STATEMENT OF RESOLUTION
ESTABLISHING SERIES OF PREFERRED STOCK
OF
TELSCAPE INTERNATIONAL, INC.
TO THE SECRETARY OF STATE
OF THE STATE OF TEXAS:
Pursuant to the provisions of Article 2.13 of the Texas Business
Corporation Act (the "TBCA"), the undersigned corporation submits the following
statement for the purpose of establishing and designating a series of Preferred
Stock and fixing and determining the rights and preferences thereof:
A. The name of the Company is Telscape International, Inc.
B. The following resolution establishing and designating a series of
shares of Preferred Stock and fixing and determining the relative rights and
preferences thereof was duly adopted by the Board of Directors of the Company as
of December 22, 1999, such Board approval being all necessary action on the part
of the Company to adopt such resolution:
"RESOLVED, that pursuant to the authority granted to and vested in the
Board, in accordance with the provisions of its Articles of Incorporation, as
amended, a series of Preferred Stock, with a par value of $0.001 per share, of
the Company be, and hereby is, established and given the distinctive designation
of Class D Convertible Senior Preferred Stock (the "Class D Preferred Stock").
This series consists of 15,000 shares with the following relative rights and
preferences:
Section 1. Dividends.
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a. 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 Company's capital
stock which ranks junior to the Class D Preferred Stock (collectively, the
"Junior Stock") unless prior thereto all accumulated and unpaid dividends on the
Class D Preferred Stock shall be declared, set aside and paid. So long as any
Class D Preferred Stock remains outstanding, without the prior written consent
of the holders of sixty-six and two-thirds percent (66 2/3%) (a
"Supermajority") of the outstanding shares of Class D Preferred Stock, the
Company 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 Company 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 Company has failed to pay
the full amount of dividends accumulated on the Class D Preferred Stock or the
Company has failed to make any redemption of the Class D Preferred Stock
required hereunder.
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b. 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
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
cash dividend due and payable on such Dividend Payment Date to all holders of
outstanding Class D Preferred Stock, then all funds legally available for
distribution shall be paid in cash to holders of Class D Preferred Stock in
accordance with the number of shares of Class D Preferred Stock held by each
such holder. Any remaining dividend amount owed to holders of the Class D
Preferred Stock shall be accrued in accordance with paragraph (c) of this
Section 1. The holders of the Class D Preferred Stock shall have senior
preference and priority to the dividends of the Company over any Junior Stock
and pari passu with the Class C Convertible Senior Preferred Stock (the "Class C
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Preferred Stock"), the Class E Convertible Senior Preferred Stock (the "Class E
Preferred Stock") and the Class F Convertible Senior Preferred Stock (the "Class
F Preferred Stock").
c. Stock Dividend Rate; Dividend Payment Dates. Each holder of
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Class D 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
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the dividends on the Class C Preferred Stock, the Class E Preferred Stock and
the Class F Preferred Stock that shall accrue daily, and compound quarterly, on
each share of the Class D Preferred Stock at the rate of twelve percent (12%)
per annum (subject to adjustment pursuant to Section 8) 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 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 D Preferred Stock. Accrued dividends on the
Class D Preferred Stock shall be payable out of funds legally available therefor
on June 30, 2000 and thereafter quarterly on September 30, December 31, March
31, and June 30 of each year (each a "Dividend Payment Date"), to the holders of
record of the Class D 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 Company 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 Company legally available
for the payment of dividends. The amount of dividends "accrued" with respect to
any share of Class D 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
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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 record date and
related Dividend Payment Date shall be given in accordance with Section 4(k)
hereof.
d. Pro Rata Declaration and Payment of Dividends. All dividends
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paid with respect to shares of the Class D 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 D Preferred Stock outstanding as of the applicable record date.
e. Payment of Dividends with Additional Shares. Notwithstanding
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any other provision of this Section 1, in the sole discretion of the Company's
Board of Directors, any dividends accruing on the Class D 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 D Preferred, of that number of
additional shares of Class D Preferred Stock (including fractional shares)
("Additional Shares") in an aggregate number equal 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 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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a. In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Company, any merger as a result of which the
majority of the stockholders of the Company are not the majority of the
stockholders of the surviving entity, or consolidation of the Company with
another entity (whether or not the Company is the surviving entity) or the sale
of substantially all of its assets (each such event, a "Liquidation"), except as
provided in paragraph (b) of this Section 2, the holders of shares of Class D
Preferred Stock then outstanding shall be entitled, ratably in proportion to the
number of shares of Class D Preferred Stock held by such holders, to be paid out
of the assets of the Company available for distribution to its stockholders
before payment to the holders of Junior Stock, and pari passu with the Class C
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Preferred Stock, the Class E Preferred Stock and the Class F Preferred Stock, by
reason of their ownership thereof, an amount equal to $3,000.00 per share of
Class D Preferred Stock (subject to appropriate adjustment for any
Recapitalization Events) (the "Stated Value"), plus an amount equal to all
accumulated and unpaid dividends on such share of Class D 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 D Preferred
Stock will be retired.
b. If upon any such Liquidation the remaining assets of the
Company available for distribution to its shareholders shall be insufficient to
pay the holders of shares of Class D Preferred Stock the full amount to which
they shall be entitled, then the entire assets of the Company shall be
distributed among the holders of shares of Class D Preferred Stock and holders
of all other classes of preferred stock of the Company ranking pari passu with
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the Class D Preferred Stock as set forth above, ratably in proportion to the
full amount to which such holders are entitled.
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c. After the payment of all preferential amounts required to be
paid to the holders of Class D 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 Company available for distribution to its
shareholders.
d. In the event of a distribution pursuant to this Section 2, 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.
Section 3. Voting Rights.
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a. Each holder of shares of Class D 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 D
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
shareholders of the Company (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 Company for their action or consideration, and shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the Company. Except as otherwise provided herein or required by law, holders of
shares of Class D Preferred Stock shall vote with the holders of shares of
Common Stock and any other class of stock of the Company entitled to vote and
not as a separate class. Holders of shares of the Class D 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. 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 Supermajority of the shares of capital
stock of such class voting as a class as of the applicable record date.
b. For so long as any shares of Class D Preferred Stock remain
outstanding, the Company 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 D Preferred Stock, or the preferences, special rights or
other powers of the Class D Preferred Stock, in each case so as to affect
adversely any of the rights, powers, preferences or privileges of the Class D
Preferred Stock, without the written consent or affirmative vote of the holders
of at least a Supermajority of the then outstanding shares of Class D 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. 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 D
Preferred Stock shall include, but are not limited to: (i) the creation,
authorization, issuance, or increase in the authorized amount of, any preferred
stock (except for increases in the authorized amount of and issuance of shares
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of Class D Preferred Stock solely for the purpose of paying dividends pursuant
to Section 1(e) hereof) 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 of the Company, having a preference or
priority over or ranking pari passu with the Class D Preferred Stock as to the
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right to receive dividends or amounts distributable upon Liquidation of the
Company; (ii) those that reduce the dividend rates on the Class D Preferred
Stock or cancel accumulated and unpaid dividends; (iii) those that change the
relative seniority rights of the holders of the Class D Preferred Stock as to
the payment of dividends in relation to the holders of any other capital stock
of the Company; or (iv) those that reduce the amount payable to the holders of
the Class D Preferred Stock upon a Liquidation or change the seniority of the
liquidation preferences of the holders of the Class D Preferred Stock relative
to the rights upon a Liquidation of the holders of any other capital stock of
the Company.
c. In addition to and distinct from the matters described in
Sections 3(a) and 3(b) above, holders of the Class D Preferred Stock shall have
the right to designate two individuals to be members of the Board of Directors
with each of Sandler (as defined) and Pensat (as defined), having the right to
designate one of such two individuals to be a member of the Board of Directors.
Each director duly designated to the Board of Directors by Sandler and Pensat in
accordance with this Section 3(c) shall be subject to removal only at the
request of Sandler and Pensat, respectively. If Sandler or Pensat, as the case
may be, for any reason fails to designate anyone to fill any such directorship,
such position shall remain vacant until such time as Sandler or Pensat, as the
case may be, designates a director to fill such position and shall not be filled
by resolution or vote of the Board of Directors or the Company's other
shareholders. For purposes of this Section 3, "Sandler" shall mean Sandler
Capital Partners IV, L.P. ("SCP IV") and Sandler Capital Partners IV FTE, L.P.
("SCP IV FTE") (together with their respective Affiliates (as defined)), or in
the event that none of SCP IV or SCP IV FTE (together with their respective
Affiliates) holds at least 35% in the aggregate of the Class D Preferred Stock
originally issued to them, those holders holding more than 50% in the aggregate
of the Class D Preferred Stock originally issued to Sandler. For purposes of
this Section 3, "Pensat" shall mean Oger Pensat Holdings Ltd. (together with its
respective Affiliates) or in the event Oger Pensat Holdings Ltd. (together with
its respective Affiliates) does not hold at least 35% of the Class D Preferred
Stock originally issued to Oger Pensat Holdings Ltd.(together with its
respective Affiliates), those holders holding more than 50% in the aggregate of
the Class D Preferred Stock originally issued to Oger Pensat Holdings Ltd.
(together with its respective Affiliates). "Affiliate" means, with respect to
any individual, corporation, association, partnership, joint venture, trust,
estate, limited liability company, limited liability partnership, joint stock
company, unincorporated organization or government or any agency or political
subdivision thereof, or other entity or organization (each, a "Person"), any
Person that, directly or indirectly, controls, is controlled by or is under
common control with such first-named Person. For the purposes of this
definition, "control" (including with correlative meanings, the terms
"controlled by" and "under common control with") shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of voting
securities or by contract or otherwise.
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Section 4. Conversion at the Option of a Holder.
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The holders of the Class D Preferred Stock shall have conversion rights as
follows (the "Conversion Rights"):
a. Right to Convert. Each share of Class D 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).
No additional consideration shall be paid by a holder of Class D Preferred Stock
upon exercise of its respective Conversion Rights pursuant to this paragraph
(a).
i. Conversion Value. The "Conversion Value" for each share of
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Class D Preferred Stock shall be the Liquidation Price per share of Class D
Preferred Stock.
ii. Conversion Price. The conversion price at which shares of
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Common Stock shall be deliverable upon conversion of Class D Preferred Stock
without the payment of additional consideration by the holder thereof shall
initially be $6.26 (the "Conversion Price"). Such initial Conversion Price (and
therefore the corresponding rate at which shares of Class D Preferred Stock may
be converted into shares of Common Stock), shall be subject to adjustment as
provided in this Section 4.
b. Fractional Shares. No fractional shares of Common Stock shall
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be issued upon conversion of the Class D Preferred Stock. In lieu of any
fractional shares to which a holder of Class D Preferred Stock would otherwise
be entitled, the Company shall pay cash equal to such fraction multiplied by the
then effective Conversion Price.
c. Mechanics of Conversion.
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i. In order for a holder of Class D Preferred Stock to convert
shares of Class D Preferred Stock into shares of Common Stock, such holder shall
surrender the certificate or certificates for such shares of Class D Preferred
Stock at the office of the transfer agent for the Class D Preferred Stock (or at
the principal office of the Company if the Company 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 D 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 Company, certificates surrendered for conversion
shall be endorsed or accompanied by a written instrument or instruments of
transfer, in form satisfactory to the Company, 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 Company if
the Company serves as its own transfer agent) shall be a conversion date (each,
a "Conversion Date"). The Company shall, as soon as practicable after each
Conversion Date and no later than two (2) days after the Conversion Date, (i)
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issue and deliver at such office to such holder of Class D 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 Company's transfer agent is participating in the Depositary Trust
Issuer Fast Automated Securities Transfer ("FAST") program, upon request of the
holder, the Company shall use its best efforts to cause its transfer agent to
electronically transmit the shares of Common Stock issuable upon conversion of
the Class D 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.
ii. The Company shall, at all times when any of the Class D
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 D 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 D Preferred Stock.
iii. All shares of Class D 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 D Preferred Stock so converted shall
be retired and canceled and shall not be reissued, and the Company may from time
to time take such appropriate action as may be necessary to reduce the
authorized Class D Preferred Stock, accordingly.
d. Adjustments to Conversion Price for Diluting Issues.
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i. Special Definitions. For purposes of this Section 4(d), the
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following definitions shall apply:
(1) "Option" shall mean rights, options or warrants to
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 Company or rights, warrants, or other
convertible securities which, in each case, are outstanding as of the First
Issue Date (as defined), (2) any warrants issued in connection with or as a
direct result of the consummation of the merger contemplated by that certain
Amended and Restated Agreement and Plan of Merger by and among the Company,
Pointe Acquisition Corp., and Pointe Communications Corporation dated December
31, 1999 (the "Merger Agreement"), or (3) options granted to employees,
officers, directors or consultants pursuant to stock option plans existing on
the First Issue Date or adopted by the Board of Directors and approved by the
Compensation Committee of the Board of Directors after the First Issue Date.
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(2) "First Issue Date" shall mean the first date on
which shares of Class D Preferred Stock were first issued.
(3) "Convertible Securities" shall mean any evidences of
indebtedness, shares or other securities other than options excluded from the
definition of "Option" in subparagraph (A) of this Section 4(d)(i) directly or
indirectly convertible into or exchangeable for Common Stock.
(4) "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued (or, pursuant to subparagraph (iii) below, deemed
to be issued) by the Company after the First Issue Date, other than shares of
Common Stock issued or issuable:
(a) upon the conversion of shares of Class D
Preferred Stock outstanding;
(b) as a dividend or distribution on Class D
Preferred Stock;
(c) by reason of a dividend, stock split, split-up
or other distribution on shares of the Class D Preferred Stock or Common Stock;
(d) upon the exercise of options excluded from the
definition of "Option" in subparagraph (A) of this Section 4(d)(i); or
(e) in connection with an acquisition or other
transaction by the Company, in either case approved by the holders of at least a
Supermajority of the then outstanding shares of the Class D Preferred Stock,
unless the Company 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 D Preferred Stock to such acquisition or other transaction; or
(f) 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)
and (5) or this clause (6).
ii. No Adjustment of Conversion Price. No adjustment in the
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number of shares of Common Stock into which the Class D 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 Company 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 Company receives written
notice from the holders of at least a Supermajority of the then outstanding
shares of Class D Preferred Stock agreeing that no such adjustment shall be made
as the result of the issuance of such Additional Shares of Common Stock.
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iii. Issue of Securities Deemed Issue of Additional Shares of
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Common Stock. If the Company at any time or from time to time after the First
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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 Company, 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
(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:
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(a) 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
Company 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 Company upon such conversion or exchange; and
(b) 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 Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised.
iv. Adjustment of Conversion Price Upon Issuance of Additional
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Shares of Common Stock. In the event the Company shall at any time after the
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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 Stock then issuable upon
conversion of the outstanding shares of Class D Preferred Stock and the
conversion or exercise of any Convertible Securities or Options), plus (2) the
aggregate consideration received by the Company (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 D Preferred Stock and the conversion or exercise of
any Convertible Securities or Options).
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.
v. Determination of Consideration. For purposes of this
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Section 4(d), the consideration received by the Company for the issuance
of any Additional Shares of Common Stock shall be computed as follows:
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(1) Cash and Property. Such consideration shall:
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(a) insofar as it consists of cash, be computed at
the aggregate of cash received by the Company, excluding amounts paid or payable
for accrued interest or accrued dividends;
(b) 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
(c) in the event Additional Shares of Common Stock
are issued together with other shares of securities or other assets of the
Company 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
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per share received by the Company 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:
(a) the total amount, if any, received or
receivable by the Company 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 Company 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
(b) 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.
e. Adjustment for Stock Splits and Combinations. If the Company
----------------------------------------------
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. If the
Company 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.
Any adjustment under this paragraph shall become effective at the close of
business on the date the subdivision or combination becomes effective.
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f. Adjustment for Certain Dividends and Distributions. In the
-------------------------------------------------------
event the Company 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.
g. Adjustments for Other Dividends and Distributions. In the
------------------------------------------------------
event the Company 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 Company other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Class D 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 Company that they
would have received had their Class D 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 D Preferred Stock.
h. Adjustment for Reclassification, Exchange, or Substitution. If
----------------------------------------------------------
the Common Stock issuable upon the conversion of the Class D 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 D 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 D Preferred Stock might have been converted immediately prior to such
reorganization, reclassification, or change, all subject to further adjustment
as provided herein.
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i. Adjustment for Merger or Reorganization. In case of any
-------------------------------------------
consolidation or merger of the Company with or into another corporation, each
share of Class D 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 Company deliverable upon
conversion of such Class D 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 D 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 D Preferred Stock.
j. No Impairment. The Company 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 Company, 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 D Preferred Stock.
k. Notice of Record Date. In the event:
------------------------
i. that the Company 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 Company, whether or not a regular cash
dividend and whether or not out of earnings or earned surplus;
ii. that the Company shall propose to subdivide or combine its
outstanding shares of Common Stock;
iii. that the Company shall propose to effect any
reclassification or recapitalization of the Common Stock of the Company
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 Company into or with another corporation; or
iv. that the Company shall propose to effect the Liquidation
of the Company; then in connection with each such event, the Company shall cause
to be filed at its principal office or at the office of the transfer agent of
the Class D Preferred Stock and shall cause to be mailed to each of the holders
of the Class D Preferred Stock at their last addresses as shown on the records
of the Company or such transfer agent, at least ten (10) days prior to the
record date specified in (1) below or at least twenty (20) days before the date
specified in (2) below, a notice stating:
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(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.
l. Certificate as to Adjustments. Upon the occurrence of each
--------------------------------
adjustment or readjustment pursuant to this Section 4, the Company at its
expense shall promptly compute such adjustment or readjustment in accordance
with the terms hereof and furnish to each holder of Class D 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 Company
shall, upon the written request at any time of any holder of Class D 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 D Preferred Stock.
m. Stock to be Reserved. The Company 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 D 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 D Preferred Stock. The Company 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 Company 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 Company 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 Company 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 D Preferred Stock would
exceed the total number of shares of Common Stock then authorized by these
Articles of Incorporation, as amended.
n. Issue Tax. The issuance of certificates for shares of Common
----------
Stock upon conversion of the Class D Preferred Stock, shall be made without
charge to the holders thereof for any issuance tax in respect thereof, provided
that the Company 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 D Preferred Stock which is
being converted.
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Section 5. Mandatory Conversion.
----------------------
a. The Company may require the conversion of all of the
outstanding Class D 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 $22.37 (subject to appropriate adjustment for Recapitalization
Events); and (3) the average daily trading volume of the Common Stock during
such 20 consecutive trading day period shall be at least $1,000,000; 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 Company are then listed. "Registered" shall refer 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 D Preferred Stock at
least seven (7) days prior to such closing. The Company shall deliver written
notice of a mandatory conversion pursuant to clause (ii) of this paragraph (a)
to all holders of Class D 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 Company of its Common Stock or other equity interests
in a firm commitment underwritten public offering at a purchase price per share
in excess of $17.90 per share (subject to appropriate adjustment for
Recapitalization Events) yielding net aggregate proceeds to the Company in
excess of $30,000,000.
b. On the date fixed for conversion, all rights with respect to
the Class D Preferred Stock so converted will terminate upon conversion. If so
required by the Company, certificates surrendered for conversion shall be
endorsed or accompanied by written instrument or instruments of transfer, in
form satisfactory to the Company, 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 D Preferred Stock, the Company 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.
c. All certificates evidencing shares of Class D 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 D 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.
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<PAGE>
Section 6. Mandatory Exchange.
-------------------
a. The Company shall be required to exchange all of the shares of
Class D Preferred Stock on the twelfth anniversary of the First Issue Date for
shares of Common 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 Company are then listed.
b. The exchange price shall be paid by the Company 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%).
c. The Company shall provide each holder of Class D 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 Company), 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 D 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 Company 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. Preemptive Rights.
------------------
a. Each holder of the Class D Preferred Stock shall be entitled to
a preemptive right to purchase its pro rata share of all or any part of any New
--- ----
Securities (as defined) which the Company may, from time to time, sell and
issue. Such holder's pro rata share, for purposes of this preemptive right, is
--- ----
the ratio that the number of whole shares of Common Stock into which the shares
of Class D Preferred Stock held by such holder (including any Additional Shares)
are convertible plus the number of shares of Common Stock then held by the
holder as a result of the conversion of Class D Preferred Stock bears to the
total number of shares of Common Stock of the Company on a fully-diluted basis.
b. Except as set forth in the next sentence, "New Securities"
shall mean any shares of capital stock of the Company, including Common Stock,
whether now authorized or not, and rights, options or warrants to purchase said
shares of capital stock, and securities of any type whatsoever that are, or may
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<PAGE>
become, convertible into said shares of capital stock. Notwithstanding the
foregoing, "New Securities" does not include (i) securities offered to the
public generally pursuant to a registration statement filed with the Commission
and declared effective under the Securities Act, (ii) securities issued in
connection with the acquisition of another entity by the Company by merger,
purchase of substantially all of the assets or other reorganization or in a
transaction governed by Rule 145 under the Exchange Act, (iii) options
exercisable for Common Stock issued to employees, officers, directors or
consultants of the Company outstanding as of the First Issue Date or options
issued to employees, officers, directors or consultants of the Company pursuant
to the Employment Plan, the Executive Plan or the Director Plan or a stock
option plan adopted by the Board of Directors and approved by a Supermajority
the holders of Class D Preferred Stock after the First Issue Date, (iv) shares
of Common Stock issued on conversion of outstanding Class D Preferred Stock; (v)
shares of Common Stock issued upon exercise of rights, convertible securities or
warrants (A) outstanding as of the First Issue Date or (B) issued in connection
with the sale of Class D Preferred Stock under the Securities Purchase
Agreement, (vi) stock issued pursuant to any rights or agreements, including
without limitation convertible securities, options and warrants, provided, that,
-------- ----
the preemptive rights established by this Section 7 shall apply with respect to
the initial sale or grant by the Company of interests in its capital stock
pursuant to such rights or agreements, or (vii) stock issued in connection with
any stock split, stock dividend or recapitalization by the Company.
c. In the event the Company proposes to undertake an issuance of
New Securities, it shall give the holders of the Class D Preferred Stock written
notice of its intention, describing the type of New Securities, and the price
and terms upon which the Company proposes to issue the same. Each holder of
Class D Preferred Stock shall have ten (10) days from the date of receipt of any
such notice to agree to purchase up to its respective pro rata share of such New
--- ----
Securities for the price and upon the terms specified in the notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be purchased.
d. In the event a holder fails to exercise such preemptive right
within said forty-day period (each such holder a "Non-Electing Holder"), the
Company shall give the holders that have elected to exercise such preemptive
right within said forty-day period (each such holder an "Electing Holder")
written notice of each Non-Electing Holder's failure to exercise its preemptive
right to purchase its pro rata share of the New Securities (such securities, the
--- ----
"Additional New Securities"). Each Electing Holder shall have ten (10) days
from the date of receipt of any such notice to elect to purchase up to its pro
---
rata share of the Additional New Securities by giving written notice to the
----
Company and stating therein the quantity of such New Securities to be purchased.
e. In the event any Electing Holder fails to exercise its
preemptive right pursuant to paragraph (d) above within said thirty-day period,
the Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of Additional New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the Additional New Securities not elected to be purchased by
Electing Holders at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company notice. In the
event the Company has not sold the Additional New Securities or entered into an
agreement to sell the Additional New Securities within said ninety-day period
(or sold and issued Additional New Securities in accordance with the foregoing
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<PAGE>
within sixty (60) days from the date of said agreement), the Company shall not
thereafter issue or sell any of such Additional New Securities, without first
offering such securities in the manner provided above.
f. In the event no holders exercise their respective preemptive
right pursuant to paragraph (c) above within said thirty-day period, the Company
shall have ninety (90) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within sixty (60) days from the date of said agreement) to sell the
New Securities not elected to be purchased by holders of the Class D Preferred
Stock at the price and upon the terms no more favorable to the purchasers of
such securities than specified in the Company's notice. In the event the
Company has not sold the New Securities or entered into an agreement to sell the
New Securities within said ninety-day period (or sold and issued New Securities
in accordance with the foregoing within sixty (60) days from the date of said
agreement), the Company shall not thereafter issue or sell any of such New
Securities, without first offering such securities in the manner provided above.
Section 8. Events of Noncompliance.
-------------------------
a. Definition. An Event of Noncompliance shall have occurred if:
----------
i. the Company fails to pay on any Dividend Payment Date the
full amount of dividends then accrued on the Class D Preferred Stock, whether or
not such payments are legally permissible or are prohibited by any agreement to
which the Company is subject;
ii. the Company fails to exchange the Class D Preferred Stock
as required hereunder, whether or not such redemption is legally permissible or
is prohibited by any agreement to which the Company is subject;
iii. subject to subparagraph (iv) below, the Company breaches
any provision of that certain Registration Rights Agreement dated as of June 2,
2000, by and among the Company, Sandler Capital Partners IV, L.P., Sandler
Capital Partners IV FTE, L.P., CPP LLC and Oger Pensat Holdings Ltd. (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
iv. the Company 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 D 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 D 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.
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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 D Preferred, whether or not such payments are legally permissible or
are prohibited by any agreement to which the Company is subject, the Conversion
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
D 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."
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, this Statement of Resolution has been signed by the
President of the Company this 1st day of June, 2000.
TELSCAPE INTERNATIONAL, INC.
By: _________________________________
Todd M. Binet
President
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