CERTIFICATE OF DETERMINATION OF
PREFERENCES
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
COMMUNICATION TELESYSTEMS INTERNATIONAL
(Pursuant to Section 401 of the General
Corporation Law of the State of California)
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The undersigned, Edward Soren and Patrick Aelvoet, hereby certify that
(1) Edward Soren is the duly elected and acting Executive Vice President and
Patrick Aelvoet is the duly elected and acting Chief Financial Officer of
Communication TeleSystems International, a California corporation (hereinafter
called the "Corporation"), and (2) under authority given by the Corporation's
Amended and Restated Articles of Incorporation, the Board of Directors has duly
adopted the following recitals and resolutions:
WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation provide for a class of shares known as Preferred Stock, issuable
from time to time in one or more series;
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges, and restrictions granted
to or imposed on any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series, and to determine the designation
thereof, or any of them;
WHEREAS, the Amended and Restated Articles of Incorporation of the
Corporation provide that the Corporation is authorized to issue Ten Million
(10,000,000) shares of Preferred Stock; and
WHEREAS, the Corporation has not issued any shares of such Preferred
Stock and the Board of Directors of the Corporation desires to determine the
rights, preferences, privileges, and restrictions relating to this initial
series of Preferred Stock and the number of shares constituting and the
designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby
determines the designation of, number of shares constituting, and the rights,
preferences, privileges, and restrictions relating to said series of Preferred
Stock as follows:
Section 1. DESIGNATION AND AMOUNT. The shares of such series
shall be designated as "Series A Convertible Preferred Stock" (the "Series A
Stock") and the number of
shares constituting the Series A Stock shall be 30,000. Such number of
shares may be increased or decreased by resolution of the Board of Directors;
provided, that no decrease shall reduce the number of shares of Series A
Stock to a number less than the number of shares then outstanding plus the
number of shares reserved for issuance upon the exercise of any outstanding
options, rights or warrants or upon the conversion of any outstanding
securities issued by the Corporation convertible into Series A Stock.
Section 2. DIVIDENDS AND DISTRIBUTIONS.
(A) AMOUNT OF DIVIDEND. Subject to the rights of the holders of
any shares of any series of Preferred Stock (or any similar stock) ranking
prior and superior to the Series A Stock with respect to dividends, the
holders of shares of Series A Stock, prior and in preference to any
declaration or payment of any dividend (payable other than in shares of
Common Stock, no par value, of the Corporation (the "Common Shares") or
other securities and rights convertible into or entitling the holder
thereof to receive, directly or indirectly, additional Common Shares of the
Corporation) on the Common Shares of the Corporation, shall be entitled to
receive, when, as and if declared by the Board of Directors out of funds
legally available for the purpose, annual dividends payable in cash on the
first day of October each year (each such date being referred to herein as
a "Dividend Payment Date"), commencing on the first Dividend Payment Date
after the first issuance of a share or fraction of a share of Series A
Stock, in an amount equal to forty dollars ($40) per share per annum, as
adjusted to reflect any subdivision or combination of the Series A Stock.
Such dividends shall be cumulative so that if such dividends in respect of
any annual dividend period shall not have been paid on, or declared and set
apart for, all shares of Series A Stock at the time outstanding, the
deficiency shall be fully paid on or declared or set apart for such shares
before any dividend or other distribution shall be paid upon or declared or
set apart for the Corporation's Common Shares.
(B) ACCRUAL OF DIVIDENDS FOR NEWLY ISSUED SHARES. Dividends
shall begin to accrue and be cumulative on outstanding shares of Series A
Stock from the Dividend Payment Date next preceding the date of issue of
such shares, unless the date of issue of such shares is prior to the record
date for the first Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such shares, or
unless the date of issue is a Dividend Payment Date or is a date after the
record date for the determination of holders of shares of Series A Stock
entitled to receive an annual dividend and before such Dividend Payment
Date, in either of which events such dividends shall begin to accrue and be
cumulative from such Dividend Payment Date. Accrued but unpaid dividends
shall accrue dividends at the rate of four percent (4%) of the amount of
such accrued but unpaid dividends per annum. Dividends paid on the shares
of Series A Stock in an amount less than the total amount of such dividends
at the time accrued and payable on such shares shall be allocated pro rata
on a share-by-share basis among all such shares at the time outstanding.
The Board of Directors may fix a record date for the determination of
holders of shares of Series A Stock entitled to receive
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payment of a dividend or distribution declared thereon, which record date
shall be not more than 60 days prior to the date fixed for the
payment thereof.
(C) EFFECT OF CONVERSIONS. In the event that, prior to the
record date fixed for the payment of dividends on the outstanding shares of
Series A Stock for any particular year, any shares of Series A Stock shall
have been converted into Common Shares pursuant to Section 8 hereof, then,
solely for the purposes of this Section 2(C), such shares shall be deemed
to be outstanding as of such record date fixed for the payment of
dividends; provided, that the dividend payable with respect to each such
share of previously converted Series A Stock shall be payable within ten
(10) business days after the date that such share of Series A Stock is
converted pursuant to Section 8 and shall be equal in amount to the product
of (1) $40 and (2) the quotient (X) the numerator of which is equal to the
number of calendar days between the Dividend Payment Date next preceding
the date of conversion and the date that such share was converted (or, if
the conversion of such share occurs prior to the first Dividend Payment
Date, the number of calendar days between the date that dividends began to
accrue on such share pursuant to Section 2(B) and the date that such share
was converted pursuant to this Certificate)), and (Y) the denominator of
which is equal to 365.
Section 3. NO VOTING RIGHTS. Except as otherwise provided by law,
the holders of shares of Series A Stock shall not have any voting rights with
respect to any such shares of Series A Stock. Upon conversion of any shares of
Series A Stock as provided in Section 8 hereof, the holders of such converted
shares of Series A Stock shall have such voting rights as are applicable to the
Common Shares into which such shares of Series A Stock are converted.
Section 4. REACQUIRED SHARES. Any shares of Series A Stock
purchased or otherwise acquired by the Corporation in any manner whatsoever
(including, without limitation, due to the conversion of such shares pursuant to
Section 6 or Section 8 hereof) shall be retired and cancelled promptly after the
acquisition thereof. All such shares shall upon their cancellation become
authorized but unissued shares of Preferred Stock.
Section 5. LIQUIDATION PREFERENCE.
(A) PREFERENCE. Subject to Sections 5(C) and 6 below, in the event
of any liquidation, dissolution, or winding up of the affairs of the
Corporation, voluntarily or involuntarily, subject to the rights of any
subsequently authorized series of Preferred Stock, the holders of shares of
Series A Stock shall be entitled to receive, prior to any distribution to
the holders of Common Shares by reason of their ownership thereof, a
preferential amount of assets with an aggregate fair market value equal to
$1,000 per share of Series A Stock then held by them plus all accrued but
unpaid dividends on such shares. If upon such liquidation, dissolution, or
winding up, the assets of the Corporation are insufficient to provide for
the payment to the holders of the Series A Stock of the full preferential
amount aforesaid, such assets as are available shall be paid out pro rata
(in proportion to the full preferential amount each such holder would
otherwise be entitled to receive) among the holders of the Series A Stock.
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(B) PRO RATA DISTRIBUTION. Upon the completion of the distributions
in respect of the Series A Stock as set forth above, the remaining assets
of the Corporation, if any, available for distribution to holders of the
Corporation's capital stock shall be distributed pro rata among the holders
of Common Shares, subject to the rights of any other Preferred Stock, in
proportion to the number of Common Shares held by such holders.
(C) CERTAIN TRANSACTIONS. A consolidation or merger of the
Corporation with or into any other corporation or corporations, or a sale
or disposition of all or substantially all of the assets of the Corporation
(whether or not followed by the dissolution or winding up of the
Corporation) in a single transaction or series of transactions, shall not
be considered to be a liquidation, dissolution or winding up within the
meaning of this Section 5, but shall instead be treated pursuant to Section
6 below.
Section 6. ACQUISITION. For purposes of this Section 6 in
connection with any consolidation or merger or other form of corporate
reorganization in which the outstanding shares of the Corporation are exchanged
for securities or other consideration issued or caused to be issued by another
corporation or entity or its subsidiary (other than a reincorporation of the
Corporation) or the sale of all or substantially all of the assets of the
Corporation, (i) those holders of outstanding Series A Stock voting in favor of
such acquisition shall be deemed to have converted their shares immediately
prior to the effective date of such merger, reorganization or sale, and shall be
entitled to the consideration payable in respect of the Corporation's Common
Shares (in the case of a merger or other form of corporate reorganization) or
proceeds thereof (as applicable), pro rata, and on an as if converted basis and
(ii) the dissenting shareholders shall be entitled to the fair market value of
their shares determined as of the day before the first announcement of the terms
of the acquisition, excluding any appreciation or depreciation in consequence of
the acquisition, but adjusted for any stock split, reverse stock split or share
dividend which becomes effective thereafter.
Section 7. NO REDEMPTION. The shares of Series A Stock shall not
be redeemable.
Section 8. CONVERSION. The shares of Series A Stock shall be
convertible as follows (the "Conversion Rights"):
(A) RIGHT TO CONVERT. Unless previously automatically converted
pursuant to Section 8(B) below, each share of Series A Stock shall be
convertible, at the option of the holder thereof, at the office of the
Corporation or any transfer agent for such shares, and without any
additional consideration by the holder thereof, into 90.9091 fully paid and
non-assessable Common Shares (the "Conversion Rate"), subject to adjustment
as hereinafter provided, at any time so long as each of the following is
true as of the time of the proposed conversion: (i) at least six months
shall have elapsed since the date of issuance of such shares of Series A
Stock; (ii) there shall not exist a Pending Offering (as defined below);
and (iii) an Offering (as defined below) shall not have been completed
within the past six months. For purposes of this Certificate, (1)
"Offering" shall mean a completed offer and sale by the Corporation of its
securities pursuant to a registration statement (other than a registration
statement on Form S-8) filed with the Securities and
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Exchange Commission; and (2) "Pending Offering" shall mean an Offering that
has not been withdrawn, completed or otherwise terminated.
(B) AUTOMATIC CONVERSION. Each and every outstanding share of Series
A Stock shall be converted automatically, if not previously converted, at
the Conversion Rate into fully paid and non-assessable Common Shares,
subject to adjustment as hereinafter provided, upon (i) the first date on
or by which (1) an Offering shall have previously been completed, (2) there
shall not have occurred any Offering within the immediately preceding six
months and (3) there is not in existence any Pending Offering; or (ii) the
first date on which (1) at least two years have elapsed since the date of
issuance of such shares of Series A Stock, (2) there has not occurred
within the immediately preceding six months the completion of an Offering,
and (3) there is not in existence any Pending Offering. Upon automatic
conversion as provided for herein, the Secretary of the Corporation shall
promptly deliver notice of such conversion to each holder of shares of the
Series A Stock, who shall thereupon surrender the certificates representing
such shares at the office of the Corporation or of any transfer agent for
such Series A Stock. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to such holder a certificate
or certificates for the number of Common Shares into which such shares of
Series A Stock have been automatically converted.
(C) MECHANICS OF CONVERSION. Before any holder of shares of Series A
Stock shall be entitled to convert the same into full Common Shares
pursuant to Section 8(A), he or she shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
of any transfer agent for such Series A Stock, and shall give written
notice to the Corporation at such office that he or she elects to convert
the same and shall state therein his or her name or the name or names of
his nominees in which he or she wishes the certificate or certificates for
the number of full Common Shares to which he or she shall be entitled as
aforesaid. Except as set forth herein, conversion pursuant to Section 8(A)
shall be deemed to have occurred immediately prior to the close of business
on the date of such surrender of the shares of Series A Stock to be
converted, and the person or persons entitled to receive the Common Shares
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Shares on such date.
(D) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS. If the Corporation
shall at any time or from time to time after August 13, 1999 (the
"Commitment Date") effect a subdivision of the outstanding Common Stock,
the Conversion Rate then in effect immediately before the subdivision shall
be proportionately increased and, conversely, if the Corporation shall at
any time or from time to time after the Commitment Date combine the
outstanding shares of Common Stock, the Conversion Rate then in effect
immediately before the combination shall be proportionately decreased. Any
adjustment under this subsection (D) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
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(E) ADJUSTMENT FOR OTHER DIVIDENDS AND DISTRIBUTIONS. If the
Corporation at any time or from time to time after the Commitment Date
shall make or issue, or fix a record date for the determination of holders
of Common Shares entitled to receive, a dividend or other distribution
payable in securities, properties (other than cash) or rights of the
Corporation other than Common Shares, then and in each such event
provisions shall be made so that the holders of Series A Stock shall
receive upon conversion thereof, in addition to the number of Common Shares
receivable thereupon, the amount of securities, properties or rights of the
Corporation which they would have received had their Series A Stock been
converted into Common Shares 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, properties or rights (together
with any distributions payable thereon during such period) receivable by
them as aforesaid during such period, giving application to all adjustments
called for during such period under this Section 8 with respect to the
rights of the holders of the Series A Stock.
(F) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE, OR SUBSTITUTION. If
the Common Shares issuable upon the conversion of the Series A Stock at any
time or from time to time after the Commitment Date shall be changed into
the same or different number of shares of any class or classes of stock,
whether by capital reorganization, reclassification, or otherwise (other
than a reorganization, merger, consolidation, or sale of assets provided
for in Section 6 above or a subdivision or combination of shares provided
for in Section 8(D) above), then, and in each such event, provision shall
be made (by adjustment to the Conversion Rate or otherwise) so that each
holder of Series A Stock shall have the right thereafter to convert its
shares into the kind and amount of shares of stock and other securities
receivable upon such reorganization, reclassification, or other change, by
holders of the number of Common Shares into which such share of Series A
Stock might have been converted immediately prior to such reorganization,
reclassification, or change, all subject to further adjustments as provided
herein.
(G) NO IMPAIRMENT. The Corporation will not, by amendment of its
Amended and Restated Articles of Incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale or 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 8 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 Series A Stock
against impairment.
(H) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of any Conversion Rate pursuant to this
Section 8, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish
to each holder of Series A Stock a certificate setting forth (i) such
adjustments and readjustments, (ii) the applicable Conversion Rate at the
time in effect, and (iii) the number of Common Shares and the amount, if
any, of other property which at the time would be received upon the
conversion of a share of such Series A Stock.
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(I) NOTICES OF RECORD DATE. If:
(i) the Corporation shall set a record date for the purpose
of entitling the holders of its Common Shares to receive a dividend, or any
other distribution, payable otherwise than in cash;
(ii) the Corporation shall set a record date for the purpose
of entitling the holders of its Common Shares to subscribe for or purchase
any shares of any class or to receive any other rights;
(iii) there shall occur any capital reorganization of the
Corporation, reclassification of the shares of the Corporation (other than
a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation with or into another
corporation, or conveyance of all or substantially all of the assets of the
Corporation to another corporation; or
(iv) there shall occur a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; then, and in any such case,
the Corporation shall cause to be mailed to the holders of record of the
outstanding shares of the Series A Stock, at least fifteen (15) days prior
to the date hereinafter specified, a notice stating (a) the date which (x)
has been set as the record date for the purpose of such dividend,
distribution, or rights, or (y) such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up
is to take place and (b) the record date as of which holders of Common
Shares of record shall be entitled to exchange their shares for securities
or other property deliverable upon such reclassification, reorganization,
consolidation, merger, conveyance, dissolution, liquidation or winding up.
(J) NOTICES. Any notice required by the provisions of this Section 8
to be given to the holders of shares of Series A Stock shall be in writing
and may be delivered by personal service or sent by telegraph or cable or
sent by prepaid registered or certified mail, return receipt requested to
the holders of record of such shares at the address shown on the
Corporation's books.
(K) FRACTIONAL SHARES. No fractional Common Shares shall be issued
upon conversion of Series A Stock. In lieu of any fractional shares to
which the holder would otherwise be entitled, the Corporation shall pay
cash equal to the product of such fraction multiplied by the fair market
value of one Common Share on the date of conversion. For purposes of this
paragraph, "fair market value" shall mean (i) if the Common Shares shall
then be listed for trading on a national securities exchange or admitted
for quotation on an over-the-counter securities market (including, without
limitation, the Nasdaq Stock Market), the average closing price per share,
as reported by such exchange or market, of the Common Shares for the 30
consecutive trading days preceding the date of the conversion of the Series
A Stock giving rise to the fractional Common Share or Common Shares or (ii)
if the Common Shares shall not then be so listed or admitted for quotation,
the amount determined pursuant to an appraisal of an independent valuation
firm selected in good faith by the Board of Directors.
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(L) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Corporation
shall at all times reserve and keep available, out of its authorized but
unissued Common Shares, solely for the purpose of effecting the conversion
of the Series A Stock, the full number of Common Shares deliverable upon
the conversion of all shares of the Series A Stock from time to time
outstanding. Before taking any action which would cause the Corporation
not to have a sufficient number of authorized but unissued Common Shares
for purposes of effecting the conversion of all then outstanding shares of
Series A Stock, the Corporation shall take any corporate action that is
necessary for the Corporation to be able to validly and legally issue fully
paid and nonassessable Common Shares upon such conversion at the Conversion
Rate (as adjusted from time to time).
* * * * * *
The number of shares constituting Series A Stock is 30,000, none of which
has been issued.
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The undersigned Edward Soren, the Executive Vice President, and
Patrick Aelvoet, the Chief Financial Officer, of Communication TeleSystems
International, each declares under penalty of perjury under the laws of the
State of California that the matters set out in the foregoing Certificate are
true of his own knowledge.
Executed at San Diego, California, on August 12, 1999.
--
/s/ Edward Soren
------------------------------------
Name: Edward Soren
Title: Executive Vice President
/s/ Patrick Aelvoet
------------------------------------
Name: Patrick Aelvoet
Title: Chief Financial Officer
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