service sales 1,860,787
Cost of other revenue 75,843
Selling 362,450
General and administrative 1,386,835
Depreciation and Amortization 172,448
Interest Expense 130,326
Provision for bad debts 46,987
----------
Total costs and expenses 6,077,220
Net income (loss) 28,956
Cumulative dividend on preferred stock 16,995
----------
Net income (loss) applicable to common stock $ 11,961
==========
Weighted average number of common shares outstanding 1,546,038
==========
Income (loss) per common share $ .01
==========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
UNAUDITED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FIVE MONTHS ENDED SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net income $ 28,956
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization 172,447
Provision for bad debts on accounts
and notes receivable 46,987
Changes in operating assets and liabilities:
Trade accounts and notes receivable (510,464)
Inventories (175,422)
Other current assets (44,187)
Deposits and other assets 101,948
Trade accounts payable 489,202
Accrued expenses and other liabilities 46,268
---------
Net cash provided by operating activities 155,268
---------
Cash flows investing activities - capital expenditures (15,115)
Cash flows from financing activities:
Net change in notes payable (123,877)
Net change in revolving line of credit (59,793)
Repayment of capital lease obligations (13,448)
---------
Net cash provided by (used in) financing activities (197,118)
Decrease in cash (56,498)
Cash at beginning of period 103,748
---------
Cash at end of period $ 47,250
=========
Supplemental disclosures of cash flow information:
Interest paid $ 130,326
=========
Noncash transactions-conversion of debt to equity $ 169,819
=========
</TABLE>
See accompanying notes to interim consolidated financial statements.
<PAGE>
COMMUNICATIONS WORLD INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Interim Consolidated Financial Statements
September 30, 1996
(Unaudited)
----------
The accompanying interim consolidated financial statements are those of
Communications World International, Inc. (the "Company" or "CommWorld") and its
subsidiaries, CommWorld of Phoenix, Inc., CommWorld of Seattle, Inc., Digital
Telecom, Inc. and CommWorld National Capitol Area, Inc. All significant
intercompany balances and transactions have been eliminated.
These unaudited interim consolidated financial statements reflect, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation. The accounting policies followed
by the Company are set forth in Note 1 to the Company's consolidated financial
statements included in the Company's April 30, 1996 Form 10-KSB filing.
Operating results for the five months ended September 30, 1996 are not
necessarily indicative of the results that may be expected for the year ending
April 30, 1997.
The Company adopted Financial Accounting Standards Board ("FASB") Statement No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, effective the beginning of the current quarter. Based
on current circumstances, the effect of the adoption was not material.
In October 1995, the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation, which provides an alternative to APB Opinion No. 25, Accounting
for Stock Issued to Employees, in accounting for stock-based compensation issued
to employees. The Statement allows for a fair value based method of accounting
for employee stock options and similar equity instruments. However, for
companies that continue to account for stock-based compensation arrangements
under Opinion No. 25, Statement No. 123 requires disclosure of the pro forma
effect on net income and earnings per share of its fair value based accounting
for those arrangements. The Company has elected not to adopt the recognition and
measurement provisions of the Statement; however, the required disclosures will
be provided for its fiscal year ended April 30, 1997.
1. LIQUIDITY
---------
The Company incurred operating losses for the years ended April 30, 1996 and
1995 and in prior periods. The Company's operating losses were financed
principally by the Company's major supplier. Management plans to improve its
cash flow by increasing revenue, both from national accounts and Company-owned
outlets, improving gross profit margins and containing general and
administrative expenses, in addition to attempting to obtain additional debt or
equity financing.
The Company believes that it has sufficient financial resources available to
meet its short-term working capital needs. The ability of the Company to
continue as a going concern is dependent upon the realization of management's
plans. There can be no assurance that the Company will be able to successfully
implement its plans and therefore finance its operations over the longer term.
The accompanying unaudited interim consolidated financial statements have been
prepared assuming the Company will continue as a going concern. These unaudited
interim consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
COMMUNICATIONS WORLD INTERNATIONAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Communications World
International, Inc.
SECOND: Article Four is amended by the addition of the establishment of a
series of preferred stock consisting of 1,100,000 shares designated as the
"Series F Preferred Stock," which Series F Preferred Stock shall have the rights
and preferences set forth in the Statement of Designation appended hereto as
Exhibit A.
THIRD: The manner in which any exchange, reclassification, or
cancellation of issued shares, or provisions for implementing the Amendment if
not contained in the Amendment itself is as follows: None.
FOURTH: Date of adoption of the Amendment by the Board of Directors of
the Corporation is September 4, 1996.
FIFTH: The Amendment was adopted by the Board of Directors of the
Corporation. Shareholder action was not required pursuant to Section 7-106-102
of the Colorado Business Corporation Act.
IN WITNESS WHEREOF, the Corporation has caused these Articles of Amendment
to the Articles of Incorporation to be executed this 5th day of September, 1996.
COMMUNICATIONS WORLD INTERNATIONAL, INC.
By: _______________________________
Scott E. Harris, Vice President
Secretary and Treasurer
<PAGE>
EXHIBIT A
STATEMENT OF DESIGNATION OF THE
SERIES F PREFERRED STOCK OF
COMMUNICATIONS WORLD INTERNATIONAL, INC.
1. Designations. 1,100,000 authorized shares of Preferred Stock, par
------------
value $1.00 per share, having a liquidation preference of $1.00 per share, of
Communications World International, Inc. (the "Corporation"), shall be
designated as the "Series F Preferred Stock" (the "Preferred Stock").
2. Rank. The Preferred Stock shall be senior in right to all common
----
shares of stock of the Corporation.
3. Dividends. In the event there are shares outstanding of the Preferred
---------
Stock on or after November 28, 1997, the holders of shares of the Preferred
Stock (the "Holders") shall be entitled to receive, when and as declared by the
Board of Directors of the Corporation and out of the assets of the Corporation
legally available therefor, cumulative dividends at the rate of $.08 per share
per annum, and no more, from the later of November 28, 1996 and date of issuance
of such shares, until such shares are converted hereunder. The dividend shall
be payable annually on the twenty-eighth day of November commencing on November
28, 1997. Each such payment shall be made on the payment date with respect to
the year then ending. In computing the amount of dividends accrued in respect
of a fraction of a year, such amount shall be prorated on the basis of a 365-day
year. Dividends on the Preferred Stock shall be paid before any dividends or
distributions shall be paid upon the Common Stock and before any repurchase,
redemption, retirement or other acquisition for valuable consideration of any
shares of Common Stock shall be effected, so that if in any annual dividend
period all dividends at the rate fixed above which have been accrued from the
date of issuance of any shares of the Preferred Stock shall not have been paid,
or declared and set apart for payment, the deficiency shall be fully paid or set
apart for payment before any dividends or distributions shall be paid upon, or
set apart for, or any repurchase, redemption, retirement or other acquisition
for valuable consideration is effected of, the Common Stock.
4. Liquidation.
-----------
4.1 Preference on Liquidation. The Preferred Stock shall be preferred
-------------------------
with respect to both earnings and assets of the Corporation. In the event of the
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the Holders shall be entitled, before any payment or distribution
of the assets of the Corporation shall be made or set apart to the holders of
Common Stock to receive from the net assets of the Corporation available for
distribution to shareholders $1.00 per share in cash for such shares (as
adjusted as set forth
<PAGE>
in Section 4.2), together with any accrued and unpaid dividends and any other
amounts which may be payable with respect to such shares pursuant to Section 3
hereof to the date of final distribution to the Holders. Thereafter, the
Holders shall not be entitled to participate on an equal basis with the holders
of shares of the Common Stock in the assets of the Corporation. Neither the
consolidation or merger of the Corporation with or into any other corporation,
nor the merger or consolidation of any other corporation into or with the
Corporation; nor the sale, lease, exchange or conveyance of all or any part of
the assets of the Corporation, shall be deemed to be a dissolution, liquidation
or winding-up of the Corporation for the purposes of this Section 4.
4.2 Liquidation Price. The Liquidation Price of $1.00 per share shall
-----------------
be proportionately adjusted upon the occurrence of any stock split, reverse
stock split or other similar event which affects the Preferred Stock. As an
example, if the Corporation were to declare a two-for-one stock split of the
Preferred Stock, then the number of Shares of Preferred Stock would be doubled
and the Liquidation Price per share would be reduced by 50 percent.
5. Voting. Except as may be specifically required by the provisions of
------
the Colorado Business Corporation Act, the Holders shall have no right to vote
on any matter.
6. Conversion.
----------
6.1 By the Holders. Subject to the terms and conditions of this
--------------
Section 6, the Holders shall have the option, at any time and from time to
time, to convert their Preferred Stock into Common Stock. In order to exercise
such conversion privilege, any such Holder shall provide to the Corporation at
its principal offices advance written notice that such Holder elects to convert
his shares in accordance with the provisions of this Section 6 (the "Conversion
Notice") and shall surrender to the Corporation the certificates for the shares
of the Preferred Stock to be converted. The Conversion Notice must be received
by the Corporation not less than 5 days prior to the intended conversion date.
In the event that such Holder elects to convert only a portion of the number of
shares of the Preferred Stock converted by a certificate surrendered for
conversion, the Corporation shall issue and deliver to such Holder, a
certificate or certificates for the number of full shares of the Preferred Stock
not converted.
6.2 Automatic Conversion. Each outstanding share of Preferred Stock
--------------------
shall automatically be converted without any further act of the Corporation or
its shareholders, into fully-paid and non-assessable shares of Common Stock of
the Corporation at the Conversion Price upon the effective date (the "Effective
Date") of a registration statement filed by the Corporation under the Securities
Act of 1933, as amended, covering the offering and sale of the Common Stock
received upon conversion (the "Registration Statement"). The term "Conversion
Price" shall mean the price per share of Common Stock used to determine the
number of shares of Common Stock deliverable upon conversion of a share of the
Preferred Stock.
6.3 Conversion Price. Each share of Preferred Stock shall be
----------------
converted into a number of shares of Common Stock determined by dividing one by
that amount which is 60% of the Current Market Price. Provided, that, if the
Registration Statement is not filed by the
-2-
<PAGE>
Corporation on or before February 28, 1997, then the number of shares of Common
Stock to be received for each share of Preferred Stock shall be determined by
dividing one by that amount which is 50% of the Current Market Price.
Notwithstanding the foregoing, the maximum number of shares of Common Stock to
be received for each share of Preferred Stock shall be two. The term "Current
Market Price" at any date shall mean, in the event the Common Stock is publicly
traded, the average of the daily closing bid prices per share of Common Stock
for thirty consecutive trading days ending no more than fifteen business days
before such date (as determined by the Corporation). The closing bid prices
shall be determined by reports obtained from The Nasdaq Stock Market ("Nasdaq")
or any comparable system or, if the Common Stock is not listed on Nasdaq or any
comparable system, the average of the closing bid prices as furnished by two
members of the National Association of Securities Dealers, Inc. selected from
time to time by the Corporation for that purpose. If the Common Stock is not
traded in such manner that the quotations referred to above are available for
the period required hereunder, the Current Market Price per share of Common
Stock shall be deemed to be the fair value as determined by the Board of
Directors of the Corporation, irrespective of any accounting treatment.
6.4 No Conversion Without Sufficient Authorized, Unissued Shares.
------------------------------------------------------------
Notwithstanding the foregoing, no conversion of Preferred Stock into Common
Stock shall take effect unless and until the Corporation has amended its
Articles of Incorporation or other action has occurred such that there are a
sufficient number of shares of authorized and unissued shares of Common Stock
for the conversion of all outstanding shares of the Preferred Stock.
6.5 Issuance of Certificates; Time Conversion Effected. Upon the
--------------------------------------------------
occurrence of events specified in this Section 6, the Corporation shall issue
and deliver to such Holder, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of the shares surrendered
therefor. To the extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date on which such
certificates shall have been issued, and at such time the rights of such Holder
as to such shares surrendered shall cease and the Holder upon such conversion
shall be deemed to have become the holder of record of the shares of Common
Stock represented thereby.
6.6 Fractional Shares; Accrued Interest; Partial Conversion. No
-------------------------------------------------------
fractional shares shall be issued upon conversion of any of the Preferred Stock
(taking into account together all shares of the Preferred Stock of any Holder
being so converted at such time). At the time of each conversion of any shares
of the Preferred Stock, all accrued and unpaid dividends on the shares
surrendered for conversion to the date upon which the conversion is deemed to
take place as provided in Section 6.3 hereof shall be paid in shares of
Preferred Stock, which shares shall immediately thereafter be converted into
shares of Common Stock. If any fractional interest in a share of Common Stock
would, except for the provisions of the first sentence of this Section 6.6, be
deliverable upon the conversion of the Preferred Stock, the Corporation shall at
its option deliver (a) full share therefor in lieu of such fractional share, at
no cost to the Holder thereof, or (b) pay to the Holder, the value thereof in
cash.
-3-
<PAGE>
7. Identical Rights. Each share of the Preferred Stock shall have the
----------------
same relative rights and preferences as, and shall be identical in all respects
with, all other shares of the Preferred Stock.
8. Certificates. So long as any shares of the Preferred Stock are
------------
outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement that the Corporation shall
furnish, without charge, to each shareholder who so requests, the powers,
preferences and rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences or such rights.
IN WITNESS WHEREOF, the Corporation has caused this Statement to be signed
by its Vice President, Treasurer and Secretary, on this 5th day of September,
1996.
Communications World International, Inc.
By:_____________________________________
Scott E. Harris, Vice President,
Treasurer and Secretary
-4-
<PAGE>
ARTICLES OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
COMMUNICATIONS WORLD INTERNATIONAL, INC.
Pursuant to the provisions of the Colorado Business Corporation Act, the
undersigned Corporation adopts the following Articles of Amendment to its
Articles of Incorporation:
FIRST: The name of the Corporation is Communications World
International, Inc.
SECOND: Article Four is amended by the establishment of a series of
preferred stock consisting of 83,500 shares designated as the "Series G
Preferred Stock," which Series G Preferred Stock shall have the rights and
preferences set forth in the Statement of Designation appended hereto as Exhibit
A.
THIRD: The manner in which any exchange, reclassification, or
cancellation of issued shares, or provisions for implementing the Amendment if
not contained in the Amendment itself is as follows: None.
FOURTH: Date of adoption of the Amendment by the Board of Directors of
the Corporation is September 20, 1996.
FIFTH: The Amendment was adopted by the Board of Directors of the
Corporation. Shareholder action was not required pursuant to Section 7-106-102
of the Colorado Business Corporation Act.
IN WITNESS WHEREOF, the Corporation has caused these Articles of
Amendment to the Articles of Incorporation to be executed this 14th day of
October, 1996.
COMMUNICATIONS WORLD INTERNATIONAL, INC.
By: _______________________________
Scott E. Harris, Vice President
Secretary and Treasurer
<PAGE>
EXHIBIT A
STATEMENT OF DESIGNATION OF THE
SERIES G PREFERRED STOCK OF
COMMUNICATIONS WORLD INTERNATIONAL, INC.
1. Designations. 83,500 authorized shares of Preferred Stock, par value
------------
$1.00 per share, having a liquidation preference of $1.00 per share, of
Communications World International, Inc. (the "Corporation"), shall be
designated as the "Series G Preferred Stock" (the "Preferred Stock").
2. Rank. The Preferred Stock shall be senior in right to all common
----
shares of stock of the Corporation.
3. Dividends. The holders of shares of the Preferred Stock (the
---------
"Holders") shall be entitled to receive, when and as declared by the Board of
Directors of the Corporation and out of the assets of the Corporation legally
available therefor, cumulative dividends at the rate of $.08 per share per
annum, and no more, from the date of issuance of such shares until such shares
are converted hereunder. The dividend shall be payable annually on the first
day of April commencing on April 1, 1997. Each such payment shall be made on
the payment date with respect to the year then ending. In computing the amount
of dividends accrued in respect of a fraction of a year, such amount shall be
prorated on the basis of a 365-day year. Dividends on the Preferred Stock shall
be paid before any dividends or distributions shall be paid upon the Common
Stock and before any repurchase, redemption, retirement or other acquisition for
valuable consideration of any shares of Common Stock shall be effected, so that
if in any annual dividend period all dividends at the rate fixed above which
have been accrued from the date of issuance of any shares of the Preferred Stock
shall not have been paid, or declared and set apart for payment, the deficiency
shall be fully paid or set apart for payment before any dividends or
distributions shall be paid upon, or set apart for, or any repurchase,
redemption, retirement or other acquisition for valuable consideration is
effected of, the Common Stock.
4. Liquidation.
-----------
4.1 Preference on Liquidation. The Preferred Stock shall be preferred
-------------------------
with respect to both earnings and assets of the Corporation. In the event of the
voluntary or involuntary liquidation, dissolution or winding-up of the
Corporation, the Holders shall be entitled, before any payment or distribution
of the assets of the Corporation shall be made or set apart to the holders of
Common Stock to receive from the net assets of the Corporation available for
distribution to shareholders $1.00 per share in cash for such shares (as
adjusted as set forth in Section 4.2), together with any accrued and unpaid
dividends and any other amounts which may be payable with respect to such shares
pursuant to Section 3 hereof to the date of final distribution to the Holders.
Thereafter, the Holders shall not be entitled to participate on an equal basis
with the holders of shares of the Common Stock in the assets of the Corporation.
Neither the consolidation or merger of the Corporation with or into any other
corporation, nor
<PAGE>
the merger or consolidation of any other corporation into or with the
Corporation; nor the sale, lease, exchange or conveyance of all or any part of
the assets of the Corporation, shall be deemed to be a dissolution, liquidation
or winding-up of the Corporation for the purposes of this Section 4.
4.2 Liquidation Price. The Liquidation Price of $1.00 per share shall
-----------------
be proportionately adjusted upon the occurrence of any stock split, reverse
stock split or other similar event which affects the Preferred Stock. As an
example, if the Corporation were to declare a two-for-one stock split of the
Preferred Stock, then the number of Shares of Preferred Stock would be doubled
and the Liquidation Price per share would be reduced by 50 percent.
5. Voting. Except as may be specifically required by the provisions of
------
the Colorado Business Corporation Act, the Holders shall have no right to vote
on any matter.
6. Conversion.
----------
6.1 By the Holders. Subject to the terms and conditions of this
--------------
Section 6, the Holders shall have the option, at any time and from time to time
until October 15, 1999, to convert their Preferred Stock into Common Stock. In
order to exercise such conversion privilege, any such Holder shall provide to
the Corporation at its principal offices advance written notice that such Holder
elects to convert his shares in accordance with the provisions of this Section 6
(the "Conversion Notice") and shall surrender to the Corporation the
certificates for the shares of the Preferred Stock to be converted. The
Conversion Notice must be received by the Corporation not less than 5 days prior
to the intended conversion date. In the event that such Holder elects to convert
only a portion of the number of shares of the Preferred Stock converted by a
certificate surrendered for conversion, the Corporation shall issue and deliver
to such Holder, a certificate or certificates for the number of full shares of
the Preferred Stock not converted.
6.2 Conversion Price; Conversion Ratio. If converted, the Conversion
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Price will be $1.625. In the event of conversion, each share of Preferred Stock
shall be converted into a number of shares of Common Stock determined by
dividing 1 by the Conversion Price (the "Conversion Ratio:). The Conversion
Price and Conversion Ratio shall be proportionately adjusted upon the occurrence
of any stock split, reverse stock split, or other similar event which affects
the Common Stock or Preferred Stock.
6.3 Issuance of Certificates; Time Conversion Effected. Upon the
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occurrence of events specified in this Section 6, the Corporation shall issue
and deliver to such Holder, a certificate or certificates for the number of full
shares of Common Stock issuable upon the conversion of the shares surrendered
therefor. To the extent permitted by law, such conversion shall be deemed to
have been effected as of the close of business on the date on which such
certificates shall have been issued, and at such time the rights of such Holder
as to such shares surrendered shall cease and the Holder upon such conversion
shall be deemed to have become the holder of record of the shares of Common
Stock represented thereby.
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<PAGE>
6.4 Fractional Shares; Accrued Interest; Partial Conversion. No
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fractional shares shall be issued upon conversion of any of the Preferred Stock
(taking into account together all shares of the Preferred Stock of any Holder
being so converted at such time). At the time of each conversion of any shares
of the Preferred Stock, all accrued and unpaid dividends on the shares
surrendered for conversion to the date upon which the conversion is deemed to
take place as provided in Section 6.3 hereof shall be paid in shares of
Preferred Stock, which shares shall immediately thereafter be converted into
shares of Common Stock. If any fractional interest in a share of Common Stock
would, except for the provisions of the first sentence of this Section 6.4, be
deliverable upon the conversion of the Preferred Stock, the Corporation shall at
its option deliver (a) full share therefor in lieu of such fractional share, at
no cost to the Holder thereof, or (b) pay to the Holder, the value thereof in
cash.
6.5 No Conversion Without Sufficient Authorized, Unissued Shares.
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Notwithstanding the foregoing, no conversion of Preferred Stock into Common
Stock shall take effect unless and until the Corporation has amended its
Articles of Incorporation or other action has occurred such that there are a
sufficient number of shares of authorized and unissued shares of Common Stock
for the conversion of all outstanding shares of Preferred Stock.
7. Redemption.
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7.1 Redemption Price. The Corporation has the right, at its sole
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option, at any time and from time to time to redeem any or all shares of the
Preferred Stock at the time outstanding at $1.00 per share (the "Redemption
Price"), plus all accumulated and unpaid dividends thereon to the date fixed for
redemption. Notice of the election to redeem any Preferred Stock pursuant to
this Section 7.1, shall be given by the Corporation by mailing a copy of such
notice, postage prepaid, not less than 30 nor more than 90 days prior to the
date designated therein as the date for such redemption, to the holders of
record of the Preferred Stock to be redeemed, addressed to them at their
respective addresses appearing on the books of the Corporation.
7.2 Partial Redemption. In the case of the redemption of a part only
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of the Preferred Stock pursuant to Section 7.1, the shares shall be redeemed on
a pro rata basis. The Board of Directors shall have full power and authority,
subject to the limitations and provisions herein contained, to prescribe the
manner in which, and the terms and conditions upon which the Preferred Stock
shall be redeemable. On and after the date specified in such notice, each Holder
of the Preferred Stock called for redemption as described above, upon
presentation and surrender at the place designated in the notice, of the
certificate or certificates for such Preferred Stock held by him, properly
endorsed in blank for transfer or accompanied by proper instruments of
assignment in blank if required by the Corporation and bearing all necessary
stock tax stamps thereto affixed and cancelled, shall be entitled to receive
therefor the Redemption Price thereof. All Preferred Stock at any time redeemed
or purchased shall be cancelled and shall not be reissued.
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<PAGE>
7.3 Rights After Redemption. From and after the date of redemption
-----------------------
(unless default shall be made by the Corporation in providing monies for the
payment of the Redemption Price) all dividends upon the Preferred Stock so
called for redemption shall cease to accrue and, from and after said date
(unless default shall be made by the Corporation as set forth above), all rights
of the Holders so called for redemption as shareholders of the Corporation with
respect to the shares, shall cease and terminate. If the Corporation shall
default in payment of the Redemption Price, then the Holders shall continue to
be entitled to receive dividends and otherwise be entitled to the rights and
preferences of the Preferred Stock until payment of the Redemption Price is made
by the Corporation.
7.4 Adjustment to Redemption Price. The Redemption Price of $1.00 per
------------------------------
share shall be proportionately adjusted upon the occurrence of any stock split,
reverse stock split, or other similar event which affects the Preferred Stock.
As an example, if the Corporation were to declare a two-for-one stock split of
the Preferred Stock, the number of shares of Preferred Stock would be doubled
and the Redemption Price per share would be reduced by 50 percent.
8. Identical Rights. Each share of the Preferred Stock shall have the
----------------
same relative rights and preferences as, and shall be identical in all respects
with, all other shares of the Preferred Stock.
9. Certificates. So long as any shares of the Preferred Stock are
------------
outstanding, there shall be set forth on the face or back of each stock
certificate issued by the Corporation a statement that the Corporation shall
furnish, without charge, to each shareholder who so requests, the powers,
preferences and rights of each class of stock or series thereof and the
qualifications, limitations or restrictions of such preferences or such rights.
IN WITNESS WHEREOF, the Corporation has caused this Statement to be signed
by its Vice President, Treasurer and Secretary, on this 14th day of October,
1996.
Communications World International, Inc.
By:_____________________________________
Scott E. Harris, Vice President,
Treasurer and Secretary
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