Document:

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                                                                     Exhibit 4.5

                         SECURITIES PURCHASE AGREEMENT

          This Securities Purchase Agreement, dated as of February 22, 2000,
between American TeleSource International, Inc., a Delaware corporation with
principal executive offices located at 12500 Network Boulevard, Suite 407, San
Antonio, Texas 78249 (the "Company"), and The Shaar Fund Ltd., a British Virgin
Islands corporation with principal domestic executive offices located at Two
World Trade Center, Suite 1820, New York, New York 10048 ("Buyer").

          Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 3,000 shares of the Company's 6% Series D
Cumulative Convertible Preferred Stock, par value $0.001 per share
(collectively, the "Preferred Shares"), and (ii) its Common Stock Purchase
Warrants or Warrant in the form attached hereto as Exhibit A (collectively, the
"Warrants");

          Whereas, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of 6% Series D
Cumulative Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "Certificate of Designation"), the Preferred Shares are convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock");

          Whereas, the Warrants, upon the terms and subject to the conditions in
the Warrants, will for a period of five (5) years be exercisable to purchase
150,000 shares of Common Stock;

          Whereas, upon the terms and subject to the conditions of the
Certificate of Designation, the Preferred Stock may be redeemed by the Company
at a redemption price including, without limitation, the issuance of its Common
Stock Purchase Warrants having the same terms and conditions as the Warrants and
exercisable to purchase an additional 150,000 shares of Common Stock (the
"Redemption Warrants");

          Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:

             I. Purchase and Sale of Preferred Shares and Warrants

          A.  Transaction.  Buyer hereby agrees to purchase from the Company,
and the Company has offered and hereby agrees to issue and sell to the Buyer in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 150,000 shares of Common Stock.

          B.  Purchase Price; Form of Payment.  The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$3,000,000 (the "Purchase Price"). Buyer shall pay the Purchase Price by wire
transfer of immediately available funds to the escrow agent (the "Escrow Agent")
identified in those certain Escrow Instructions of even date herewith, a copy of
which is attached hereto as Exhibit C (the "Escrow Instructions").
Simultaneously with the execution of this Agreement and against receipt by the
Escrow Agent of the Purchase Price, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company has
been notified otherwise, I/N/O Buyer's nominee) evidencing the Preferred Shares
and the Warrants which the Buyer is purchasing, to the Escrow Agent or its
designated depository. By executing and delivering this Agreement, Buyer and the
Company each hereby agree to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.

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          C.  Method of Payment.  Payment into escrow of the Purchase Price
shall be made by wire transfer of immediately available funds to:

          The Bank of New York
          48 Wall Street
          New York, NY 10038
          ABA No.:             021000018
          For the Account of:  Cadwalader, Wickersham & Taft
                               Trust Account IOLA Fund
          Account No.:         0902061070

Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.

              II.  Buyer's Representations, Warranties; Access to
                    Information; Independent Investigation

          Buyer represents and warrants to and covenants and agrees with the
Company as follows:

          A.  Buyer is purchasing the Preferred Shares, the Warrants, the
Redemption Warrants, if any, the Common Stock issuable upon exercise of the
Warrants and the Redemption Warrants, if any, (the "Warrant Shares") and the
shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion Shares" and, collectively with the Preferred Shares, the Warrants,
the Redemption Warrants and the Warrant Shares, the "Securities") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.

          B.  Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.

          C.  Buyer understands that the Securities are being offered and sold
by the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;

          D.  Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.

          E.  Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission and that the foregoing authorities have not reviewed
any documents or instruments in connection with the offer and sale to Buyer of
the Securities and have not confirmed or determined the adequacy or accuracy of
any such documents or instruments.

          F.  This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against Buyer in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.

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          G.  Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or position
with respect to the Common Stock and neither Buyer nor any of its affiliates nor
any person acting on its or their behalf will at any time use shares of Common
Stock acquired pursuant to this Agreement to settle any put option, short
position or other similar instrument or position that may have been entered into
prior to the execution of this Agreement.

          H.  Neither Buyer nor any of its affiliates is a broker-dealer
registered as such with the Commission.

         III. The Company's Representations, Warranties and Covenants

          The Company represents and warrants to and convenants and agrees with
Buyer that:

          A.  Capitalization.

              1.  The authorized capital stock of the Company consists of: (i)
     100,000,000 shares of Common Stock, of which 57,549,721 shares are issued
     and outstanding on the date hereof, and (ii) 10,000,000 shares of "blank
     check" preferred stock, par value $0.001 per share, of which (x) 50,000
     shares have been designated 10% Series A Cumulative Convertible Preferred
     Stock (the "Series A Preferred Stock"), of which 38,401 shares have been
     issued and are outstanding, (y) 2,000 shares have been designated 6% Series
     B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"),
     of which 2,000 shares have been issued and are outstanding, and (z) 500
     shares have been designated 6% Series C Cumulative Preferred Stock (the
     "Series C Preferred Stock"), of which 500 shares have been issued and are
     outstanding.  All of the issued and outstanding shares of Common Stock,
     Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred
     Stock have been duly authorized and validly issued and are fully paid and
     nonassessable.  As of the date hereof, the Company has outstanding vested
     stock options to purchase 3,281,369 shares of Common Stock and non-vested
     stock options to purchase 1,382,103 shares of Common Stock, in each case
     pursuant to its 1997 and 1998 Stock Option Plans, and warrants to purchase
     1,997,219 shares of Common Stock.  The Conversion Shares and Warrant Shares
     have been duly and validly authorized and reserved for issuance by the
     Company, and when issued by the Company upon conversion of, or in lieu of
     accrued dividends on, the Preferred Shares and on exercise of the Warrants
     and the Redemption Warrants, if any, will be duly and validly issued, fully
     paid and nonassessable and will not subject the holder thereof to personal
     liability by reason of being such holder.  There are no preemptive,
     subscription, "call" or other similar rights to acquire the Common Stock
     (including the Conversion Shares and Warrant Shares) that have been issued
     or granted to any person, except as disclosed on Schedule III.A.1. hereto
     or otherwise previously disclosed in writing to Buyer.

              2.  Except as disclosed on Schedule III.A.2. hereto, the Company
     does not own or control, directly or indirectly, any interest in any other
     corporation, partnership, limited liability company, unincorporated
     business organization, association, trust or other business entity.

          B.  Organization; Reporting Company Status.

              1.  The Company is a corporation duly organized, validly existing
     and in good standing under the laws of the State of Delaware and is duly
     qualified as a foreign corporation in all jurisdictions in which the
     failure to so qualify would have a material adverse effect on the business,
     properties, prospects, condition (financial or otherwise) or results of
     operations of the Company or on the consummation of any of the transactions
     contemplated by this Agreement (a "Material Adverse Effect").

              2.  The Company has registered the Common Stock pursuant to
     Section 12 of the Securities Exchange Act of 1934, as amended (the
     "Exchange Act"), and has timely filed with the Commission all reports and
     information required to be filed by it pursuant to all reporting
     obligations under Section 13(a) or 15(d), as applicable, of the Exchange
     Act for the 12-month period immediately preceding

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     the date hereof. The Common Stock is traded on the American Stock Exchange
     (the "Amex") and the Company has not received any notice regarding, and to
     its knowledge there is no threat of, the termination or discontinuance of
     the eligibility of the Common Stock for such trading.

          C.  Authorized Shares.  The Company has duly and validly authorized
and reserved for issuance 3,500,000 shares of Common Stock sufficient in number
for the conversion of the Preferred Shares and the exercise of the Warrants and
the Redemption Warrants.  The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Preferred
Shares and Warrant Shares upon conversion of the Preferred Shares and exercise
of the Warrants and Redemption Warrants, respectively.  The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants or
Redemption Warrants, if any, in accordance with this Agreement, the Certificate
of Designation, the Warrants and the Redemption Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code").  In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. (S) 362 in respect of the conversion of the Preferred
Shares and the exercise of the Warrants or Redemption Warrants, if any.  The
Company agrees, without cost or expense to Buyer, to take or consent to any and
all action necessary to effectuate relief under 11 U.S.C. (S) 362.  Schedule
III.C. hereto sets forth (i) all issuances and sales by the Company since July
31, 1998 of its capital stock, and other securities convertible, exercisable or
exchangeable for capital stock of the Company, (ii) the amount of such
securities sold, including any underlying shares of capital stock, (iii) the
purchaser thereof, and (iv) the amount paid therefor.

          D.  Authority; Validity and Enforceability.  The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities).  The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the Redemption Warrants and the issuance
and reservation for issuance of the Conversion Shares and Warrant Shares), has
been duly authorized by all necessary corporate action on the part of the
Company.  Each of the Documents has been duly and validly executed and delivered
by the Company, the Certificate of Designation has been duly filed with the
Delaware Secretary of State's office by the Company, and each instrument
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.  The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally.  For purposes
of this Agreement, the term "Documents" means (i) this Agreement; (ii) the
Registration Rights Agreement of even date herewith between the Company and
Buyer, a copy of which is annexed hereto as Exhibit D (the "Registration Rights
Agreement"); (iii) the Certificate of Designation; (iv) the Warrants; and (v)
the Escrow Instructions.

          E.  Authorization of the Securities.  The authorization, issuance,
sale and delivery of the Preferred Shares, the Warrants and the Redemption
Warrants has been duly authorized by all requisite corporate action on the part
of the Company.  As of the Closing Date, the Preferred Shares and the Warrants,
and the Conversion Shares and Redemption Warrants and the Warrant Shares upon
their issuance in accordance with the Preferred Shares and the Warrants,
respectively, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first refusal
or other similar rights.

          F.  Non-contravention.  The execution and delivery by the Company of
the Documents, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, including,
without limitation, the filing of the Certificate of Designation with the
Delaware Secretary of

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State's office, do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default (or an
event which, with notice, lapse of time or both, would constitute a default)
under (i) the articles of incorporation or by-laws of the Company or (ii) any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which its properties or assets are bound, or
any law, rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets, except as to clause (ii) above such conflict,
breach or default which would not have a Material Adverse Effect.

          G.  Approvals.  No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (and the
Redemption Warrants, the Conversion Shares and Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents as have been obtained by the Company prior to the date hereof.

          H.  Commission Filings.  None of the Company's reports and documents
filed with the Commission pursuant to the Securities Act or the Exchange Act
(collectively, the "Commission Filings") prior to the date hereof contained at
the time they were filed any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.

          I.  Absence of Certain Changes.  Except as set forth on Schedule
III.I., since the Balance Sheet Date (as defined in Section III.M.), there has
not occurred any change, event or development in the business, financial
condition, prospects or results of operations of the Company, and there has not
existed any condition, having or reasonably likely to have a Material Adverse
Effect.

          J.  Full Disclosure.  There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably could
be expected to have a Material Adverse Effect or (ii) reasonably could be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to the Documents.

          K.  Absence of Litigation.  There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.

          L.  Absence of Events of Default.  No "Event of Default" (as defined
in any agreement or instrument to which the Company is a party) and no event
which, with notice, lapse of time or both, would constitute an Event of Default
(as so defined), has occurred and is continuing, which could have a Material
Adverse Effect.

          M.  Financial Statements; No Undisclosed Liabilities.  The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
July 31, 1998 and July 31, 1999 and the related audited statements of operations
and cash flows for the three fiscal years ended July 31, 1999 including the
related notes and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's independent auditors
relating to the dates and periods covered by the Financial Statements.  Each of
the Financial Statements is complete and correct in all material respects, has
been prepared in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
to normal year end adjustments and the absence of footnotes) and in conformity
with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated.  For purposes hereof, the audited
balance sheet of the Company as at July 31, 1999 is hereinafter referred to as
the "Balance Sheet" and July 31, 1999 is hereinafter referred to as the "Balance
Sheet Date".  The Company has no indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred since the Balance Sheet Date in the ordinary course of business
consistent with the Company's past practices.

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          N.  Compliance with Laws; Permits.  The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively,
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance as would not have a Material Adverse Effect.  The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.

          O.  Related Party Transactions.  Except as set forth on Schedule
III.O. hereto and excluding receivables between the Company and its
Subsidiaries, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company.  Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or Affiliates (i) owns
any direct or indirect interest constituting more than a 1% equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant to or lender to or borrower from,
or has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of
the Company, (y) engaged in a business related to the business of the Company,
or (z) a participant in any transaction to which the Company is a party (other
than in the ordinary course of the Company's business) or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company.

          P.  Insurance.  The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate and consistent with industry standards and the Company's
historical claims experience.  The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any such insurance policy presently in force.

          Q.  Securities Law Matters.  Based, in part, upon the representations
and warranties of Buyer set forth in Section II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws.  Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year period next preceding the date hereof,
except as disclosed on Schedule III.C or III.Q. hereto or otherwise previously
disclosed in writing to Buyer, and the Company shall not directly or indirectly
take, and shall not permit any of its directors, officers or Affiliates directly
or indirectly to take, any action (including, without limitation, any offering
or sale to any person or entity of the Preferred Shares or shares of Common
Stock), so as to make unavailable the exemption from Securities Act registration
being relied upon by the Company for the offer and sale to Buyer of the
Preferred Shares and the Warrants (and the Redemption Warrants, the Conversion
Shares and the Warrant Shares) as contemplated by this Agreement.  No form of
general solicitation or advertising has been used or authorized by the Company
or any of its officers, directors or Affiliates in connection with the offer or
sale of the Preferred Shares and the Warrants (and the Redemption Warrants, the
Conversion Shares and the Warrant Shares) as contemplated by this Agreement or
any other agreement to which the Company is a party.

          R.  Environmental Matters.

              1.  The operations of the Company are in compliance with all
     applicable Environmental Laws and all permits issued pursuant to
     Environmental Laws or otherwise;

              2.  The Company has obtained or applied for all permits required
     under all applicable Environmental Laws necessary to operate its business;

              3.  The Company is not the subject of any outstanding written
     order of or agreement with any governmental authority or person respecting
     (i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
     threatened Release of Hazardous Materials;

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              4.  The Company has not received, since July 31, 1999, any
     written communication alleging that it may be in violation of any
     Environmental Law or any permit issued pursuant to any Environmental Law,
     or may have any liability under any Environmental Law;

              5.  The Company does not have any current contingent liability in
     connection with any Release of any Hazardous Materials into the indoor or
     outdoor environment (whether on-site or off-site);

              6.  Except as set forth on Schedule III.R. hereto, to the
     Company's knowledge, there are no investigations of the business,
     operations, or currently or previously owned, operated or leased property
     of the Company pending or threatened which could lead to the imposition of
     any liability pursuant to any Environmental Law;

              7.  There are not located at any of the properties of the Company
     any (A) underground storage tanks, (B) asbestos-containing material or (C)
     equipment containing polychlorinated biphenyls; and,

              8.  The Company has provided to Buyer all environmentally related
     audits, studies, reports, analyses, and results of investigations that have
     been performed with respect to the currently or previously owned, leased or
     operated properties of the Company.

          For purposes of this Section III.R.:

          "Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law now in effect in any way
relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Occupational Safety and Health Act, and the regulations
promulgated pursuant thereto.

          "Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of any Environmental Law;

          "Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;

          "Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.

          S.  Labor Matters.  The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company.  Except as set forth on
Schedule III.S, no employees of the Company are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal.  There is no organizing activity involving the
Company pending or, to the Company's knowledge, threatened by any labor
organization or group of employees of the Company.  There are no (i) strikes,
work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances
or other labor disputes pending or, to the knowledge of the Company, threatened
against

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or involving the Company. There are no unfair labor practice charges, grievances
or complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company.

          T.  ERISA Matters.  The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it.  No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the PBGC, and
the present value of all liabilities under all Plans (based on those assumptions
used to fund such Plans) did not, as of the most recent annual valuation date
applicable thereto, exceed the value of the assets of all such Plans in the
aggregate.  None of the Company or ERISA Affiliates has incurred any Withdrawal
Liability that could result in a Material Adverse Effect.  None of the Company
or ERISA Affiliates has received any notification that any Multiemployer Plan is
in reorganization or has been terminated within the meaning of Title IV of
ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization
or termination where such reorganization or termination has resulted or could
reasonably be expected to result in increases to the contributions required to
be made to such Plan or otherwise.

          For purposes of this Section III.T.:

          "ERISA" means the Employee Retirement Income Security Act of 1974,
together with the regulations thereunder, as the same may be amended from time
to time.

          "ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code").

          "Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Internal Revenue Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.

          "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

          "Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.

          "Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).

          "Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.

          U.  Tax Matters.

              1.  The Company has filed all Tax Returns which it is required to
     file under applicable Laws, except for such Tax Returns in respect of which
     the failure so to file does not and could not have a Material Adverse
     Effect; all such Tax Returns are true and accurate in all material respects
     and have been prepared in compliance with all applicable Laws; the Company
     has paid all Taxes due and owing by it (whether or not such Taxes are
     required to be shown on a Tax Return) and has withheld and paid over to the
     appropriate taxing authorities all Taxes which it is required to withhold
     from amounts paid or owing to any employee, stockholder, creditor or other
     third parties; and since the Balance Sheet Date, the charges,

                                       43
<PAGE>

     accruals and reserves for Taxes with respect to the Company (including any
     provisions for deferred income taxes) reflected on the books of the Company
     are adequate to cover any Tax liabilities of the Company if its current tax
     year were treated as ending on the date hereof.

              2.  No claim has been made by a taxing authority in a
     jurisdiction where the Company does not file tax returns that such
     corporation is or may be subject to taxation by that jurisdiction.  There
     are no foreign, federal, state or local tax audits or administrative or
     judicial proceedings pending or being conducted with respect to the
     Company; no information related to Tax matters has been requested by any
     foreign, federal, state or local taxing authority; and, except as disclosed
     above, no written notice indicating an intent to open an audit or other
     review has been received by the Company from any foreign, federal, state or
     local taxing authority.  There are no material unresolved questions or
     claims concerning the Company's Tax liability.  The Company (A) has not
     executed or entered into a closing agreement pursuant to Section 7121 of
     the Internal Revenue Code or any predecessor provision thereof or any
     similar provision of state, local or foreign law; or (B) has not agreed to
     nor is required to make any adjustments pursuant to Section 481(a) of the
     Internal Revenue Code or any similar provision of state, local or foreign
     law by reason of a change in accounting method initiated by the Company or
     any of its subsidiaries or has any knowledge that the IRS has proposed any
     such adjustment or change in accounting method, or has any application
     pending with any taxing authority requesting permission for any changes in
     accounting methods that relate to the business or operations of the
     Company.  The Company has not been a United States real property holding
     corporation within the meaning of Section 897(c)(2) of the Internal Revenue
     Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
     the Internal Revenue Code.

              3.  The Company has not made an election under Section 341(f) of
     the Internal Revenue Code.  The Company is not liable for the Taxes of
     another person that is not a subsidiary of the Company (A) under Treas.
     Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
     law), (B) as a transferee or successor, (C) by contract or indemnity or (D)
     otherwise.  The Company is not a party to any tax sharing agreement.  The
     Company has not made any payments, nor is it obligated to make payments nor
     is it a party to an agreement that could obligate it to make any payments,
     that would not be deductible under Section 280G of the Internal Revenue
     Code.

          For purposes of this Section III.U.:

          "IRS" means the United States Internal Revenue Service.

          "Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto), whether disputed or not.

          "Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.

          V.  Property.  The Company has good and indefeasible title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.

          W.  Intellectual Property.  The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge

                                       44
<PAGE>

(collectively, "Intangibles") necessary for the conduct of its business as now
being conducted including, but not limited to, those described on Schedule
III.W. hereto. The Company is not infringing upon or in conflict with any right
of any other person with respect to any Intangibles. Except as disclosed on
Schedule III.W. hereto, no claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.

          X.  Internal Controls and Procedures.  The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.

          Y.  Payments and Contributions.  Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.

          Z.  No Misrepresentation.  No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.

          AA. Finder's Fee.  There is no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.

                 IV.  Certain Covenants and Acknowledgments

          A.  Restrictive Legend.  Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Preferred Shares the Warrants and the
Redemption Warrants shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares until such legend has been removed):

     "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
     1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
     STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
     REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.  THESE
     SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
     REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
     EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
     OTHER LAWS."

          B.  Filings.  The Company shall make all necessary Commission Filings
and  "blue sky" filings required to be made by the Company in connection with
the sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.

          C.  Reporting Status.  So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.

                                       45
<PAGE>

          D.  Use of Proceeds.  The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's out-
of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement) solely for general corporate and working capital
purposes.

          E.  Listing.  Except to the extent the Company lists its Common Stock
on the New York Stock Exchange, the Company shall use its best efforts to
maintain its trading of the Common Stock on the Amex.

          F.  Reserved Conversion Shares.  The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
in full, of the Preferred Shares and upon the exercise of the Warrants and the
Redemption Warrants.

          G.  Right of First Refusal.  If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in the Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the date
of issuance during the period ending two years after the Closing Date (the
"Right of First Refusal Period"), the Company shall be obligated to offer such
right of First Refusal Securities to the Buyer on the terms set forth in the
Proposal (the "Offer") and the Buyer shall have the right, but not the
obligation, to accept such Offer on such terms.  If during the Right of First
Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then Buyer shall have ten (10) business days to accept or
reject such offer in writing.  If the Company fails to: (i) issue a Proposal
during the Right of First Refusal Period; (ii) offer Buyer the opportunity to
complete the transaction as set forth in the Proposal; or (iii) enter into an
agreement with Buyer, at such terms after the Buyer has accepted the Offer, then
the Company shall pay to Buyer, as liquidated damages, an amount in total equal
to 10% of the amount paid to the Company for the Right of First Refusal
Securities.  The foregoing right of first refusal is and shall be senior in
right to any other right of first refusal issued by the Company to any other
Person (as defined in the Certificate of Designation).  Notwithstanding the
foregoing, the Buyer shall have no rights under this Section IV.G. in respect of
Common Stock or any other securities of the Company issuable (i) upon the
exercise or conversion of options, warrants or other rights to purchase
securities of the Company outstanding as of the date hereof or (ii) to officers,
directors or employees of the Company or any of its subsidiaries.

          H.  Amendment of Certificate of Designation.  The Company agrees to
take all necessary action (including without limitation an appropriate filing or
filings with the Secretary of State of the State of Delaware) to effect, as
promptly as possible but in no event later than February 29, 2000, the amendment
of Section 4(a)(ii) of the Certificate of Designation by the replacement of the
word and numbers "December 31, 1999" each time they occur in such Section
4(a)(ii) with the word and numbers "March 31, 2000".  It is understood and
agreed that the first Dividend Payment Due Date (as defined in the Certificate
of Designation) with respect to the Preferred Stock will be March 31, 2000.

                        V.  Transfer Agent Instructions

          A.  The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants and the Redemption Warrants
otherwise shall be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable law. Nothing contained in this Section V.A. shall
affect in any way Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of such Common Stock. If, at any time,
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.

                                       46
<PAGE>

          B.  The Company shall permit Buyer to exercise its right to convert
the Preferred Shares by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company. Each
date on which a Conversion Notice is telecopied to and received by the Company
in accordance with the provisions hereof shall be deemed a Conversion Date (as
defined in the Certificate of Designation). The Company shall transmit the
certificates evidencing the shares of Common Stock issuable upon conversion of
the Preferred Shares (together with certificates evidencing any Preferred Shares
not being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within five business days after receipt by the Company of the Notice
of Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the
Notice of Conversion to the Company, Buyer shall deliver to the Company the
Preferred Shares being converted.

          C.  The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants and the Redemption
Warrants in accordance with the applicable terms of the Warrants and the
Redemption Warrants. The last date that the Company may deliver shares of Common
Stock issuable upon any exercise of Warrants or Redemption Warrants is referred
to herein as the "Warrant Delivery Date."

          D.  The Company understands that a delay in the issuance of the shares
of Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants or Redemption
Warrants beyond the applicable Dividend Payment Due Date (as defined in the
Certificate of Designation), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer.  As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Common Stock
issuable in lieu of cash dividends on the Preferred Shares, upon conversion of
the Preferred Shares or exercise of the Warrants or Redemption Warrants in
accordance with the following schedule (where "No. Business Days" is defined as
the number of business days beyond five days from the Dividend Payment Due Date,
the Delivery Date or the Warrant Delivery Date, as applicable):

                                               Compensation For Each
                                                      10 Shares
                                         of Preferred Shares Not Converted
                                          Timely or 500 Shares of Common
                                            Stock Issuable In Payment of
                                           Dividends or Upon Exercise of
                                               Warrants or Redemption
          No. Business Days                  Warrants Not Issued Timely
         -------------------            ----------------------------------
                 1                                     $  25
                 2                                        50
                 3                                        75
                 4                                       100
                 5                                       125
                 6                                       150
                 7                                       175
                 8                                       200
                 9                                       225
                 10                                      250
            more than 10                 $250 + $100 for each Business Day
                                         Late beyond 10 days

The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand.  Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer; and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants or

                                       47
<PAGE>

Redemption Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.

                          VI.  Delivery Instructions

          The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.

                              VII.  Closing Date

          The date and time of the issuance and sale of the Preferred Shares and
the Warrants (the "Closing Date") shall be the date hereof or such other date as
shall be mutually agreed upon in writing.  The issuance and sale of the
Securities shall occur on the Closing Date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent
shall not be authorized to release to the Company the Purchase Price and to
Buyer the Securities being purchased by Buyer unless the conditions set forth in
Section VIII.C. and IX.G. hereof have been satisfied.

                VIII.  Conditions to the Company's Obligations

          Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:

          A.  Delivery by Buyer to the Escrow Agent of the Purchase Price;

          B.  The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be determined as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date; and

          C.  There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.

                    IX.  Conditions to Buyer's Obligations

          The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:

          A.  Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective;

          B.  Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;

          C.  The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be determined as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;

                                       48
<PAGE>

          D.  Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to the
Buyer as to the matters set forth in Annex A;

          E.  There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on the Amex, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;

          F.  There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
could have a Material Adverse Effect;

          G.  The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel);

          H.  There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
and

          I.  Delivery of irrevocable instructions to the Company's transfer
agent to reserve 3,500,000 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.

                                X.  Termination

          A.  Termination by Mutual Written Consent.  This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.

          B.  Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on February 29, 2000 (the "Latest Closing
Date"); provided, however, that the right to terminate this Agreement pursuant
to clause (i) shall not be available to any party whose failure to fulfill any
of its obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur at or before such time and date, or (ii) any
court or public or governmental authority shall have issued an order, ruling,
judgment or writ, or there shall be in effect any Law, restraining, enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement; provided, further, however, that if the Closing shall not
have occurred on or prior to the Latest Closing Date, the Closing may only occur
after the Latest Closing Date with the written acceptance of Buyer.

          C.  Termination by Buyer.  This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, (iii) there shall have occurred any event or development,
or there shall be in existence any condition, having or reasonably and
forseeably likely to have a Material Adverse Effect or (iv) the Company shall
have failed to satisfy the conditions set forth in Section IX hereof.

          D.  Termination by the Company.  This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.

                                       49
<PAGE>

          E.  Fees and Expenses of Termination.  If this Agreement is terminated
for any reason, other than pursuant to Section X.D, the Company shall reimburse
Buyer for all of Buyer's out-of-pocket costs and expenses incurred in connection
with the transactions contemplated by this Agreement and the other Documents
(including, without limitation, the fees and disbursements of Buyer's legal
counsel).

                        XI.  Survival; Indemnification

          A.  The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby.  In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.

          B.  The Company hereby agrees to indemnify and hold harmless the
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:

              1.  any misrepresentation, omission of fact or breach of any of
     the Company's representations or warranties contained in this Agreement or
     the other Documents, or the annexes, schedules or exhibits hereto or
     thereto or any instrument, agreement or certificate entered into or
     delivered by the Company pursuant to this Agreement or the other Documents;
     or

              2.  any failure by the Company to perform any of its covenants,
     agreements. undertakings or obligations set forth in this Agreement or the
     other Documents, or the annexes, schedules or exhibits hereto or thereto or
     any instrument, agreement or certificate entered into or delivered by the
     Company pursuant to this Agreement or the other Documents; or

              3.  resales of the Common Shares by Buyer in the manner and as
     contemplated by this Agreement and the Registration Rights Agreement.

          C.  Buyer hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:

              1.  any misrepresentation, omission of fact, or breach of any of
     Buyer's representations or warranties contained in this Agreement or the
     other Documents, or the annexes, schedules or exhibits hereto or thereto or
     any instrument, agreement or certificate entered into or delivered by Buyer
     pursuant to this Agreement or the other Documents; or

              2.  any failure by Buyer to perform in any material respect any
     of its covenants, agreements, undertakings or obligations set forth in this
     Agreement or the other Documents or any instrument, certificate or
     agreement entered into or delivered by Buyer pursuant to this Agreement or
     the other Documents.

          D.  Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in

                                       50
<PAGE>

respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section XI is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission so to notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, out-of-
pocket costs and expenses, (y) the Indemnified Party and the Indemnifying Party
reasonably shall have concluded that representation of the Indemnified Party and
the Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clause (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.

          E.  In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party.  If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association.  Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.

                      XII.  Governing Law; Miscellaneous

          THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES OF SUCH STATE.  EACH OF THE PARTIES CONSENTS TO THE JURISDICTION OF
THE FEDERAL COURTS WHOSE DISTRICTS ENCOMPASS ANY PART OF THE CITY OF NEW YORK OR
THE STATE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT AND HEREBY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION
BASED ON FORUM NON CONVENIENS, TO THE BRINGING OF ANY SUCH PROCEEDING IN SUCH
JURISDICTIONS.  A signed facsimile transmission of this Agreement shall
constitute delivery thereof and shall be legal and binding on all parties
hereto.  This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original.  The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement.  If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction.  This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement.  This Agreement and the other Documents supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.

                                       51
<PAGE>

                                XIII.  Notices

          Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:

          A.   if to the Company, to:

               American TeleSource International, Inc.
               12500 Network Boulevard, Suite 407
               San Antonio, Texas 78249
               (210) 558-6090
               (210) 558-6095 (Fax)
               Attention: H. Douglas Saathoff

               with a copy to:

               Alice L. King, Esq.
               Corporate Counsel
               American TeleSource International, Inc.
               12500 Network Boulevard, Suite 407
               San Antonio, Texas 78249
               (210) 558-6090
               (210) 558-6095 (Fax)

          B.   if to the Buyer, to:

               The Shaar Fund Ltd.
               c/o Levinson Capital Management
               2 World Trade Center, Suite 1820
               New York, NY 10048
               Attention: Samuel Levinson
               (212) 432-7711
               (212) 432-7771 (Fax)

               with a copy to:

               Cadwalader, Wickersham & Taft
               100 Maiden Lane
               New York, NY 10038
               Attention: Dennis J. Block, Esq.
               (212) 504-5555
               (212) 504-5557 (Fax)

          C.   if to the Escrow Agent, to:

               Cadwalader, Wickersham & Taft
               100 Maiden Lane
               New York, NY 10038
               Attention: Dennis J. Block, Esq.
               (212) 504-5555
               (212) 504-5557 (Fax)

                                       52
<PAGE>

The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.

                             XIV.  Confidentiality

          Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).

                                XV.  Assignment

          This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any financially able affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.

          In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.

                                      American TeleSource International, Inc.

                                      By:       /s/ H. Douglas Saathoff
                                                -----------------------
                                         Name:  H. Douglas Saathoff
                                         Title: Chief Financial Officer

                                      The Shaar Fund Ltd.

                                      By:       /s/ Samuel Levinson
                                                -------------------
                                         Name:  Samuel Levinson
                                         Title: Managing Director

                                       53<PAGE>

                                                                     EXHIBIT 4.6

              CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
                                      OF
              6% SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
                                      OF
                    AMERICAN TELESOURCE INTERNATIONAL, INC.

 Pursuant to Section 151 of the General Corporation Law of the State of Delaware

     American TeleSource International, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the Board of Directors of the Corporation
effective as of February 15, 2000 adopted resolutions by Unanimous Written
Consent adopting this Certificate of Designation, Preferences and Rights
designating a new class of its preferred stock called the 6% Series D Cumulative
Convertible Preferred Stock, having the terms set forth herein, and that the
Corporation has caused this Certificate of Amendment to the Certificate of
Incorporation to be executed by a duly authorized officer as of the 18th day of
February, 2000.

              6% Series D Cumulative Convertible Preferred Stock

                                   ARTICLE 1
                                  Definitions

     The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:

     (a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).

     (b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.

     (c) "AMEX" means the American Stock Exchange.

     (d) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.

     (e) "Capital Shares" means the Common Shares and any other shares of any
other class or series of common stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.

     (f) "Closing Date" means the Issue Date.

     (g) "Common Shares" or "Common Stock" means shares of common stock, par
value $0.001 per share, of the Corporation.

     (h) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series D Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series C Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.

     (i) "Conversion Date" means any day on which all or any portion of shares
of the Series D Preferred Stock is converted in accordance with the provisions
hereof.

                                       54
<PAGE>

     (j) "Conversion Notice" has the meaning set forth in Section 6.2.

     (k) "Conversion Price" means on any date of determination the applicable
price for the conversion of shares of Series D Preferred Stock into Common
Shares on such day as set forth in Section 6.1.

     (l) "Conversion Ratio" means on any date of determination the applicable
percentage of the Market Price for conversion of shares of Series D Preferred
Stock into Common Shares on such day as set forth in Section 6.1.

     (m) "Corporation" means American TeleSource International, Inc., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation or otherwise.

     (n) "Current Market Price" means on any date of determination the closing
price of a Common Share on such day as reported on the AMEX; provided, if such
security bid is not listed or admitted to trading on the AMEX, then as reported
on the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market on the day
in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be.

     (o) "Default Dividend Rate" shall be equal to the Preferred Stock Dividend
Rate plus an additional 4% per annum.

     (p) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series D Preferred Stock is subsequently
transferred in accordance with the provisions hereof.

     (q) "Issue Date" has the meaning set forth in Section 6.1.

     (r) "Market Disruption Event" means any event that results in a material
suspension or limitation of trading of the Common Shares on the AMEX.

     (s) "Market Price" per Common Share, on any date of determination, means
the arithmetic mean of the lowest closing prices of the Common Shares as
reported on the AMEX five (5) Trading Days during the period of ten (10) Trading
Days immediately preceding such date of determination, it being understood that
such five (5) Trading Days need not be consecutive; provided, if such security
is not listed or admitted to trading on the AMEX, then as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be, for five (5) Trading Days during the period of ten
(10) Trading Days immediately preceding such date of determination, it being
understood that such five (5) Trading Days need not be consecutive.

     (t) "Optional Redemption Price" means (i) a sum in cash equal to one
hundred twenty-seven percent (127%) of the Stated Value plus (ii) the Company's
                                                        ----
common stock purchase warrant or warrants to purchase 150,000 shares of Common
Stock, having the same terms and conditions as the Warrant.

     (u) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.

     (v) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.

                                       55
<PAGE>

     (w)  "Registration Rights Agreement" means that certain Registration Rights
Agreement dated the Closing Date between the Corporation and The Shaar Fund
Ltd., including any amendments thereto.

     (x)  "SEC" means the United States Securities and Exchange Commission.

     (y)  "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.

     (z)  "Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated the Closing Date between the Corporation and The Shaar Fund
Ltd., including any amendments thereto.

     (aa)  "Series D Preferred Shares" or "Series D Preferred Stock" means the
shares of 6% Series D Cumulative Convertible Preferred Stock of the Corporation
or such other convertible Preferred Stock exchanged therefor.

     (bb)  "Stated Value" has the meaning set forth in Article 2.

     (cc)  "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.

     (dd)  "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on the AMEX are reported thereon and on
which no Market Disruption Event has occurred.

     (ee)  "Valuation Event" has the meaning set forth in Section 6.1.

     (ff)  "Valuation Period" means the ten (10) Trading Day period immediately
preceding the Conversion Date.

     (gg)  "Warrant" means the warrant to purchase Common Stock issued by the
Company to the initial Holder pursuant to the Securities Purchase Agreement.

     All references to "cash" or "$" herein means currency of the United States
of America.

                                   ARTICLE 2
                            Designation And Amount

     The designation of this series, which consists of 3,000 shares of Preferred
Stock, is 6% Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred Stock") and the stated value shall be $1,000.00 per share (the "Stated
Value").

                                   ARTICLE 3
                                     Rank

     The Series D Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities") and (iii) pari passu with the 10% Series A Cumulative
Convertible Preferred Stock, the 6% Series B Cumulative Convertible Preferred
Stock, and the 6% Series C Cumulative Convertible Preferred Stock of the
Corporation currently outstanding and any class or series of capital stock of
the Corporation hereafter created specifically ranking on parity with the Series
D Preferred Stock ("Pari Passu Securities").

                                       56
<PAGE>

                                   ARTICLE 4
                                   Dividends

     (a)  (i)   The Holder shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Article 4(a)(ii) hereof) at the rate
of six percent (6%) per annum (computed on the basis of a 360-day year) (the
"Dividend Rate") on the Stated Value of each share of Series D Preferred Stock
on and as of the most recent Dividend Payment Due Date (as defined below) with
respect to each Dividend Period (as defined below). Dividends on the Series D
Preferred Stock shall be cumulative from the date of issue, whether or not
declared for any reason, including if such declaration is prohibited under any
outstanding indebtedness or borrowings of the Corporation or any of its
Subsidiaries, or any other contractual provision binding on the Corporation or
any of its Subsidiaries, and whether or not there shall be funds legally
available for the payment thereof.

          (ii)  Each dividend shall be payable in equal quarterly amounts on
each March 31, June 30, September 30 and December 31 of each year or, if any
such date is not a business day, on the next succeeding business day (each, a
"Dividend Payment Due Date"), commencing December 31, 1999, to the holders of
record of shares of the Series D Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than 60 days or less than 10 days preceding the payment dates thereof, as shall
be fixed by the Board of Directors. For the purposes hereof, "Dividend Period"
means the period commencing on and including the Issue Date through December 31,
1999 and thereafter each quarterly period commencing on the day after the
immediately preceding Dividend Payment Due Date and ending on and including the
immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends
for any past Dividend Period may be declared and paid at any time, without
reference to any Dividend Payment Due Date, to holders of record on such date,
not more than 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.

          (iii) Subject to the next sentence, at the option of the Corporation,
the dividend shall be paid in cash or through the issuance of duly and validly
authorized and issued, fully paid and nonassessable shares of the Common Stock
valued at the Market Price.  The Corporation may exercise such option only if
the Common Stock to be issued in lieu of cash payments shall be registered for
resale in the Registration Statement (as defined in the Registration Rights
Agreement) to be filed by the Corporation to register the Common Stock issuable
upon conversion of the shares of Series D Preferred Stock and exercise of the
Warrants as set forth in the Registration Rights Agreement.  Notwithstanding the
foregoing, until such Registration Statement (as defined in the Registration
Rights Agreement) has been declared effective under the Securities Act by the
SEC, payment of dividends on the Series D Preferred Stock shall be in cash.

     (b)  The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series D Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series D Preferred Stock that may be in arrears.

     (c)  So long as any shares of the Series D Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series D Preferred Stock for
all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities.  When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series D Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series D Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.

     (d)  So long as any shares of the Series D Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a

                                       57
<PAGE>

stock option plan) of the Corporation or any subsidiary or any cashless exercise
of warrants), (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "Junior Securities Distribution") for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation, directly or
indirectly, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series D Preferred Stock and any
other Pari Passu Securities shall have been paid or set apart for payment for
all past Dividend Periods with respect to the Series D Preferred Stock and all
past dividend periods with respect to such Pari Passu Securities, and (ii)
sufficient funds shall have been paid or set apart for the payment of the
dividend for the current Dividend Period with respect to the Series D Preferred
Stock and the current dividend period with respect to such Pari Passu
Securities.

                                   ARTICLE 5
                            Liquidation Preference

     (a)  If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up (each such event being considered a "Liquidation
Event"), no distribution shall be made to the holders of any shares of Common
Stock or Junior Securities of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the holders of shares of Series D Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
(as defined in Article 5(c)) with respect to each share.  If upon the occurrence
of a Liquidation Event, the assets and funds legally available for distribution
among the holders of the Series D Preferred Stock and holders of Pari Passu
Securities shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series D Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the liquidation preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.

     (b)  At the option of each Holder, the sale, conveyance or disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is obtained by any Person or
"group" as defined in or pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended, other than a Person or "group" (as so defined), if any,
having more than 50% of the voting power of the Corporation on the Issue Date,
or the consolidation, merger or other business combination of the Corporation
with or into any other Person or Persons when the Corporation is not the
survivor shall either: (i) be deemed to be a liquidation, dissolution or winding
up of the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to, such transaction an
amount equal to 120% of the Liquidation Preference with respect to each
outstanding share of Series D Preferred Stock in accordance with and subject to
the terms of this Article 5 or (ii) be treated pursuant to Section 6.4 hereof;
provided, that all holders of Series D Preferred Stock shall be deemed to elect
the option set forth in clause (i) hereof if at least a majority in interest of
such holders elect such option.

     (c)  For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series D Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to 30% of such Stated
Value, plus (iii) the aggregate of all accrued and unpaid dividends on such
share of Series D Preferred Stock until the most recent Dividend Payment Due
Date; provided that, in the event of an actual liquidation, dissolution or
winding up of the Corporation, the amount referred to in clause (iii) above
shall be calculated by including accrued and unpaid dividends to the actual date
of such liquidation, dissolution or winding up, rather than the Dividend Payment
Due Date referred to above.

                                       58
<PAGE>

                                   ARTICLE 6
                         Conversion of Preferred Stock

     Section 6.1  Conversion; Conversion Price

     At the option of the Holder, the shares of Series D Preferred Stock may be
converted, either in whole or in part (in whole shares of Series D Preferred
Stock), into Common Shares (calculated as to each such conversion to the nearest
1/100th of a share of Common Stock), at any time, and from time to time
following the date of issuance of the Series D Preferred Stock (the "Issue
Date") at a Conversion Price per share of Common Stock equal to the lesser of:
(i) the closing price of the Common Stock on February 16, 2000, being $5.4375,
as the same may be adjusted from time to time for any subdivision or combination
of Outstanding Common Shares after the Issue Date; and (ii) eighty-three percent
(83%) of the Market Price determined as of the Conversion Date; provided that
the Holder may not exercise any right of conversion set forth in this Article 6
during the period of thirty (30) days commencing on and including the first
Trading Day following the Issue Date, if any, on which the Current Market Price
of the Common Stock is $2.50 or less, as the same may be adjusted from time to
time for any subdivision or combination of Outstanding Common Shares after the
Issue Date; and provided, further, that if the Corporation's Common Stock, for
any reason, (a) becomes ineligible for trading on AMEX, (b) is not listed on the
New York Stock Exchange or (c) is not admitted to trading on the NASDAQ National
Market, the NASDAQ SmallCap Market, then any remaining unconverted Series D
Preferred Stock may be converted, at the sole option of the Holder, at a
Conversion Price per share of Common Stock equal to 65% of the Market Price
determined as of the Conversion Date.  At the Corporation's option, the amount
of accrued and unpaid dividends as of the Conversion Date  may be paid in cash
or in Common Stock valued at the Market Price on the Conversion Date.

     The number of shares of Common Stock due upon conversion of Series D
Preferred Stock shall be (i) the number of shares of Series D Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.  Notwithstanding any other provision herein, the
Conversion Price shall not be less than the par value of the Common Stock

     Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder.  Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during the period of ten (10) Trading Days immediately
preceding a Conversion Date, the Market Price with respect to such Conversion
Date shall be (a) the arithmetic mean of the lowest closing prices of the Common
Shares (reported as provided in the definition of "Market Price") for five (5)
Trading Days (it being understood that such five (5) Trading Days need not be
consecutive) during the period beginning on the Trading Day immediately
following the occurrence of such Valuation Event and ending on the Conversion
Date (the "New Valuation Period"), if such New Valuation Period includes five
(5) Trading Days or more, or (b) the arithmetic mean of the lowest closing
prices of the Common Shares (reported as provided in the definition of "Market
Price") for all Trading Days in the New Valuation Period, if such New Valuation
Period includes four (4) Trading Days or less; provided that, if the Valuation
Event occurs on the Trading Day immediately preceding such Conversion Date, then
the Conversion Price shall be the lesser of (x) the closing price of the Common
Stock on February 16, 2000, being $5.4375, as the same may be adjusted from time
to time for any subdivision or combination of Outstanding Common Shares after
the Issue Date, and (y) eighty-three percent (83%) of the Current Market Price
of the Common Shares on the Trading Day immediately preceding the Conversion
Date; and provided, further, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than ten (10) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation within two Business Days of the receipt of the
Valuation Event Notice.  In the event that the Holder deems the Market Price is
to be calculated with reference to a period other than the ten (10) Trading Days
immediately prior to the Conversion Date, the Holder shall give written notice
of such fact to the Corporation in the related Conversion Notice at the time of
conversion.

     For purposes of this Section 6.1, a "Valuation Event" shall mean an event
in which the Corporation at any time takes any of the following actions:

     (a)  subdivides or combines its Capital Shares;

                                       59
<PAGE>

     (b)  makes any distribution on its Capital Shares;

     (c)  issues any additional Capital Shares (the "Additional Capital
          Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
          and 6.1(b) above, at a price per share less, or for other
          consideration lower, than the Current Market Price in effect
          immediately prior to such issuances, or without consideration, except
          for issuances under stock option plans presently in effect and
          issuances under presently outstanding warrants, options or convertible
          securities (and except for issuances upon exercise, conversion or
          exchange of securities described in Section 6.1(d) and 6.1(e) below);

     (d)  issues any warrants, options or other rights to subscribe for or
          purchase any Additional Capital Shares and the price per share for
          which Additional Capital Shares may at any time thereafter be issuable
          pursuant to such warrants, options or other rights shall be less than
          the Current Market Price in effect immediately prior to such issuance
          of the warrants, options or other rights;

     (e)  issues any securities convertible into or exchangeable or exercisable
          for Additional Capital Shares and the consideration per share for
          which Additional Capital Shares may at any time thereafter be issuable
          pursuant to the terms of such convertible, exchangeable or exercisable
          securities shall be less than the Current Market Price in effect
          immediately prior to such issuance of such convertible or exchangeable
          securities;

     (f)  makes a distribution of its assets or evidences of indebtedness to the
          holders of its Capital Shares as a dividend in liquidation or by way
          of return of capital or other than as a dividend payable out of
          earnings or surplus legally available for the payment of dividends
          under applicable law or any distribution to such holders made in
          respect of the sale of all or substantially all of the Corporation's
          assets (other than under the circumstances provided for in the
          foregoing Sections 6.1(a) through 6.1(e)); or

     (g)  takes any action affecting the number of Outstanding Capital Shares,
          other than an action described in any of the foregoing Sections 6.1(a)
          through 6.1(f) hereof, inclusive, which in the opinion of the
          Corporation's Board of Directors, determined in good faith, would have
          a material adverse effect upon the rights of the Holder at the time of
          a conversion of the Preferred Stock.

     Section 6.2  Exercise of Conversion Privilege

     (a)  Conversion of the Series D Preferred Stock may be exercised, in whole
or in part, by the Holder by telecopying an executed and completed notice of
conversion in the form annexed hereto as Annex I (the "Conversion Notice") to
the Corporation.  Each date on which a Conversion Notice is telecopied to the
Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date.  The Corporation shall convert the Series D
Preferred Stock and issue the Common Stock Issued at Conversion to be issued
upon conversion thereof, and all voting and other rights associated with the
beneficial ownership of  such Common Stock Issued at Conversion to be issued
upon conversion thereof shall vest with the Holder, effective as of the
Conversion Date at the time specified in the Conversion Notice.  The Conversion
Notice also shall state the name or names (with addresses) of the Persons who
are to become the holders of the Common Stock Issued at Conversion in connection
with such conversion.  The Holder shall deliver the shares of Series D Preferred
Stock to the Corporation by express courier within 30 days following the date on
which the telecopied Conversion Notice has been transmitted to the Corporation.
Upon surrender for conversion, the Preferred Stock shall be accompanied by a
proper assignment thereof to the Corporation or be endorsed in blank.  As
promptly as practicable after the receipt of the Conversion Notice as aforesaid,
but in any event not more than five (5) Business Days after the Corporation's
receipt of such Conversion Notice and the Series D Preferred Stock being
converted, the Corporation shall (i) issue the Common Stock Issued at Conversion
in accordance with the provisions of this Article 6 (including, without
limitation, any shares of Common Stock issued pursuant to Section 4(a)(iii), at
the option of the Corporation, in payment of dividends on the Series D Preferred
Stock), (ii) cause to be mailed for delivery by overnight courier to the Holder
a certificate or certificate(s) representing the number of Common Shares to
which the Holder is entitled by virtue of

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<PAGE>

such conversion and (iii) remit, in immediately available funds, payment as
provided in Section 6.3 in respect of any fraction of a Common Share issuable
upon such conversion and payment in the amount of accrued and unpaid dividends
as of the Conversion Date. Such conversion shall be deemed to have been effected
at the time at which the Conversion Notice indicates so long as the Series D
Preferred Stock shall have been surrendered as aforesaid at such time, and at
such time the rights of the Holder of the Series D Preferred Stock, as such,
shall cease and the Person or Persons in whose name or names the Common Stock
Issued at Conversion shall be issuable shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons. The Conversion Notice shall
constitute a contract between the Holder and the Corporation, whereby the Holder
shall be deemed to subscribe for the number of Common Shares which it will be
entitled to receive upon such conversion and, in payment and satisfaction of
such subscription (and for any cash adjustment to which it is entitled pursuant
to Section 6.4), to surrender the Series D Preferred Stock and to release the
Corporation from all liability thereon. No cash payment aggregating less than
$1.00 shall be required to be given unless specifically requested by the Holder.

     (b)  If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series D Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Series D Preferred Stock into Common Shares, then the Holder shall have the
right, by written notice to the Corporation, to require the Corporation to
promptly redeem, to the extent permitted by law, the Series D Preferred Stock
for cash at a redemption price equal to 127% of the Stated Value thereof
together with all accrued and unpaid dividends thereon (the "Mandatory Purchase
Amount").  Under any of the circumstances set forth above, the Corporation shall
be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in disputing
any such action or pursuing its rights hereunder (in addition to any other
rights of the Holder).

     (c)  The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. (S) 101 et seq.
(the "Bankruptcy Code").  In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. (S) 362 in respect of the
Holder's conversion privilege.  The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. (S) 362 in
respect of the conversion of the Series D Preferred Stock.  The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. (S) 362.

     Section 6.3  Fractional Shares

     No fractional Common Shares or scrip representing fractional Common Shares
shall be issued upon conversion of the Series D Preferred Stock.  Instead of any
fractional Common Shares which otherwise would be issuable upon conversion of
the Series D Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction.  No cash
payment of less than $1.00 shall be required to be given unless specifically
requested by the Holder.

     Section 6.4   Reclassification, Consolidation, Merger or Mandatory Share
Exchange

     At any time while the Series D Preferred Stock remains outstanding and any
shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series D
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series D Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the

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<PAGE>

Series D Preferred Stock), or in the case of any sale or transfer to another
corporation of the property of the Corporation as an entirety or substantially
as an entirety, the Corporation will not effect any such action unless the
Corporation, or such successor, resulting or purchasing corporation, as the case
may be, shall, without benefit of any additional consideration therefor, issues
a new preferred stock providing that the Holder shall have the right to convert
such new preferred stock (upon terms and conditions not less favorable to the
Holder than those in effect pursuant to the Series D Preferred Stock) and to
receive upon such exercise, in lieu of each Common Share theretofore issuable
upon conversion of the Series D Preferred Stock, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one Common Share issuable upon conversion of the
Series D Preferred Stock had the Series D Preferred Stock been converted
immediately prior to such reclassification, change, consolidation, merger,
mandatory share exchange or sale or transfer. The provisions of this Section 6.4
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.

     Section 6.5   Adjustments to Conversion Price

     For so long as any shares of the Series D Preferred Stock are outstanding,
if the Corporation:  (i) issues and sells pursuant to an exemption from
registration under the Securities Act (A) Common Shares at a purchase price on
the date of issuance thereof that is lower than the Conversion Price (other than
Common Shares issuable upon exercise, conversion or exchange of securities
described in the following clause (B) or (C), (B) warrants or options with an
exercise price representing a percentage of the Current Market Price on the date
of issuance of the warrants or options that is lower than the Conversion Price,
except for employee stock option agreements or stock incentive agreements of the
Corporation, or (C) convertible, exchangeable or exercisable securities with a
right to exchange at lower than the Current Market Price on the date of issuance
or conversion, as applicable, of such convertible, exchangeable or exercisable
securities, except for stock option agreements or stock incentive agreements;
and (ii) grants the right to the purchaser(s) thereof to demand that the
Corporation register under the Securities Act prior to two years from the Issue
Date such Common Shares issued or the Common Shares for which such warrants or
options may be exercised or such convertible, exchangeable or exercisable
securities may be converted, exchanged or exercised, then the Conversion Price
shall be reduced to equal the lowest of any such lower prices.

     Section 6.6   Optional Redemption and Optional Conversion

     At any time after the date of issuance of the Series D Preferred Stock
until the Mandatory Conversion Date (as defined below), to the extent permitted
by law, the Corporation, upon notice delivered to the Holder as provided in
Section 6.7, may redeem all (but not less than all) of the Series D Preferred
Stock (but only with respect to such shares as to which the Holder has not
theretofore furnished a Conversion Notice in compliance with Section 6.2), at
the Optional Redemption Price, together with all accrued and unpaid dividends
thereon to the date of redemption (the "Redemption Date"); provided, however,
that the Corporation may only redeem the Series B Preferred Stock under this
Section 6.6 if the Current Market Price is less than the Current Market Price on
the Issue Date.  Except as set forth in this Section 6.6, the Corporation shall
not have the right to prepay or redeem the Series D Preferred Stock.

     Section 6.7  Notice of Redemption

     Notice of redemption pursuant to Section 6.6 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 10 nor more than 15 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.6 (including a
statement of the Market Price per Common Share) and this Section 6.7.

     Section 6.8  Surrender of Preferred Stock

     Upon any redemption of the Series D Preferred Stock pursuant to Sections
6.6 or 6.7 the Holder shall either deliver the Series D Preferred Stock by hand
to the Corporation at its principal executive offices or surrender the same to
the Corporation at such address by express courier.  Payment of the optional
Redemption Price specified in Section 6.6 shall be made by the Corporation to
the Holder against receipt of the Series D Preferred Stock (as

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<PAGE>

provided in this Section 6.8) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify to the Corporation. If payment of
such redemption price is not made in full by the or the Redemption Date the
Holder shall again have the right to convert the Series D Preferred Stock as
provided in Article 6 hereof.

     Section 6.9   Mandatory Conversion

     On the second (2/nd/) anniversary of the Issue Date subject to 6.10(a) (the
"Mandatory Conversion Date"), the Corporation shall convert all Series D
Preferred Stock outstanding at the Conversion Price.

     Section 6.10  Certain Conversion Limitations

          (a)  Notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series D Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series D Preferred Stock in
shares of Common Stock) if and to the extent that the issuance to the Holder of
shares of Common Stock upon such conversion (or payment of dividends) would
result in the Holder being deemed the "beneficial owner" of more than 5% of the
then outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder.  If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then outstanding shares of Common Stock,
then the Corporation shall redeem, to the extent permitted by law, so many of
such Holder's shares (the "Redemption Shares") of Series D Preferred Stock as
are necessary to cause such Holder to be deemed the beneficial owner of not more
than 5% of the then outstanding shares of Common Stock.  Upon such determination
by a court of competent jurisdiction, the Redemption Shares shall immediately
and without further action be deemed returned to the status of authorized but
unissued shares of Series D Preferred Stock, and the Holder shall have no
interest in or rights under such Redemption Shares.  Any and all dividends paid
on or prior to the date of such determination shall be deemed dividends paid on
the remaining shares of Series D Preferred Stock held by the Holder.  Such
redemption shall be for cash at a redemption price equal to the sum of (i) the
Stated Value of the Redemption Shares and (ii) any accrued and unpaid dividends
to the date of such redemption; provided, however, if the redemption is a result
of the mandatory conversion pursuant to Section 6.9, the Corporation may either
(i) make such redemption in cash at a redemption price equal to the sum of (x)
127% of the Stated Value of such shares and (y) any accrued and unpaid dividends
to the date of such redemption or (ii) extend the Mandatory Conversion Date for
a period of one year.

          (b)  Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of the AMEX or
such stock market with which the Corporation shall be required to comply, but
only to the extent required thereby, the Corporation shall not issue shares of
Common Stock (i) upon conversion of any shares of Series D Preferred Stock or
(ii) as a dividend on the Series D Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (i) upon conversion of shares of the Series D Preferred Stock,
(ii) upon exercise of the Warrants issued pursuant to the terms of the
Securities Purchase Agreement and (iii) in payment of dividends on the Series D
Preferred Stock, would equal or exceed 20% of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Issue Date
(the "Maximum Issuance Amount").  In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (i)
converting the number of shares of Series D Preferred Stock stated in the
Conversion Notice not in excess of the Maximum Issuance Amount and (ii)
redeeming, to the extent permitted by law, the number of shares of Series D
Preferred Stock stated in the Conversion Notice equal to or in excess of the
Maximum Issuance Amount in cash at a price equal to 127% of the Stated Value of
the shares of Series D Preferred Stock to be so redeemed, together with all
accrued and unpaid dividends thereon.  In the event that the Corporation shall
elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.

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<PAGE>

                                   ARTICLE 7
                                 Voting Rights

     The holders of the Series D Preferred Stock have no voting power, except as
otherwise provided by the General Corporation Law of the State of Delaware
("DGCL"), in this Article 7, and in Article 8 below.

     Notwithstanding the above, the Corporation shall provide each Holder of
Series D Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders).  In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least 30 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such action is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding, the amount and character of such dividend, distribution,
right or other event to the extent known at such time.

     To the extent that under the DGCL the vote of the Holders of the Series D
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least a majority of the outstanding shares of
Series D Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
D Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class.  To the extent that under
the DGCL holders of the Series D Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series D Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated.  Holders of the Series D Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.

                                       64
<PAGE>

     Except as otherwise required by applicable law, subject to receipt of the
approval of the Holders of the Series D Preferred Stock as required herein, the
Corporation may alter or change the rights, preferences or privileges of the
Series D Preferred Stock without the approval of any other class or series of
capital stock of the Corporation.

                                   ARTICLE 8
                             Protective Provisions

     So long as shares of Series D Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the Holders of at least a majority of the
then outstanding shares of Series D Preferred Stock:

     (a)  alter or change the rights, preferences or privileges of the Series D
          Preferred Stock;

     (b)  create any new class or series of capital stock having a preference
          over the Series D Preferred Stock as to distribution of assets upon
          liquidation, dissolution or winding up of the Corporation ("Senior
          Securities") or alter or change the rights, preferences or privileges
          of any Senior Securities so as to affect adversely the Series D
          Preferred Stock;

     (c)  increase the authorized number of shares of Series D Preferred Stock;
          or

     (d)  do any act or thing not authorized or contemplated by this Certificate
          of Designation which would result in taxation of the holders of shares
          of the Series D Preferred Stock under Section 305 of the Internal
          Revenue Code of 1986, as amended (or any comparable provision of the
          Internal Revenue Code as hereafter from time to time amended).

     In the event Holders of least a majority of the then outstanding shares of
Series D Preferred Stock give their approval to allow the Corporation to alter
or change the rights, preferences or privileges of the shares of Series D
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series D
Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series D Preferred Stock that did not approve such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of 30 days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series D Preferred Stock.

                                   ARTICLE 9
                                 Miscellaneous

     Section 9.1   Loss, Theft, Destruction of Preferred Stock Certificates

     Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series D Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series D Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series D Preferred Stock, new shares of Series
D Preferred Stock of like tenor.  The Series D Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series D Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.

     Section 9.2  Who Deemed Absolute Owner

     The Corporation may deem the Person in whose name the Series D Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series D Preferred Stock for the
purpose of receiving payment of dividends on the Series D Preferred Stock, for
the conversion of the Series D Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary.

                                       65
<PAGE>

All such payments and such conversion shall be valid and effectual to satisfy
and discharge the liability upon the Series D Preferred Stock to the extent of
the sum or sums so paid or the conversion so made.

     Section 9.3  Notice of Certain Events

     In the case of the occurrence of any Valuation Event described in Sections
6.1, or 6.6 of this Certificate of Designation, the Corporation shall cause to
be mailed to the Holder of the Series D Preferred Stock at its last address as
it appears in the Corporation's security registry, at least 20 days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not to be
taken, the date as of which the Holders of record of Series D Preferred Stock to
be entitled to such dividend, distribution, issuance or granting of rights,
options or warrants are to be determination or the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and (y) the date as
of which it is expected that Holders of record of Series D Preferred Stock will
be entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.

     Section 9.4  Register

     The Corporation shall keep at its principal office a register in which the
Corporation shall provide for the registration of the Series D Preferred Stock.
Upon any transfer of the Series D Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the Series D
Preferred Stock register.

     The Corporation may deem the person in whose name the Series D Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series D Preferred Stock for the
purpose of receiving payment of dividends on the Series D Preferred Stock, for
the conversion of the Series D Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary.  All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series D Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.

     Section 9.5  Withholding

     To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series D Preferred Stock.

     Section 9.6  Headings

     The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.

     In Witness Whereof, the Corporation has caused this Certificate of
Designation, Preferences and Rights to be signed by its duly authorized officers
on ___________________, 2000.

                              AMERICAN TELESOURCE INTERNATIONAL, INC.

                              By:  /s/ H. Douglas Saathoff
                                   -----------------------
                                   H. Douglas Saathoff
                                   Title:  Senior Vice President

                              By:  /s/ Charles R. Poole
                                   --------------------
                                   Name: Charles R. Poole
                                   Title: President

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<PAGE>

                                                                         ANNEX I

                           FORM OF CONVERSION NOTICE

To:  American TeleSource International, Inc.
     12500 Network Boulevard, Suite 407
     San Antonio, Texas 78249

     The undersigned owner of this Series D 6% Convertible Preferred Stock (the
"Series D Preferred Stock") issued by American TeleSource International, Inc.
(the "Corporation") hereby irrevocably exercises its option to convert
__________ shares of the Series D Preferred Stock into shares of the common
stock, par value $0.001 per share ("Common Stock"), of the Corporation in
accordance with the terms of the Certificate of Designation.  The undersigned
hereby instructs the Corporation to convert the number of shares of the Series D
Preferred Stock specified above into Shares of Common Stock Issued at Conversion
in accordance with the provisions of Article 6 of the Certificate of
Designation.  The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series D Preferred Stock
re-certificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below.  All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Certificate of Designation.  So long as the
Series D Preferred Stock shall have been surrendered for conversion hereby, the
conversion pursuant hereto shall be deemed to have been effected at the date and
time specified below, and at such time the rights of the undersigned as a Holder
of the Series D Preferred Stock shall cease and the Person or Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons.

Date and time:_____________________

                                        ________________________________________
                                        Signature

Fill in for registration of Series D Preferred Stock:

________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print name and address (including zip code number)

                                       67

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