CERTIFICATE OF DESIGNATION OF
TELSCAPE INTERNATIONAL, INC.
Telscape International, Inc. (the "Corporation"), a corporation organized
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and existing under the laws of the State of Texas, certifies that pursuant to
the authority contained in Article IV of its Articles of Incorporation, as
amended (the "Articles of Incorporation") and in accordance with the provisions
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of Article 2.13 of the Texas Business Corporation Act (the "TBCA"), the Board of
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Directors of the Corporation (the "Board of Directors") has adopted the
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following resolution which resolution remains in full force and effect on the
date hereof.
RESOLVED, that pursuant to the authority vested in the Board of Directors
by the Articles of Incorporation, the Board of Directors does hereby designate,
create, authorize and provide for the issuance of Class F Convertible Senior
Preferred Stock (the "Class F Preferred Stock"), par value $0.001 per share
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consisting of 400,000 shares, no shares of which have heretofore been issued by
the Corporation, having the following voting powers, preferences and relative,
participating, optional and other special rights, and qualifications,
limitations and restrictions thereof as follows:
Section 1. Dividends.
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(1) Priority of Dividends. No dividends shall be declared or set
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aside for the Common Stock or any other class or series of the Corporation's
capital stock that ranks junior to the Class F Preferred Stock (collectively,
the "Junior Stock") unless prior thereto all accumulated and unpaid dividends on
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the Class F Preferred Stock shall be declared, set aside and paid. So long as
any Class F Preferred Stock remains outstanding, without the prior written
consent of the holders of a sixty-six and two-thirds percent (66 2/3%) (a
"Supermajority") of the outstanding shares of Class F Preferred Stock, the
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Corporation shall not, nor shall it permit any of its subsidiaries to, redeem,
purchase or otherwise acquire directly or indirectly any Junior Stock, nor shall
the Corporation directly or indirectly pay or declare any dividend or make any
distribution upon any Junior Stock, if at the time of any such redemption,
purchase, acquisition, dividend or distribution the Corporation has failed to
pay the full amount of all accumulated and unpaid dividends on the Class F
Preferred Stock or the Corporation has failed to make any redemption of the
Class F Preferred Stock required hereunder.
(2) If the Board of Directors determines to pay dividends due and
payable pursuant to this Section 1 in cash, and in the event that funds legally
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available for distribution of such dividends on any Dividend Payment Date (as
defined in paragraph (c) of this Section 1) are insufficient to fully pay the
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cash dividend due and payable on such Dividend Payment Date to all holders of
outstanding Class F Preferred Stock, then all funds legally available for
distribution shall be paid in cash to holders of Class F Preferred Stock in
accordance with the number of shares of Class F Preferred Stock held by each
such holder. Any remaining dividend amount owed to holders of the Class F
Preferred Stock shall be accrued in accordance with paragraph (c) of this
Section 1. The holders of the Class F Preferred Stock shall have senior
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preference and priority to the dividends of the Corporation on any Junior Stock
and pari passu to the Class C Convertible Senior Preferred Stock (the "Class C
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Preferred Stock"), the Class D Convertible Senior Preferred Stock (the "Class D
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Preferred Stock") and the Class E Convertible Senior Preferred Stock (the "Class
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E Preferred Stock").
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(3) Stock Dividend Rate; Dividend Payment Dates. Each holder of
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Class F Preferred Stock shall be entitled to receive when and as declared by the
Board, out of funds legally available therefor, cumulative dividends, in
preference and priority to dividends on any Junior Stock, and pari passu with
the dividends on the Class C Preferred Stock, the Class D Preferred Stock and
the Class E Preferred Stock, that shall accrue daily, and compound annually, on
each share of the Class F Preferred Stock at the rate of twelve percent (12%)
per annum on the sum of the Liquidation Price (as defined) thereof plus all
accumulated and unpaid dividends thereon, from and including the date on which
such stock was first issued (the "Original Issue Date") to and including the
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date on which such share ceases to be outstanding. The accrued dividends will
be appropriately adjusted for stock splits, stock dividends, combinations,
recapitalizations, reclassifications, mergers, consolidations and other similar
events (each, a "Recapitalization Event" and collectively, "Recapitalization
----------------------- ----------------
Events") which affect the number of outstanding shares of the Class F Preferred
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Stock. Accrued dividends on the Class F Preferred Stock shall be payable out of
funds legally available therefor quarterly on March 31, June 30, September 30
and December 31 of each year (each a "Dividend Payment Date"), to the holders of
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record of the Class F Preferred Stock as of the close of business on the
applicable record date. Such dividends shall accrue whether or not they have
been declared and whether or not there are profits, surplus or other funds of
the Corporation legally available for the payment of dividends, and such
dividends shall be fully cumulative and shall accrue on a daily basis based on a
365-day or 366-day year, as the case may be, without regard to the occurrence of
a Dividend Payment Date and whether or not such dividends have been declared and
whether or not there are any unrestricted funds of the Corporation legally
available for the payment of dividends. The amount of dividends "accrued" with
respect to any share of Class F Preferred Stock as of the first Dividend Payment
Date after the Original Issue Date, or as of any other date after the Original
Issue Date that is not a Dividend Payment Date, shall be calculated on the basis
of the actual number of days elapsed from and including the Original Issue Date,
in the case of the first Dividend Payment Date and any date of determination
prior to the first Dividend Payment Date, or from and including the last
preceding Dividend Payment Date, in the case of any other date of determination,
to and including such date of determination which is to be made, in each case
based on a year of 365 or 366 days, as the case may be. Whenever the Board
declares any dividend pursuant to this Section 1, notice of the applicable
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record date and related Dividend Payment Date shall be given in accordance with
Section 4(k) hereof.
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(4) Pro Rata Declaration and Payment of Dividends. All dividends
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paid with respect to shares of the Class F Preferred Stock pursuant to this
Section 1 shall be declared and paid pro rata to all the holders of the shares
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of Class F Preferred Stock outstanding as of the applicable record date.
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(5) Payment of Dividends with Additional Shares. Notwithstanding
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any other provision of this Section 1, in the sole discretion of the
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Corporation's Board of Directors, any dividends accruing on the Class F
Preferred Stock may be paid in lieu of cash dividends by the issuance on the
applicable Dividend Payment Date, ratably among the holders of Class F
Preferred, of that number of additional shares of Class F Preferred Stock
(including fractional shares) ("Additional Shares") in an aggregate number equal
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to (i) the aggregate amount of the dividend to be paid divided by (ii) the
Stated Value then existing as of such applicable Dividend Payment Date. If and
when any Additional Shares are issued under this Section 1(e) for the payment of
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accrued dividends, such Additional Shares shall be deemed to be validly issued
and outstanding and fully-paid and nonassessable.
Section 2. Liquidation, Dissolution or Winding Up.
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(1) In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation, any merger as a result of which
the stockholders of the Corporation do not have a majority of the voting power
of the stockholders of the surviving entity, or consolidation of the Corporation
with another entity (where the Corporation is not the surviving entity) or the
sale of substantially all of its assets (each such event, a "Liquidation"),
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except as provided in paragraph (b) of this Section 2, the holders of shares of
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Class F Preferred Stock then outstanding shall be entitled, ratably in
proportion to the number of shares of Class F Preferred Stock held by such
holders, to be paid out of the assets of the Corporation available for
distribution to its stockholders before payment to the holders of Junior Stock,
and pari passu with the Class C Preferred Stock, Class D Preferred Stock, and
Class E Preferred Stock, by reason of their ownership thereof, an amount equal
to $100.00 per share of Class F Preferred Stock (subject to appropriate
adjustment for any Recapitalization Events) (the "Stated Value"), plus an amount
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equal to all accumulated and unpaid dividends on such share of Class F Preferred
Stock since the Original Issue Date thereof as of such time of determination
(collectively, the "Liquidation Price" per share). Upon such payment, the Class
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F Preferred Stock will be retired.
(2) If upon any such Liquidation the remaining assets of the
Corporation available for distribution to its shareholders shall be insufficient
to pay the holders of shares of Class F Preferred Stock the full amount to which
they shall be entitled, then the entire assets of the Corporation shall be
distributed among the holders of shares of Class F Preferred Stock and holders
of shares of all other classes of preferred stock of the Corporation ranking
pari passu with the Class F Preferred Stock as set forth above, ratably in
proportion to the full amount to which such holders are entitled.
(3) After the payment of all preferential amounts required to be
paid to the holders of Class F Preferred Stock and other classes of preferred
stock as set forth in paragraph (b) above, upon a Liquidation, the holders of
shares of the Junior Stock then outstanding shall be entitled to receive the
remaining assets and funds of the Corporation available for distribution to its
shareholders.
(4) In the event of a distribution pursuant to this Section 2,
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such distribution shall be paid in cash or in the event and to the extent that
cash is not available for distribution, in securities or property. Whenever
such distribution shall be in securities or property other than cash, the value
of such securities or property other than cash shall be the fair market value of
such securities or other property as determined by the Board of Directors in
good faith.
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Section 3. Voting Rights.
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(1) Each holder of shares of Class F Preferred Stock shall be
entitled to votes equal in the aggregate to the number of votes to which the
number of whole shares of Common Stock into which such shares of Class F
Preferred Stock held by such holder are convertible would be entitled (as
adjusted from time to time pursuant to Section 4 hereof), at each meeting of the
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shareholders of the Corporation (and for purposes of written actions of
shareholders in lieu of meetings) with respect to any and all matters presented
to the shareholders of the Corporation for their action or consideration, and
shall be entitled to notice of any shareholders' meeting in accordance with the
Bylaws of the Corporation. Except as otherwise provided herein or required by
law, holders of shares of Class F Preferred Stock shall vote with the holders of
shares of Common Stock and any other class of stock of the Corporation entitled
to vote and not as a separate class. Holders of shares of the Class F Preferred
Stock shall have the right to vote as a class on all matters requiring their
vote or approval under, and in the manner set forth in, the TBCA and as provided
herein. Except as otherwise provided herein, any class vote pursuant to this
Section 3 or required by law shall be determined by the holders of a
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Supermajority of the shares of capital stock of such class voting as a class as
of the applicable record date.
(2) For so long as any shares of Class F Preferred Stock remain
outstanding, the Corporation shall not amend, alter or repeal or otherwise
change any provision of these Articles of Incorporation, as amended (whether by
merger, consolidation or otherwise), the resolutions of its Board authorizing
and designating the Class F Preferred Stock, or the preferences, special rights
or other powers of the Class F Preferred Stock, in each case so as to affect
adversely any of the rights, powers, preferences or privileges of the Class F
Preferred Stock, without the written consent or affirmative vote of the holders
of at least a Supermajority of the then outstanding shares of Class F Preferred
Stock, given in writing or by vote at a meeting, consenting or voting (as the
case may be) separately as a class, in person or by proxy; provided, however,
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that the Corporation may create, authorize, issue or increase the authorized
amount of any preferred stock or any other class or series of any equity
securities, or any warrants, options or other rights convertible or exchangeable
into any class or series of any equity securities that are pari passu or junior,
but not senior to the Class F Preferred Stock of the Corporation without such
consent, including, but not limited to, (i) any equity securities, warrants,
options or other rights issued (or issuable pursuant to option plans adopted) as
part of, or in connection with, the merger contemplated by that certain
Agreement and Plan of Merger dated December 31, 1999, as amended, by and among
the Corporation, Pointe Communications Corporation and Pointe Acquisition
Corporation (the "Merger"), and (ii) the Class C Preferred Stock of the
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Corporation. For this purpose, without limiting the generality of the
foregoing, amendments, alterations, repeals or other changes to any provision of
these Articles of Incorporation, as amended (whether by merger, consolidation or
otherwise), considered to affect adversely any of the rights, powers,
preferences or privileges of the Class F Preferred Stock shall include, but are
not limited to: (i) those that reduce the dividend rates on the Class F
Preferred Stock or cancel accumulated and unpaid dividends; (ii) those that
change the relative seniority rights of the holders of the Class F Preferred
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Stock as to the payment of dividends in relation to the holders of any other
capital stock of the Corporation; or (iii) those that reduce the amount payable
to the holders of the Class F Preferred Stock upon a Liquidation or change the
seniority of the liquidation preferences of the holders of the Class F Preferred
Stock relative to the rights upon a Liquidation of the holders of any other
capital stock of the Corporation.
Section 4. Conversion at the Option of a Holder.
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The holders of the Class F Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
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(1) Right to Convert. Each share of Class F Preferred Stock shall
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be convertible at the option of the holder thereof, at any time, into such
number of fully-paid and nonassessable shares of Common Stock as determined by
dividing the Conversion Value (as defined) by the Conversion Price (as defined)
then in effect (as appropriately adjusted in accordance with this Section 4).
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No additional consideration shall be paid by a holder of Class F Preferred Stock
upon exercise of its respective Conversion Rights pursuant to this paragraph
(a).
(1) Conversion Value. The "Conversion Value" for each share
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of Class F Preferred Stock shall be the Liquidation Price per share of Class F
Preferred Stock.
(2) Conversion Price. The conversion price at which shares
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of Common Stock shall be deliverable upon conversion of Class F Preferred Stock
without the payment of additional consideration by the holder thereof shall
initially be $8.20 per share of Common Stock (the "Conversion Price"). Such
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Conversion Price (and therefore the corresponding rate at which shares of Class
F Preferred Stock may be converted into shares of Common Stock), shall be
subject to adjustment as provided in this Section 4.
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(2) Fractional Shares. No fractional shares of Common Stock shall
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be issued upon conversion of the Class F Preferred Stock. In lieu of any
fractional shares to which a holder of Class F Preferred Stock would otherwise
be entitled, the Corporation shall pay cash equal to such fraction multiplied by
the then effective Conversion Price.
(3) Mechanics of Conversion.
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(1) In order for a holder of Class F Preferred Stock to
convert shares of Class F Preferred Stock into shares of Common Stock, such
holder shall surrender the certificate or certificates for such shares of Class
F Preferred Stock at the office of the transfer agent for the Class F Preferred
Stock (or at the principal office of the Corporation if the Corporation serves
as its own transfer agent), together with written notice that such holder elects
to convert all or any number of the shares of Class F Preferred Stock
represented by such certificate or certificates and stating therein the name or
names in which the holder desires the certificate or certificates for shares of
the Common Stock to be issued. If required by the Corporation, certificates
surrendered for conversion shall be endorsed or accompanied by a written
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instrument or instruments of transfer, in form satisfactory to the Corporation,
duly executed by the registered holder or his or its attorney duly authorized in
writing. Each date of receipt of such certificates and notice by the
transferring agent (or by the Corporation if the Corporation serves as its own
transfer agent) shall be a conversion date (each, a "Conversion Date"). The
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Corporation shall, as soon as practicable after each Conversion Date and no
later than ten (10) days after the Conversion Date, (i) issue and deliver at
such office to such holder of Class F Preferred Stock, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid, together with cash in lieu of any fraction of a share
in accordance with paragraph (b) above, or (ii) in lieu of delivering physical
certificates representing the shares of Common Stock, provided the Corporation's
transfer agent is participating in the Depositary Trust Issuer Fast Automated
Securities Transfer ("FAST") program, upon request of the holder, the
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Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock issuable upon conversion of
the Class F Preferred Stock to the holder by crediting the account of the
holder's prime broker with Depositary Trust Company through its Deposit
Withdrawal Agent Commission system. Such conversion shall be deemed to have
been made immediately prior to the close of business on the applicable
Conversion Date, and the person entitled to receive certificates of Common Stock
on such date shall be regarded for all corporate purposes as the holder of the
number of shares of Common Stock to which it is entitled upon the conversion on
such Conversion Date.
(2) The Corporation shall, at all times when any of the Class
F Preferred Stock shall remain outstanding, reserve and keep available out of
its authorized but unissued stock, for the purpose of effecting the conversion
of the Class F Preferred Stock, such number of its duly authorized shares of
Common Stock as shall from time to time be sufficient to effect the conversion
of all outstanding Class F Preferred Stock.
(3) All shares of Class F Preferred Stock which shall have
been surrendered for conversion as herein provided shall no longer be deemed to
be outstanding and all rights with respect to such shares shall immediately
cease and terminate on the Conversion Date, except only the right of the holders
thereof to receive shares of Common Stock and cash in lieu of fractional shares
in exchange therefor. Any shares of Class F Preferred Stock so converted shall
be retired and canceled and shall not be reissued, and the Corporation may from
time to time take such appropriate action as may be necessary to reduce the
authorized Class F Preferred Stock, accordingly.
(4) Adjustments to Conversion Price for Diluting Issues.
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(1) Special Definitions. For purposes of this Section 4(d),
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the following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
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subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities (as defined), excluding (1) options granted to employees, officers,
directors or consultants of the Corporation or its subsidiaries or rights,
warrants, or other convertible securities which, in each case, are outstanding
<PAGE>
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as of the First Issue Date (as defined), (2) any warrants issued as a result of
the issuance of the Class F Preferred Stock pursuant to the Securities Purchase
Agreements between the Corporation and the purchasers of the Class F Preferred
Stock, (3) options granted to employees, officers, directors or consultants
pursuant to stock option plans adopted by the Board of Directors and approved by
any Compensation Committee of the Board of Directors, (4) any rights, options or
warrants to subscribe for, purchase or otherwise acquire Common Stock or
Convertible Securities issued as a part of, or in connection with, the Merger,
or (5) any warrants issued in connection with issuance of the Class C Preferred
Stock of the Corporation.
(2) "First Issue Date" shall mean the Original Issue
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Date (as defined in Section 1(c)).
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(3) "Convertible Securities" shall mean any evidences of
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indebtedness, shares or other securities directly or indirectly convertible into
or exchangeable for Common Stock, other than (i) securities excluded from the
definition of "Option" in subparagraph (A) of this Section 4(d)(i), (ii)
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outstanding on the First Issue Date, (iii) issued as a part of, or in connection
with, the Merger, or (iv) the Class C Preferred Stock of the Corporation.
(4) "Additional Shares of Common Stock" shall mean all
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shares of Common Stock issued (or, pursuant to subparagraph (iii) below, deemed
to be issued) by the Corporation after the First Issue Date, other than shares
of Common Stock issued or issuable:
(1) upon the conversion of shares of Class F
Preferred Stock outstanding;
(2) as a dividend or distribution on Class F
Preferred Stock;
(3) by reason of a dividend, stock split, split-up
or other distribution on shares of the Class F Preferred Stock or Common Stock;
(4) upon the exercise of securities excluded from
the definition of "Option" in subparagraph (A) of this Section 4(d)(i) and
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"Convertible Securities" under subparagraph (C) of this Section 4 (d) (i); or
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(5) as a part of, or in connection with, the
Merger; or
(6) as part of any other merger, acquisition or
transaction by the Corporation, in either case approved by the holders of at
least a Supermajority of the then outstanding shares of the Class F Preferred
Stock, unless the Corporation agrees to include such issuance in the definition
of "Additional Shares of Common Stock" in connection with obtaining the approval
of the holders of at least a Supermajority of the then outstanding shares of the
Class F Preferred Stock to such acquisition of other transaction; or
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(7) by reason of a dividend, stock split, split-up
or other distribution on shares of Common Stock excluded from the definition of
"Additional Shares of Common Stock" by the foregoing clauses (1), (2), (3), (4),
(5) and (6) or this clause (7).
(2) No Adjustment of Conversion Price. No adjustment in the
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number of shares of Common Stock into which the Class F Preferred Stock is
convertible shall be made, by adjustment in the Conversion Price thereof: (A)
unless the consideration per share (determined pursuant to subparagraph (v)
below) for an Additional Share of Common Stock issued or deemed to be issued
pursuant to subparagraph (iii) below by the Corporation is less than the
Conversion Price in effect immediately prior to, the issuance of such Additional
Share of Common Stock, or (B) if prior to such issuance, the Corporation
receives written notice from the holders of at least a Supermajority of the then
outstanding shares of Class F Preferred Stock agreeing that no such adjustment
shall be made as the result of the issuance of such Additional Shares of Common
Stock.
(3) Issue of Securities Deemed Issue of Additional Shares of
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Common Stock. If the Corporation at any time or from time to time after the
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First Issue Date shall issue any Options or Convertible Securities, then the
maximum number of shares of Common Stock (as set forth in the instrument
relating thereto without regard to any provision contained therein for a
subsequent adjustment of such number) issuable upon the exercise of such Options
or, in the case of Convertible Securities and Options therefor, the conversion
or exchange of such Convertible Securities, shall be deemed to be Additional
Shares of Common Stock issued as of the time of such issuance, provided that
Additional Shares of Common Stock shall not be deemed to have been issued unless
the consideration per share (determined pursuant to subparagraph (v) below) of
such Additional Shares of Common Stock would be less than the Conversion Price
in effect immediately prior to such issuance, and provided further that in any
such case in which Additional Shares of Common Stock are deemed to be issued:
(1) No further adjustment in the Conversion Price shall
be made upon the subsequent issuance of Convertible Securities or shares of
Common Stock upon the exercise of such Options or conversion or exchange of such
Convertible Securities;
(2) If such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise, for any increase in the
consideration payable to the Corporation, or decrease in the number of shares of
Common Stock issuable, upon the exercise, conversion or exchange thereof, the
conversion price computed upon the original issuance thereof, and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or exchange under such
Convertible Securities;
(3) No readjustment pursuant to clause (B) above shall
have the effect of increasing the Conversion Price to an amount which exceeds
the Conversion Price on the original adjustment date; and
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(4) In the event of any change in the number of shares
of Common Stock issuable upon the exercise, conversion or exchange of any Option
or Convertible Security, including, but not limited to, a change resulting from
the anti-dilution provisions thereof, the Conversion Price then in effect shall
forthwith be readjusted to such Conversion Price as would have obtained had the
adjustment which was made upon the issuance of any such Option or Convertible
Security which had not been exercised or converted prior to such change been
made upon the basis of such change in the number of shares of Common Stock, but
no further adjustment shall be made for the actual issuance of Common Stock upon
the exercise or conversion of any such Option or Convertible Security.
(5) Upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Price computed upon the original issue
date thereof, and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(1) in the case of Convertible Securities or
Options for Common Stock, the only Additional Shares of Common Stock issued were
the shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Corporation upon such exercise; or for the issue of all such Convertible
Securities which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Corporation upon such conversion
or exchange; and
(2) in the case of Options for Convertible
Securities, only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
Stock deemed to have been then issued was the consideration actually received by
the Corporation for the issue of all such Options, whether or not exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised.
(4) Adjustment of Conversion Price Upon Issuance of
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Additional Shares of Common Stock. In the event the Corporation shall at any
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time after the First Issue Date issue Additional Shares of Common Stock
(including Additional Shares of Common Stock deemed to be issued pursuant to
subparagraph (iii) above, but excluding shares issued as a dividend or
distribution as provided in paragraph (f) below or upon a stock split or
combination as provided in paragraph (e) below), for a consideration per share
(determined pursuant to subparagraph (v) below) less than the Conversion Price
in effect immediately prior to such issuance, then and in each such case, such
Conversion Price shall be reduced, concurrently with such issuance, to a
Conversion Price equal to the price determined by dividing (a) the sum of (1)
the product derived by multiplying the Conversion Price in effect immediately
prior to such issuance by the number of shares of Common Stock outstanding
immediately prior to such issuance (together with the number of shares of Common
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Stock then issuable upon conversion of the outstanding shares of Class F
Preferred Stock and the conversion or exercise of any Convertible Securities or
Options (including for this purpose any securities of the Corporation which
would be excluded from the definitions of Options and Convertible Securities
pursuant to Sections 4(d)(i)(A) and (C))), plus (2) the aggregate consideration
---------------------------
received by the Corporation (as determined pursuant to subparagraph (v) below)
upon such issuance, by (b) the number of shares of Common Stock outstanding
immediately after such issuance (together with the number of shares of Common
Stock then issuable upon conversion of the outstanding shares of Class F
Preferred Stock and the conversion or exercise of any Convertible Securities or
Options (including for this purpose any securities of the Corporation which
would be excluded from the definitions of Options and Convertible Securities
pursuant to Sections 4(d)(i)(A) and (C))).
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No adjustment of the Conversion Price, however, shall be made in
an amount less than $.01 per share, and any such lesser adjustment shall be
carried forward and shall be made at the time and together with the next
subsequent adjustment which together with any adjustments so carried forward
shall amount to $.01 per share or more. Any adjustments to the Conversion Price
shall be rounded to the nearest $.01 per share.
(5) Determination of Consideration. For purposes of this
--------------------------------
Section 4(d), the consideration received by the Corporation for the issuance of
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any Additional Shares of Common Stock shall be computed as follows:
(1) Cash and Property. Such consideration shall:
-------------------
(1) insofar as it consists of cash, be computed at
the aggregate of cash received by the Corporation, excluding amounts paid or
payable for accrued interest or accrued dividends;
(2) insofar as it consists of property other than
cash, be computed at the fair market value thereof at the time of such issuance,
as is reasonably determined in good faith by the Board of Directors; and
(3) in the event Additional Shares of Common Stock
are issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (1) and (2) above, as
is reasonably determined in good faith by the Board of Directors.
(2) Options and Convertible Securities. The
-------------------------------------
consideration per share received by the Corporation for Additional Shares of
Common Stock deemed to have been issued pursuant to subparagraph (iii) above,
relating to Options and Convertible Securities, shall be determined by dividing:
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(1) the total amount, if any, received or
receivable by the Corporation as consideration for the issuance of such Options
or Convertible Securities, plus the minimum aggregate amount of additional
consideration (as set forth in the instruments relating thereto, without regard
to any provision contained therein for a subsequent adjustment of such
consideration) payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(2) the maximum number of shares of Common Stock
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such number) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
(5) Adjustment for Stock Splits and Combinations. If the
-------------------------------------------------
Corporation shall at any time or from time to time after the First Issue Date
effect a subdivision of the outstanding Common Stock, the Conversion Price then
in effect immediately before that subdivision shall be proportionately decreased
and the number of shares of Common Stock issuable upon the conversion of the
Class F Preferred Stock shall be proportionately increased. If the Corporation
shall at any time or from time to time after the First Issue Date combine the
outstanding shares of Common Stock, the Conversion Price then in effect
immediately before the combination shall be proportionately increased and the
number of shares of Common Stock issuable upon the conversion of the Class F
Preferred Stock shall be proportionately decreased. Any adjustment under this
paragraph shall become effective at the close of business on the date the
subdivision or combination becomes effective.
(6) Adjustment for Certain Dividends and Distributions. In the
------------------------------------------------------
event the Corporation at any time, or from time to time after the First Issue
Date, shall make or issue a dividend or other distribution payable in additional
shares of Common Stock, then and in each such event the Conversion Price then in
effect shall be decreased as of the time of such issuance, by multiplying the
Conversion Price then in effect by a fraction:
(1) the numerator of which shall be the total number of
shares of Common Stock issued and outstanding immediately prior to the time of
such issuance or the close of business on such record date, and
(2) the denominator of which shall be the total number
of shares of Common Stock issued and outstanding immediately prior to the time
of such issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or distribution;
provided, however, if such record date shall have been fixed and such dividend
is not fully paid or if such distribution is not fully made on the date fixed
therefor, the Conversion Price shall be recomputed accordingly as of the close
of business on such record date and thereafter the Conversion Price shall be
adjusted pursuant to this paragraph as of the time of actual payment of such
dividends or distributions.
<PAGE>
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(7) Adjustments for Other Dividends and Distributions. In the
-----------------------------------------------------
event the Corporation at any time or from time to time after the First Issue
Date shall make or issue a dividend or other distribution payable in securities
of the Corporation other than shares of Common Stock, then and in each such
event provision shall be made so that the holders of the Class F Preferred Stock
shall receive upon conversion thereof in addition to the number of shares of
Common Stock receivable thereupon, the amount of securities of the Corporation
that they would have received had their Class F Preferred Stock been converted
into Common Stock on the date of such event and had thereafter, during the
period from the date of such event to and including the conversion date,
retained such securities receivable by them as aforesaid during such period
giving application to all adjustments called for during such period under this
paragraph with respect to the rights of the holders of the Class F Preferred
Stock.
(8) Adjustment for Reclassification, Exchange, or Substitution.
-------------------------------------------------------------
If the Common Stock issuable upon the conversion of the Class F Preferred Stock
shall be changed into the same or a different number of shares of any class or
classes of stock, whether by capital reorganization, reclassification or
otherwise (other than a subdivision or combination of shares or stock dividend
provided for above, or a reorganization, merger, consolidation, or sale of
assets provided for below), then and in each such event the holder of each such
share of Class F Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification, or other change,
by holders of the number of shares of Common Stock into which such shares of
Class F Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
(9) Adjustment for Merger or Reorganization. In case of any
-------------------------------------------
consolidation or merger of the Corporation with or into another corporation,
each share of Class F Preferred Stock shall thereafter be convertible into the
kind and amount of shares of stock or other securities or property to which a
holder of the number of shares of Common Stock of the Corporation deliverable
upon conversion of such Class F Preferred Stock would have been entitled if it
had converted its shares immediately prior to such consolidation or merger; and,
in such case, appropriate adjustment (as determined in good faith by the Board
of Directors) shall be made in the application of the provisions in this Section
-------
4 set forth with respect to the rights and interest thereafter of the holders of
-
the Class F Preferred Stock, to the end that the provisions set forth in this
Section 4 (including provisions with respect to changes in and other adjustments
---------
of the Conversion Price) shall thereafter be applicable, as nearly as reasonably
may be practicable, in relation to any shares of stock or other property
thereafter deliverable upon the conversion of the Class F Preferred Stock.
(10) No Impairment. The Corporation will not, by amendment of
--------------
these Articles of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 4 and in the taking of all such action as may be necessary or
----------
appropriate in order to protect the Conversion Rights of the holders of the
Class F Preferred Stock.
<PAGE>
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(11) Notice of Record Date. In the event:
------------------------
(1) that the Corporation shall propose to declare a dividend
(or any other distribution) on its Common Stock, whether payable in cash,
property, Common Stock or other securities of the Corporation, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(2) that the Corporation shall propose to subdivide or
combine its outstanding shares of Common Stock;
(3) that the Corporation shall propose to effect any
reclassification or recapitalization of the Common Stock of the Corporation
outstanding (other than a subdivision or combination of its outstanding shares
of Common Stock or a stock dividend or stock distribution thereon), or any
consolidation or merger of the Corporation into or with another corporation; or
(4) that the Corporation shall propose to effect the
Liquidation of the Corporation;
then in connection with each such event, the Corporation shall cause to be filed
at its principal office or at the office of the transfer agent of the Class F
Preferred Stock and shall cause to be mailed to each of the holders of the Class
F Preferred Stock at their last addresses as shown on the records of the
Corporation or such transfer agent, at least ten (10) days prior to the record
date specified in (A) below or at least twenty (20) days before the date
specified in (B) below, a notice stating:
(1) the record date of such dividend, distribution,
subdivision or combination, or, if a record is not to be taken, the date as of
which the holders of Common Stock of record to be entitled to such dividend,
distribution, subdivision or combination are to be determined, or
(2) the date on which such reclassification,
consolidation, merger, or Liquidation is expected to become effective, and the
date as of which it is expected that holders of Common Stock of record shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reclassification, consolidation, merger, or
Liquidation.
(12) Certificate as to Adjustments. Upon the occurrence of each
-------------------------------
adjustment or readjustment pursuant to this Section 4, the Corporation at its
---------
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Class F Preferred Stock a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any holder of Class F Preferred
Stock furnish or cause to be furnished to such holder a similar certificate
setting forth (i) such adjustments and readjustments; (ii) the Conversion Price
then in effect; and (iii) the number of shares of Common Stock and the amount,
if any, of other property which then would be received upon the conversion of
Class F Preferred Stock.
<PAGE>
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(13) Stock to be Reserved. The Corporation will at all times
-----------------------
reserve and keep available out of its authorized Common Stock, solely for the
purpose of issuance upon the conversion of Class F Preferred Stock as herein
provided, such number of shares of Common Stock as shall then be issuable upon
the conversion of all outstanding shares of Class F Preferred Stock. The
Corporation covenants that all shares of Common Stock which shall be so issued
shall be duly and validly issued and fully-paid and nonassessable and free from
all taxes, liens and charges with respect to the issue thereof, and, without
limiting the generality of the foregoing, the Corporation covenants that it will
from time to time take all such action as may be requisite to assure that the
par value per share of the Common Stock is at all times equal to or less than
the Conversion Price in effect at the time. The Corporation will take all such
action as may be necessary to assure that all such shares of Common Stock may be
so issued without violation of any applicable law or regulation, or of any
requirement of any national securities exchange or market upon which the Common
Stock may be listed. The Corporation will not take any action which results in
any adjustment of the Conversion Price if the total number of shares of Common
Stock issued and issuable after such action upon conversion of the Class F
Preferred Stock would exceed the total number of shares of Common Stock then
authorized by these Articles of Incorporation, as amended.
(14) Issue Tax. The issuance of certificates for shares of Common
---------
Stock upon conversion of the Class F Preferred Stock, shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Corporation shall not be required to pay any tax which may be payable
in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than that of the holder of the Class F Preferred
Stock which is being converted.
Section 5. Mandatory Conversion.
---------------------
(1) The Corporation may require the conversion of all of the
outstanding Class F Preferred Stock (i) in conjunction with a Qualified Offering
(as defined) or (ii) at any time after the first year anniversary of the First
Issue Date if: (1) the Common Stock shall have been listed for trading on the
New York Stock Exchange, the NASDAQ National Market System or the American Stock
Exchange (each, an "Exchange"); (2) the Common Stock shall have traded on such
--------
Exchange for a period of at least 20 consecutive trading days at a price per
share of at least $15.00 (subject to appropriate adjustment for Recapitalization
Events); and (3) the cumulative average daily trading volume of the Common Stock
during such 20 consecutive trading day period shall be at least $3,000,000;
provided, that, the shares of Common Stock issuable upon such conversion shall
-------- ----
have been Registered (as defined) and listed on each securities exchange,
over-the-counter market or on the NASDAQ National Market on which similar
securities issued by the Corporation are then listed. "Registered" shall refer
----------
<PAGE>
- 15 -
to a registration effected by preparing and filing with the Securities and
Exchange Commission (the "Commission") a registration statement in compliance
----------
with the Securities Act of 1933, as amended, and the declaration or ordering by
the Commission of the effectiveness of such registration statement. A mandatory
conversion pursuant to a Qualified Offering shall only be effected at the time
of and subject to the closing of the Qualified Offering and upon written notice
of such mandatory conversion delivered to all holders of Class F Preferred
Stock at least seven (7) days prior to such closing. The Corporation shall
deliver written notice of a mandatory conversion pursuant to clause (ii) of this
paragraph (a) to all holders of Class F Preferred Stock at least seven (7) days
prior to such conversion. For purposes of this paragraph (a), the term
"Qualified Offering" shall mean the sale by the Corporation of its Common Stock
--------------------
or other equity interests in a public offering at a purchase price per share in
excess of $15.00 per share (subject to appropriate adjustment for
Recapitalization Events) yielding gross proceeds to the Corporation not less
than $30,000,000.
(2) On the date fixed for conversion, all rights with respect to
the Class F Preferred Stock so converted will terminate upon conversion. If so
required by the Corporation, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Corporation, duly executed by the registered holder or
by his or its attorney duly authorized in writing. As soon as practicable after
the date of such conversion and the surrender of the certificate or certificates
for Class F Preferred Stock, the Corporation shall cause to be issued and
delivered to such holder, or on his or its written order, a certificate or
certificates for the number of full shares of Common Stock issuable on such
conversion in accordance with the provisions hereof and cash as provided in
Section 4(c) in respect of any fraction of a share of Common Stock otherwise
------------
issuable upon such conversion.
(3) All certificates evidencing shares of Class F Preferred Stock
which are required to be surrendered for conversion in accordance with the
provisions hereof shall, from and after the date such certificates are so
required to be surrendered, be deemed to have been retired and canceled and the
shares of Class F Preferred Stock represented thereby converted into Common
Stock for all purposes as of the date of conversion set forth in paragraph (a)
above, notwithstanding the failure of the holder or holders thereof to surrender
such certificates.
Section 6. Mandatory Exchange.
-------------------
(1) The Corporation shall be required to exchange all of the
shares of Class F Preferred Stock for shares of Common Stock on the seventh
anniversary of the First Issue Date for shares of Class F Preferred Stock;
provided, that, the shares of Common Stock so issued shall have been Registered
-------- ----
and listed on each securities exchange, over-the-counter market or on the Nasdaq
National Market on which similar securities issued by the Corporation are then
listed.
(2) The exchange price shall be paid by the Corporation in shares
of Common Stock and shall be in an amount equal to the Liquidation Price, as
defined in Section 2 (a) of this Certificate (the "Exchange Price"). The number
------------- --------------
of shares of Common Stock to be issued shall be determined by dividing (i) the
Exchange Price by (ii) the average trading price per share of Common Stock for
the 20 consecutive trading days immediately prior to the date fixed for
redemption discounted by five percent (5%).
<PAGE>
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(3) The Corporation shall provide each holder of Class F Preferred
Stock with a written notice of exchange (addressed to the holder at its address
as it appears on the stock transfer books of the Corporation), not earlier than
sixty (60) nor later than twenty (20) days before the date fixed for exchange.
The notice of exchange shall specify (i) the class of shares to be exchanged;
(ii) the date fixed for exchange; (iii) the Exchange Price; and (iv) the place
the holders of Class F Preferred Stock may obtain payment of the Exchange Price
upon surrender of their certificates. If shares of Common Stock are available
on the date fixed for exchange, then whether or not shares are surrendered for
payment of the Exchange Price, the shares shall no longer be outstanding and the
holders thereof shall cease to be shareholders of the Corporation with respect
to the shares exchanged on and after the date fixed for exchange and shall be
entitled to receive the Exchange Price without interest upon the surrender of
the share certificate.
Section 7. Mandatory Cash Redemption.
---------------------------
In the event the merger contemplated by that certain Agreement
and Plan of Merger dated December 31, 1999, by and among the Corporation, Pointe
Communications Corporation and Pointe Acquisition Corporation (as amended, the
"Merger Agreement") is not consummated on or before June 30, 2000, the holders
-----------------
of shares of the Class F Preferred Stock shall have the right to require the
Corporation to redeem such shares for cash in an amount equal to the purchase
price paid for such shares plus accrued and unpaid dividends with regard to such
shares. Such right of redemption shall be exercisable by the holders of such
shares only within the thirty day period that occurs after the earlier to occur
of (i) the date of termination of the Merger Agreement, or (ii) June 30, 2000.
Such right of redemption must be exercised by the holders of such shares
delivering written notice to the Corporation (the "Redemption Notice"). If the
-----------------
right of redemption is not exercised within such thirty day period, it shall
expire and be of no further force or effect. If such right of redemption is
exercised, the Corporation shall deliver the cash due to the holder exercising
such right within ten days after receipt of the Redemption Notice.
Section 8. Events of Noncompliance.
-------------------------
(a) Definition. An Event of Noncompliance shall have occurred if:
----------
(1) the Corporation fails to pay on any Dividend Payment Date
the full amount of dividends then accrued on the Class F Preferred Stock,
whether or not such payments are legally permissible or are prohibited by any
agreement to which the Corporation is subject;
(2) the Corporation fails to exchange the Class F Preferred
Stock as required hereunder, whether or not such redemption is legally
permissible or is prohibited by any agreement to which the Corporation is
subject;
<PAGE>
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(3) subject to subparagraph (iv) below, the Corporation
breaches any provision of the Registration Rights Agreements, by and between the
Corporation and holders of the Class F Preferred Stock (the "Registration Rights
-------------------
Agreement") and fails to cure such breach within 45 days of notice thereof (in
---------
which case, the Event of Noncompliance shall be deemed to have occurred on the
original date of such breach); or
(4) the Corporation breaches Section 2.1(a) of the
Registration Rights Agreement.
(b) Consequences of Events of Noncompliance.
---------------------------------------
(i) If an Event of Noncompliance has occurred, (1) the
dividend rate on the Class F Preferred Stock set forth in Section 1(a) shall be
------------
deemed to increase immediately by an increment of twelve (12) percentage points
and (2) all dividends on the Class F Preferred Stock thereafter shall be paid by
the issuance of Additional Shares as set forth in Section 1(e). Any increase of
------------
the dividend rate resulting from the operation of this subparagraph shall
terminate as of the close of business on the date on which no Event of
Noncompliance exists.
(ii) If any Event of Noncompliance of the type described in
subparagraph 8(a)(i) has occurred, for each such occurrence of the failure to
pay on any Dividend Payment Date the full amount of dividends then accrued on
the Class F Preferred, whether or not such payments are legally permissible or
are prohibited by any agreement to which the Corporation is subject, the
Conver-sion Price shall be reduced immediately by fifty percent (50%) from the
Conversion Price in effect immediately prior to such adjustment. In no event
shall any Conversion Price adjustment be rescinded.
(iii) If any Event of Noncompliance exists, each holder of
Class F Preferred Stock shall also have any other rights which such holder is
entitled to under the Securities Purchase Agreement or any other contract or
agreement with such holder at any time and any other rights which such holder
may have pursuant to applicable law.
The foregoing was duly adopted by the Board of Directors as of April __,
2000, pursuant to the provisions of the Texas Business Corporation Act.
The foregoing was duly adopted by all necessary action on the part of the
Corporation.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Designations to be signed by the undersigned as of April __, 2000.
<PAGE>
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TELSCAPE INTERNATIONAL, INC.
By:______________________________
Name:____________________________
Title: _________________________
<PAGE>