<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 7, 1996
REGISTRATION NO. 33-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________
FORM S-4
REGISTRATION STATEMENT
Under
The Securities Act of 1933
______________
AMERICAN TELESOURCE INTERNATIONAL INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
ONTARIO, CANADA 4813 APPLIED FOR
(state or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
ATSI MERGER CORP.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 4813 APPLIED FOR
(state or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
12500 NETWORK BLVD., SUITE 407
SAN ANTONIO, TEXAS 78249
(210) 558-6090
(Address, including zip code, and telephone number, including
area code, of each registrant's principal executive offices)
______________
ARTHUR L. SMITH, PRESIDENT
12500 NETWORK BLVD., SUITE 407
SAN ANTONIO, TEXAS 78249
(210) 558-6090
(Name, address including zip code, and telephone number, including
area code, of agent for service for each registrant)
______________
with a copy to:
Matthew R. Bair, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.l.p.
300 Convent Street, Suite 1500
San Antonio, Texas 78205
Telephone: (210) 270-0800
<PAGE>
_________________
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE OF THE SECURITIES TO THE
PUBLIC: AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES
EFFECTIVE.
IF ANY SECURITIES BEING REGISTERED ON THIS FORM ARE BEING OFFERED IN CONNECTION
WITH THE FORMATION OF A HOLDING COMPANY AND THERE IS COMPLIANCE WITH GENERAL
INSTRUCTION G, CHECK THE FOLLOWING BOX [X].
<TABLE>
<CAPTION>
========================================================================================================================
CALCULATION OF REGISTRATION FEE
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SHARE(1) PRICE(1) REGISTRATION FEE(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock of American
Telesource International Inc.
("ATSI"), No Par Value 19,965,312 $0.602 $12,019,117.824 $ 4,144.523
- ------------------------------------------------------------------------------------------------------------------------
Warrants of ATSI to purchase
Common Stock 5,009,963 $0.001 $ 5,009.963 $ 1.728
- ------------------------------------------------------------------------------------------------------------------------
Common Stock of ATSI issuable
upon exercise of Warrants(2) 5,009,963 $0.602 $ 3,015,997.726 $ 1,040.000
- ------------------------------------------------------------------------------------------------------------------------
Common Stock of ATSI Merger
Corp. ("ATSI Merger Corp."),
par value $0.001 per share 9,982,656 $1.204 (3) $12,019,117.824 (3) $ 4,144.523 (3)
- ------------------------------------------------------------------------------------------------------------------------
Warrants of ATSI Merger Corp.
to purchase Common Stock 5,009,963 $0.001 $ 5,009.963 $ 1.728
- ------------------------------------------------------------------------------------------------------------------------
Common Stock of ATSI Merger
Corp. issuable upon exercise of
Warrants of ATSI 2,504,982 $1.204 (3) $ 3,015,998.328 (3) $ 1,040.000 (3)
- ------------------------------------------------------------------------------------------------------------------------
Total Registration Fee $10,372.50
========================================================================================================================
</TABLE>
(1) Estimated solely for the purpose of calculating the amount of the
registration fee, pursuant to Rule 457.
(2) Reflects weighted average exercise price under outstanding warrants.
(3) ATSI Merger Corp. was recently incorporated and was formed to be merged
with ATSI. In such merger, one share of ATSI Merger Corp. common stock
will be issued for every two shares of ATSI common stock.
_________________
THE REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
================================================================================
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
ATSI MERGER CORP.
_________________
CROSS REFERENCE SHEET
PURSUANT TO ITEM 501(B) OF REGULATION S-K
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<S> <C> <C>
A. INFORMATION ABOUT THE TRANSACTION
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus Cover Page
2. Inside Front and Outside Back Cover Pages
of Prospectus............................ Inside Front and Outside Back Cover Pages;
Available Information
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information............ Summary; Risk Factors; General Proxy Information;
Capitalization; Selected Financial Data; Management;
Principal Shareholders
4. Terms of the Transaction.................... Summary; Domestication and Merger; Effect of
Domestication and Merger on Shareholder
Rights; Dissent Rights of ATSI
Shareholders; Description of ATSI Merger
Corp. Securities; Canadian and United
States Income Tax Considerations
5. Pro Forma Financial Information............. *
6. Material Contracts with the Company Being
Acquired................................. *
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters................ *
8. Interests of Named Experts and Counsel...... *
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities.............................. *
B. INFORMATION ABOUT THE REGISTRANT
10. Information with Respect to S-3 Registrants.
*
11. Incorporation of Certain Information by
Reference................................ *
12. Information with Respect to S-2 or S-3
Registrants.............................. *
13. Incorporation of Certain Information by
Reference................................ *
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
FORM S-4 ITEM NUMBER AND CAPTION LOCATION IN PROSPECTUS
-------------------------------- ----------------------
<S> <C> <C>
14. Information with Respect to Registrants Other
Than S-2 or S-3 Registrants............... Summary; Risk Factors; Price
Range of Common Shares; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management; Certain Transactions;
Principal Shareholders; Description of
ATSI Merger Corp. Securities
C. INFORMATION ABOUT THE COMPANY BEING
ACQUIRED
15. Information with Respect to S-3 Companies....
*
16. Information with Respect to S-2 or S-3
Companies................................. *
17. Information with Respect to Companies Other
Than S-2 or S-3 Companies................. Price Range of Common Shares; Summary;
Risk Factors; Capitalization;
Selected Financial Data; Management's
Discussion and Analysis of Financial
Condition and Results of Operations;
Business; Management;
Certain Transactions; Principal
Shareholders; Description of ATSI Merger
Corp. Securities
D. VOTING AND MANAGEMENT INFORMATION
18. Information if Proxies, Consents or
Authorizations Are to be Solicited........ Available Information; Summary; General
Proxy Information; Articles of
Amendment; Domestication and Merger;
Dissent Rights of ATSI Shareholders;
Management; Certain Transactions;
Principal Shareholders; 1996 Option Plan;
Shareholder Proposals; Other Business at
Special Meeting; Approval of Proxy
19. Information if Proxies, Consents or
Authorizations Are Not to be Solicited or
in an Exchange Offer...................... *
</TABLE>
____________
*Not applicable
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
12500 NETWORK BLVD., SUITE 407
SAN ANTONIO, TEXAS 78249
Dear Shareholders:
Your approval is requested for the following transactions which American
Telesource International Inc. (the "Company" or "ATSI") is proposing to its
shareholders at the special meeting of shareholders.
SHARE CONSOLIDATION. The Board of Directors will ask shareholders to pass (i) a
special resolution, with or without variation, subject to requisite regulatory
approval, authorizing and approving the filing of Articles of Amendment
consolidating the issued and outstanding common shares (the "Common Shares") of
the Company in its capital on the basis of one post-consolidation common share
(a "Post-Consolidation Common Share") for each two pre-consolidation common
shares ("Pre-Consolidation Common Shares") (the "First Consolidation") and (ii)
a special resolution, with or without variation, subject to requisite regulatory
approval, authorizing and approving the filing in the future of one additional
charter amendment (without further action of shareholders) further
consolidating, on a one-for-two basis, the issued and outstanding Common Shares,
or shares of ATSI Merger Corp. Common Stock (as defined herein) in the event the
Merger (as defined herein) occurs, if the Board of Directors in its sole
discretion deems such further consolidation necessary to satisfy the minimum per
share price requirements for listing on the Nasdaq National Market, Nasdaq
SmallCap Market or another securities market or exchange (the "Second
Consolidation" and, together with the First Consolidation, the "Consolidation").
The Board of Directors believes that the Consolidation is in the best
interests of the shareholders because over the long term the Company will have
greater flexibility with respect to future equity financings which will be
necessary to develop the Company's business. Furthermore, the Company, or ATSI
Merger Corp. (as defined herein) in the event the Merger (as defined herein)
occurs, may in the future apply for listing on the Nasdaq National Market,
Nasdaq SmallCap Market or another securities market or exchange, which listing
may require the satisfaction of certain conditions, including minimum per share
price requirements. If such resolution is approved, it is currently anticipated
that the Articles of Amendment effecting the First Consolidation will be filed
regardless of whether the Domestication and Merger are effected and shareholders
will be required to surrender their current certificates representing Pre-
Consolidation Common Shares in exchange for certificates representing Post-
Consolidation Common Shares. Appropriate transmittal forms will be sent to
shareholders for this purpose. Prior to a share certificate being surrendered,
such share certificate will represent whole shares of the Company on a post-
consolidated basis, being in an amount equal to one-half of the amount
represented on the original share certificate.
DOMESTICATION. The Board of Directors will submit a proposal to domesticate the
Company from a corporation existing under the laws of the Province of Ontario,
Canada to a corporation existing under the laws of the State of Delaware, United
States of America (the "Domestication"). If approved by at least two-thirds of
the votes cast by holders of the Common Shares represented in person or by proxy
at the meeting, the Domestication will result in a change in the Company's
jurisdiction of incorporation from the Province of Ontario to the State of
Delaware and will also result in the adoption of a new certificate of
incorporation for the Company, which will govern the Company under Delaware law.
If approved by the shareholders and subject to requisite regulatory approval, it
is anticipated that the Domestication will become effective on or about
__________ ____, 1996, or as soon as practicable after the special meeting of
shareholders.
MERGER. If the Domestication is approved and becomes effective, the
shareholders of the Company, after it has been domesticated in Delaware, will be
asked to approve by written consent the merger (the "Merger") of the Company
with and into its wholly-owned subsidiary, ATSI Merger Corp. ("ATSI Merger
Corp.") pursuant to the laws of the State of Delaware. Such written consent will
be executed pursuant to proxies solicited hereby (the "Consent"). Accordingly,
no shareholder meeting will be held with respect to the Merger proposal. If the
Merger is completed, holders of Common Shares will receive one share of Common
Stock,
<PAGE>
$0.001 par value per share, of ATSI Merger Corp. ("ATSI Merger Corp. Common
Stock") for each Common Share held immediately prior to the Merger. In addition,
all warrants of ATSI outstanding immediately prior to the Merger will become
obligations of ATSI Merger Corp. upon consummation of the Merger. If approved by
the shareholders of ATSI pursuant to the Consent, immediately following the
Merger the name of the surviving company will change to American Telesource
International, Inc. or such other name as may be authorized by the Board of
Directors of ATSI. It is anticipated that the Merger, if approved by the
shareholders of ATSI pursuant to the Consent, will also become effective on or
about __________ ____, 1996, or as soon as practicable after the completion of
the Domestication.
The Board of Directors has reserved the right to terminate or abandon the
Consolidation, Domestication and/or the Merger at any time prior to the
effectiveness of each, notwithstanding shareholder approval, if the Board of
Directors determines for any reason that the consummation of the Consolidation,
Domestication and/or the Merger would be inadvisable or not in the best
interests of the Company or its shareholders.
For a summary of the principal income tax consequences of the
Consolidation, Domestication and Merger to United States shareholders and
warrantholders, Canadian shareholders and warrantholders, and the Company, see
"Canadian and United States Income Tax Considerations" contained in the Circular
and Proxy Statement/Prospectus (the "Prospectus").
1996 OPTION PLAN. The Board of Directors will submit the American Telesource
International Inc. 1996 Stock Option Plan (the "1996 Option Plan") to
shareholders for their approval. If approved by at least a majority of the votes
cast by holders of the Common Shares represented in person or by proxy at the
meeting, excluding votes cast by directors, executive officers and beneficial
owners of 10% or more of the Common Shares, the 1996 Option Plan provides that
options to purchase up to 4,000,000 Common Shares may be granted to employees
and directors of, and consultants and advisors to, the Company or any subsidiary
corporation or entity. Such number of shares shall be subject to adjustment to
2,000,000 shares in the event that the proposed one-for-two reverse stock split
of the Common Shares pursuant to the First Consolidation is approved by the
shareholders at the meeting. The 1996 Option Plan is intended to promote the
interest of the Company and its shareholders by providing an effective means to
attract, retain and increase the commitment of certain individuals and to
provide such individuals with additional incentive to contribute to the success
of the Company.
THE ONLY WAY A HOLDER OF COMMON SHARES CAN EXPRESS HIS APPROVAL OF THE
MERGER IS BY EXECUTING THE PROXY AUTHORIZING THE PERSONS NAMED THEREIN TO
APPROVE THE MERGER BY MEANS OF THE CONSENT. THE FAILURE TO GRANT A PROXY OR THE
WITHHOLDING OF AUTHORITY TO EXECUTE THE CONSENT HAS THE SAME EFFECT AS A VOTE
"AGAINST" THE MERGER. FURTHERMORE, A PROXY AUTHORIZING THE EXECUTION OF THE
CONSENT IS VALID ONLY IF THE PERSON EXECUTING THE PROXY REMAINS A HOLDER OF
RECORD OF THE SHARES REPRESENTED THEREBY AT THE TIME THE DOMESTICATION BECOMES
EFFECTIVE AND THE CONSENT IS EXECUTED. THEREFORE, IF YOU WISH TO HAVE YOUR
SHARES REPRESENTED IN THE APPROVAL OF THE MERGER, WE URGE YOU NOT TO SELL OR
TRANSFER ANY SHARES PRIOR TO THE EFFECTIVENESS OF THE DOMESTICATION.
IF THE MERGER IS COMPLETED, SHAREHOLDERS WILL BE REQUIRED TO SURRENDER
THEIR CURRENT CERTIFICATES REPRESENTING COMMON SHARES IN EXCHANGE FOR
CERTIFICATES REPRESENTING THE APPROPRIATE NUMBER OF SHARES OF ATSI MERGER CORP.
COMMON STOCK. IF THE MERGER IS NOT COMPLETED BUT THE FIRST CONSOLIDATION IS
COMPLETED, THEN SHAREHOLDERS WILL BE REQUIRED TO SURRENDER THEIR CURRENT
CERTIFICATES REPRESENTING PRE-CONSOLIDATION COMMON SHARES IN EXCHANGE FOR
CERTIFICATES REPRESENTING THE APPROPRIATE NUMBER OF POST-CONSOLIDATION COMMON
SHARES. Appropriate transmittal forms will be sent to shareholders for these
purposes. After the First Consolidation and the Merger occur but before a stock
certificate for Pre-Consolidation Common Shares is surrendered, such certificate
will represent Post-Consolidation Common Shares and whole shares of ATSI Merger
Corp. Common Stock in an amount equal to the number of Post-Consolidation Common
Shares (deemed to be represented) (or formerly represented) thereby,
respectively. If both the First Consolidation and Merger occur, only one
exchange will be required. If the Domestication
<PAGE>
occurs but the Merger does not, every holder of Common Shares will be required
to surrender the certificates representing such shares in order for such
certificates to be replaced with new certificates of ATSI which conform to the
requirements of Delaware law.
THE PROSPECTUS PROVIDES A DETAILED DESCRIPTION OF THE CONSOLIDATION,
DOMESTICATION, MERGER AND 1996 OPTION PLAN AND OTHER INFORMATION TO ASSIST YOU
IN CONSIDERING THE MATTERS TO BE VOTED ON. WE URGE YOU TO REVIEW THIS
INFORMATION CAREFULLY AND, IF YOU REQUIRE ASSISTANCE, TO CONSULT WITH YOUR
FINANCIAL, TAX OR OTHER PROFESSIONAL ADVISORS.
FOR THE REASONS SET FORTH IN THE PROSPECTUS, YOUR BOARD OF DIRECTORS
UNANIMOUSLY BELIEVES THAT THE PROPOSED CONSOLIDATION, DOMESTICATION AND MERGER
AND THE ADOPTION OF THE 1996 OPTION PLAN ARE IN THE BEST INTERESTS OF THE
COMPANY AND ALL OF ITS SHAREHOLDERS. WE THEREFORE STRONGLY URGE YOU TO VOTE
"FOR" THE CONSOLIDATION, DOMESTICATION AND MERGER AND 1996 OPTION PLAN.
Very truly yours,
ARTHUR L. SMITH
President, Chief Operating Officer and Director
ON BEHALF OF THE BOARD OF DIRECTORS
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TAKE NOTICE THAT a Special Meeting (the "Meeting") of the shareholders of
American Telesource International Inc. (the "Company") will be held at
____________________________, San Antonio, Texas, on __________ ____, 1996, at
the hour of ___:___ A.M./P.M. (Central Standard Time), for the following
purposes:
a. To consider and pass, with or without variation, (i) a special
resolution authorizing and approving an amendment to the Articles of
the Company to consolidate the Company's issued and outstanding common
shares, without par value (the "Common Shares"), on the basis of one
post-consolidation common share for each two pre-consolidation common
shares in the capital of the Company (the "First Consolidation") and
(ii) a special resolution authorizing and approving the filing in the
future of one additional charter amendment (without further action of
shareholders) further consolidating, on a one-for-two basis, the
issued and outstanding Common Shares, or shares of common stock of
ATSI Merger Corp., par value $0.001 per share (the "Common Stock"), in
the event the merger (the "Merger") of the Company with and into ATSI
Merger Corp. occurs, if the Board of Directors in its sole discretion
deems such further consolidation necessary to satisfy the minimum per
share price requirements for listing on the Nasdaq National Market,
Nasdaq SmallCap Market or another securities market or exchange (the
"Second Consolidation" and, together with the First Consolidation, the
"Consolidation").
b. To consider and pass, with or without variation, a special resolution,
subject to requisite regulatory approval, (i) authorizing the Company
to become domesticated as a corporation existing under the laws of the
State of Delaware in accordance with the Delaware General Corporation
Law (the "Domestication") and (ii) approving the adoption of a new
Certificate of Incorporation to govern the Company once it is
domesticated and existing under the laws of the State of Delaware. A
copy of the Certificate of Incorporation, which is attached to the
Circular and Proxy Statement/Prospectus (the "Prospectus")
accompanying this notice, will be effective upon the filing of the
Certificate of Domestication with the Secretary of State of Delaware
and will replace the Articles of the Company at such time;
c. To consider and pass, with or without variation, a special resolution,
subject to requisite regulatory approval, authorizing and approving
the Company's 1996 Stock Option Plan; and
d. To transact such other business as may properly come before the
Meeting or any adjournments thereof.
FOR FULL INFORMATION, THIS NOTICE MUST BE READ IN CONJUNCTION WITH THE
PROSPECTUS ACCOMPANYING THIS NOTICE.
SHAREHOLDERS REGISTERED AS HOLDERS OF THE COMPANY'S COMMON SHARES WHO ARE
NOW DEEMED TO HOLD SUCH SHARES AS OF THE CLOSE OF BUSINESS ON __________ ___,
1996, ARE ENTITLED TO NOTICE OF THE MEETING. Shareholders of record who are
holders of Common Shares as of the close of business on __________ ___, 1996 are
entitled to vote on all matters to be considered at the Meeting, except that if
such person transfers his or her shares after said date and the transferee, at
least 48 hours prior to the Meeting, produces properly endorsed share
certificates to the secretary or transfer agent of the Company, or otherwise
establishes ownership of the shares, the transferee may vote those shares. The
transfer register will not be closed at any time prior to the Meeting.
Proxies may be used or acted upon at the Meeting or any adjournments
thereof if deposited with the Company or its transfer agent at any time prior to
or during the Meeting or any adjournments thereof.
<PAGE>
A Shareholder who dissents in respect of item (b) above is entitled to be
paid the fair value of its Common Shares as set forth in the Prospectus.
A description of the procedure to be followed by dissenting shareholders is
set out in the Prospectus under the heading "Dissent Rights of ATSI
Shareholders" and the text of the special resolution to be submitted to the
Meeting is set out in Exhibit B (with respect to the Domestication) to the
Prospectus.
Dated at Toronto, Ontario ____________ ___, 1996.
By order of the Board of Directors
______________________________
H. DOUGLAS SAATHOFF, Secretary
SHAREHOLDERS, WHETHER OR NOT ABLE TO ATTEND THE MEETING IN PERSON ARE
REQUESTED TO DATE AND SIGN THE ENCLOSED FORM OF PROXY AND TO RETURN IT TO THE
COMPANY'S TRANSFER AGENT, THE R-M TRUST COMPANY, 393 UNIVERSITY AVENUE, TORONTO,
ONTARIO, M5G 1E6, BY NOT LATER THAN 10:00 A.M. (CENTRAL STANDARD TIME) ON
____________ ___, 1996.
WHETHER OR NOT YOU ARE ABLE TO ATTEND THE MEETING, THE ONLY WAY IN WHICH
YOU CAN EXPRESS YOUR APPROVAL OF THE MERGER IS BY EXECUTING THE PROXY
AUTHORIZING THE PERSONS NAMED THEREIN TO APPROVE THE MERGER IN A WRITTEN CONSENT
IN LIEU OF A SPECIAL SHAREHOLDERS MEETING (THE "CONSENT"). THE FAILURE TO GRANT
A PROXY OR THE WITHHOLDING OF AUTHORITY TO EXECUTE THE CONSENT HAS THE SAME
EFFECT AS A VOTE "AGAINST" THE MERGER. THEREFORE, PLEASE COMPLETE THE ENCLOSED
FORM OF PROXY FOR THE CONSENT AND FORWARD IT TO THE COMPANY AS INDICATED IN THE
PRECEDING PARAGRAPH.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ Information contained herein is subject to completion or amendment. A +
+ registration statement relating to these securities has been filed with the +
+ Securities and Exchange Commission. These securities may not be sold nor may +
+ offers to buy be accepted prior to the time the registration statement +
+ becomes effective. This prospectus shall not constitute an offer to sell or +
+ the solicitation of an offer to buy nor shall there be any sale of these +
+ securities in any State in which such offer, solicitation or sale would be +
+ unlawful prior to registration or qualification under the securities laws of +
+ any such State. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PRELIMINARY PROSPECTUS DATED JUNE 7, 1996, SUBJECT TO COMPLETION
AMERICAN TELESOURCE INTERNATIONAL INC.
ATSI MERGER CORP.
____________________
SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON __________ ___, 1996
PROSPECTUS FOR 24,975,275 SHARES OF COMMON STOCK
AND 5,009,963 WARRANTS OF
AMERICAN TELESOURCE INTERNATIONAL INC.
AND FOR
12,487,638 SHARES OF COMMON STOCK
AND 5,009,963 WARRANTS OF ATSI MERGER CORP.
____________________
This Circular and Proxy Statement/Prospectus (this "Prospectus") is being
furnished as a management proxy circular in connection with the solicitation by
the Board of Directors and management of American Telesource International Inc.
("ATSI") of proxies for use at the Special Meeting of Common Shareholders (the
"Meeting") or any adjournment(s) thereof. The Meeting will be held on __________
___, 1996 at the time, place and for the purposes set forth in the Notice of
Meeting.
This Prospectus constitutes the Prospectus of ATSI under the United States
Securities Act of 1933, as amended (the "Securities Act"), with respect to (i)
19,965,312 Common Shares (the "Common Shares") of ATSI, (ii) 5,009,963 warrants
("ATSI Warrants") of ATSI, and (iii) 5,009,963 Common Shares issuable upon the
exercise of the ATSI Warrants, to be issued to or held by holders of shares in
the capital and warrants, as applicable, of ATSI as a result of its
domestication from the Province of Ontario to the State of Delaware. This
Prospectus also constitutes the Prospectus of ATSI Merger Corp. ("ATSI Merger
Corp." and, together with ATSI, the "ATSI Companies"), a Delaware corporation
and a wholly-owned subsidiary of ATSI, under the Securities Act with respect to
(i) 9,982,656 shares of Common Stock, par value $0.001 per share ("ATSI Merger
Corp. Common Stock"), of ATSI Merger Corp., (ii) 5,009,963 warrants ("ATSI
Merger Corp. Warrants") of ATSI Merger Corp., and (iii) 2,504,982 shares of ATSI
Merger Corp. Common Stock issuable upon the exercise of the ATSI Merger Corp.
Warrants, of ATSI Merger Corp. to be issued to or held by holders of Common
Shares and ATSI Warrants, as applicable, as a result of the merger of ATSI with
and into ATSI Merger Corp. To effect such domestication and merger, ATSI first
will be domesticated (the "Domestication") as a corporation organized under the
General Corporation Law of the State of Delaware, as amended (the "DGCL"), and
then will be merged (the "Merger") with and into ATSI Merger Corp. See
"Domestication and Merger."
Prior to the Domestication and the Merger, the Company intends to effect a
consolidation of the Common Shares on the basis of one post-consolidation common
share ("Post-Consolidation Common Share") for each two pre-consolidation common
shares ("Pre-Consolidation Common Shares") (the "First Consolidation"), and,
after the Domestication and Merger, may effect one further consolidation, on a
one-for-two basis, of the ATSI Merger Corp. Common Stock, or Common Shares if
the Merger does not occur, if such further consolidation is necessary to satisfy
the minimum per share price requirements for listing on the Nasdaq National
Market, Nasdaq SmallCap Market or another securities market or exchange (the
"Second Consolidation" and, together with the First Consolidation, the
"Consolidation").
At the Meeting, holders of Common Shares will also be asked to vote on the
approval and adoption of the Company's 1996 Stock Option Plan (the "1996 Option
Plan").
Subject to certain conditions and applicable law, holders of at least
66 2/3% of the ATSI Common Shares voting in person or by proxy at the Meeting
must approve the First Consolidation, Second Consolidation and the Domestication
and holders of greater than 50% of the Common Shares voting in person or by
proxy at the Meeting, excluding votes cast by directors, executive officers and
beneficial owners of 10% or more of the Common Shares, must approve the 1996
Option Plan. Subsequent to the Domestication, approval by a majority of the
outstanding Common Shares by means of a written consent, executed pursuant to
proxies solicited hereby (the "Consent"), and by the Board of Directors, is
required to authorize the Merger. If the Domestication and the Merger are both
approved and become effective, all holders of Common Shares, except those who
have properly exercised their dissenter's rights under applicable law, will be
deemed to be stockholders of ATSI Merger Corp. as of the date when the
certificate of ownership and merger has been properly executed and duly filed
with the Secretary of State of Delaware (the "Effective Date"). See "Dissent
Rights of ATSI Shareholders." If the Domestication occurs but the Merger does
not, ATSI will be continued as a Delaware corporation. The Board of Directors of
ATSI has reserved the right to terminate or abandon the Consolidation,
Domestication and/or the Merger at any time prior to the effectiveness of each,
notwithstanding shareholder approval, if the Board of determines for any reason
that the consummation of the Consolidation, Domestication and/or Merger would be
inadvisable or not in the best interests of the Company or its shareholders. See
"Domestication and Merger" and "Canadian and United States Income Tax
Consequences."
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
ON PAGE ___.
__________________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS
THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
CIRCULAR AND PROXY STATEMENT/PROSPECTUS. ANY REPRE-
SENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
__________________
The date of this Circular and Proxy Statement/Prospectus is _______________,
1996.
<PAGE>
AVAILABLE INFORMATION
The ATSI Companies have filed with the United States Securities and
Exchange Commission (the "Commission") a Registration Statement (which term
shall include any amendment thereto) on Form S-4 under the Securities Act for
the registration of the securities offered hereby. This Prospectus, which
constitutes a part of the Registration Statement, does not contain all of the
information set forth in the Registration Statement, certain items of which are
omitted as permitted by the rules and regulations of the Commission. For further
information with respect to the ATSI Companies and such securities, reference is
hereby made to the Registration Statement, including the exhibits and schedules
thereto. Statements made in this Prospectus concerning the contents of any
contract, agreement or other document referred to herein are not necessarily
complete. With respect to each such contract, agreement or other document filed
with the Commission as an exhibit to the Registration Statement, reference is
hereby made to the exhibit for a more complete description of the matter
involved, and each statement shall be deemed qualified in its entirety by such
reference. The Registration Statement and the exhibits and schedules thereto
filed by the ATSI Companies with the Commission may be inspected at the public
reference facilities maintained by the Commission at Judiciary Plaza, 450 Fifth
Street, N.W., Washington, D.C. 20549.
As a result of the issuance of securities contemplated hereby, ATSI, prior
to the Merger, and ATSI Merger Corp., after the Merger, will be subject to
certain periodic reporting and other information requirements of the United
States Securities Exchange Act of 1934, as amended (the "Exchange Act"). As long
as either company is subject to such periodic reporting and information
requirements, it will file with the Commission all reports and other information
required thereby, which may be inspected at the public reference facilities
maintained by the Commission at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices located at
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661,
and 7 World Trade Center, 14th Floor, New York, New York 10048. Copies of such
material may be obtained by mail from the Public Reference Branch of the
Commission at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
at prescribed rates.
ATSI's Common Shares are posted and listed for trading on the Canadian
Dealing Network. Upon completion of the Consolidation, Domestication and/or the
Merger, the Common Shares or the ATSI Merger Corp. Common Stock, as the case may
be, will continue to be listed on the Canadian Dealing Network subject to the
satisfaction of certain conditions imposed by the Canadian Dealing Network. In
addition, the Company intends to eventually apply for listing of the ATSI Merger
Corp. Common Stock, or ATSI Common Shares in the event the Domestication occurs
but the Merger does not, on the Nasdaq National Market or Nasdaq SmallCap
Market.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE INCLUDED IN THIS PROSPECTUS IN CONNECTION WITH
THE OFFER CONTAINED IN THIS PROSPECTUS AND, IF GIVEN OR MADE, ANY SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY EITHER ATSI COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER WITHIN ANY
JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER WITHIN SUCH
JURISDICTION. THE DELIVERY OF THIS PROSPECTUS AT ANY TIME DOES NOT IMPLY THAT
THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
THIS PROSPECTUS MAKES REFERENCE TO CERTAIN DOCUMENTS WHICH ARE NOT
PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS ARE AVAILABLE UPON
REQUEST FROM H. DOUGLAS SAATHOFF, VICE PRESIDENT FINANCE, 12500 NETWORK BLVD.,
SUITE 407, SAN ANTONIO, TEXAS 78249 (210/558-6090). TO ENSURE TIMELY DELIVERY OF
THE DOCUMENTS, ANY REQUEST SHOULD BE MADE BY [DATE FIVE DAYS PRIOR TO MEETING],
1996.
The date on which this Prospectus was first mailed to shareholders was on or
about _______________, 1996.
(i)
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE PAGE
---- ----
<S> <C> <C> <C>
SELECTED CONSOLIDATED FINANCIAL
AVAILABLE INFORMATION.......................... (i) DATA..................................... 41
SUMMARY........................................ 1 MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL
RISK FACTORS................................... 13 CONDITION AND RESULTS OF
Risks Relating to the Company............... 13 OPERATIONS............................... 42
Risks of Latin American Operations.......... 17 Overview................................. 42
Risks Relating to Ownership of Company Results of Operations.................... 43
Securities and this Offering............. 18 Liquidity and Capital Resources.......... 47
Inflation/Foreign Currency............... 48
GENERAL PROXY INFORMATION...................... 20 Seasonality.............................. 49
Solicitation of Proxies..................... 20
Appointment and Revocation of Proxies....... 20 BUSINESS.................................... 50
Voting of Shares Represented by Network Management....................... 50
Management Proxies....................... 20 Long Distance Call Services.............. 59
Voting Shares and Record Date............... 21 ATSI-Mexico.............................. 65
ATSI's International Teleport and Network
THE CONSOLIDATION.............................. 22 Control Center........................ 66
Regulation............................... 67
DOMESTICATION AND MERGER....................... 23 Employees................................ 70
The Domestication........................... 23 Properties............................... 71
The Merger 23 Legal Proceedings........................ 71
Officers and Directors...................... 24
Exchange of Share Certificates.............. 24 MANAGEMENT.................................. 72
Conditions to Domestication and Merger; Executive Officers and Directors......... 72
Shareholder Approvals.................... 25 Compensation of Directors................ 74
Proceedings before Governmental Committees of the Board of Directors..... 74
Authorities.............................. 25 Executive Compensation................... 74
Principal Reasons for the Domestication Employment Agreements.................... 75
and Merger............................... 26 1996 Option Plan......................... 76
Exculpatory Charter Provision............ 76
EFFECTS OF DOMESTICATION ON
SHAREHOLDER RIGHTS.......................... 27 CERTAIN TRANSACTIONS........................ 77
Differences Between Ontario and Delaware
Corporate Law............................ 28 PRINCIPAL SHAREHOLDERS...................... 78
Differences Between the ATSI Articles and
the ATSI Merger Corp. Certificate........ 30 DESCRIPTION OF THE ATSI MERGER
CORP. SECURITIES
DISSENT RIGHTS OF ATSI General.................................. 79
SHAREHOLDERS................................ 32 Common Stock............................. 79
Business Corporations Act (Ontario)......... 32 Preferred Stock.......................... 79
General Corporation Law of the State of Warrants and Convertible
Delaware................................. 34 Securities............................ 80
Provisions Having Possible Anti-Takeover
THE 1996 OPTION PLAN........................... 34 Effects............................... 80
Summary of the 1996 Option Plan............. 34 Canadian Dealing Network................. 81
U.S. Federal Income Tax Consequences........ 35 Exchange Agent, Transfer Agent and
Registrars............................ 82
PRICE RANGE OF COMMON SHARES................... 39 Dividend Policy.......................... 82
CAPITALIZATION................................. 40 Registration Rights...................... 82
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C> <C> <C>
CANADIAN AND UNITED STATES INDEX TO FINANCIAL STATEMENTS........ F-1
INCOME TAX
CONSIDERATIONS.............................. 83 APPENDIX A - AMERICAN TELESOURCE
United States Tax Consequences.............. 83 INTERNATIONAL, INC.
Canadian Federal Income Tax 1996 STOCK OPTION PLAN............ A-1
Consequences............................. 87
EXHIBIT A-1 -- SPECIAL RESOLUTIONS-
LEGAL OPINIONS................................ 90 FIRST CONSOLIDATION............... A-1-1
OTHER BUSINESS AT SPECIAL MEETING............. 90 EXHIBIT A-2 -- SPECIAL RESOLUTIONS -
SECOND CONSOLIDATION.............. A-2-1
APPROVAL OF PROSPECTUS........................ 90
EXHIBIT B -- SPECIAL RESOLUTIONS -
DOMESTICATION..................... B-1
EXHIBIT C -- SPECIAL RESOLUTIONS -
1996 OPTION PLAN.................. C-1
EXHIBIT D -- CERTIFICATE OF
DOMESTICATION OF AMERICAN
TELESOURCE INTERNATIONAL INC. .... D-1
EXHIBIT E -- CERTIFICATE OF
INCORPORATION OF ATSI (ONTARIO
CORPORATION)...................... E-1
EXHIBIT F - BYLAWS OF ATSI........... F-1
EXHIBIT G -- CERTIFICATE OF
OWNERSHIP AND MERGER
MERGING AMERICAN TELESOURCE
INTERNATIONAL INC. INTO ATSI
MERGER CORP. ..................... G-1
EXHIBIT H -- CERTIFICATE OF
INCORPORATION OF ATSI MERGER
CORP. ............................ H-1
EXHIBIT I -- BYLAWS OF ATSI MERGER
CORP. ............................ I-1
EXHIBIT J -- TEXT OF ONTARIO
BUSINESS CORPORATION ACT
SECTION 185 (DISSENTERS' RIGHTS).. J-1
</TABLE>
(iii)
<PAGE>
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SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE
DETAILED INFORMATION APPEARING ELSEWHERE IN THIS PROSPECTUS, WHICH SHOULD BE
READ IN ITS ENTIRETY. ALL DOLLAR AMOUNTS STATED IN THIS PROSPECTUS ARE IN U.S.
DOLLARS UNLESS OTHERWISE INDICATED.
THE COMPANY
General Upon successful completion of the
First Consolidation, Domestication
and Merger, ATSI will be domesticated
in Delaware and merged with and into
its wholly-owned subsidiary, ATSI
Merger Corp. The principal executive
offices of ATSI Merger Corp. after
the Domestication and Merger will
continue to be located at 12500
Network Blvd., Suite 407, San
Antonio, Texas 78249 and its
telephone number will continue to be
(210) 558-6090.
ATSI ATSI serves primarily as a holding
company for its wholly-owned
subsidiary, American Telesource
International, Inc., a Texas
corporation ("ATSI-Texas"), which
provides international
telecommunications networks for
voice, data, fax and video
transmission via satellite between
the United States and Latin America
and within Latin America, and call
services for domestic and
international long distance. The
Company has chosen to concentrate on
the niche market of Latin America
because it believes that the recent
privatization of many of the region's
major telephone companies and overall
trend towards deregulation,
particularly in Mexico where the
Company has focused the majority of
its initial efforts, present
significant opportunities to provide
international telecommunications
services to, from and within this
fast-growing market.
ATSI was formed in May 1994 as a
result of the amalgamation (the
"Amalgamation") of Willingdon
Resources Ltd., an Ontario
corporation ("Willingdon"), with and
into Latcomm International Inc., an
Alberta corporation ("Latcomm")
organized contemporaneously with
ATSI-Texas for the purpose of
acquiring ATSI-Texas. ATSI-Texas
began providing network management
services in April 1994 and long
distance call services in May 1994.
Prior to the Amalgamation, Willingdon
had been engaged in the exploration
of its mining property in Northern
Ontario, but was unable to prove up
an economic orebody. Willingdon had
no material assets and only one
material liability in the amount of
approximately $55,000 at the time of
the Amalgamation.
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1
<PAGE>
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ATSI Merger Corp. ATSI Merger Corp. is a wholly-owned
subsidiary of ATSI and was formed on
__________, 1996. ATSI Merger Corp.
currently has no business or properties
and has 1,000 shares of Common Stock
outstanding, all of which are owned by
ATSI. ATSI Merger Corp. will have no
business operations until the completion
of the Merger, at which time ATSI Merger
Corp. will succeed to all of the
business operations, properties, rights
and assume all of the obligations and
liabilities of ATSI.
THE MEETING
Time, Date and Place of the Meeting The Meeting is scheduled to be held
on __________, 1996 at __:__ .M.
(Central Standard Time) at
_____________
_________________________, San
Antonio, Texas. The Meeting will
initially be called pursuant to and
governed by the requirements of the
Business Corporation Act (Ontario)
(the "OBCA").
Purpose The Meeting will be convened to
authorize the Consolidation,
Domestication and the adoption of the
1996 Option Plan, and certain related
matters and to transact such other
business as may properly come before
the Meeting or any adjournment(s)
thereof.
Who May Vote Holders of Common Shares as of the
close of business on __________ ___,
1996, will be entitled to Notice of
Meeting and, subject to the rights of
certain transferees thereof as
described under "General Proxy
Information," to vote in person or by
proxy.
RECOMMENDATION OF THE BOARD OF ATSI'S BOARD OF DIRECTORS RECOMMENDS
DIRECTORS THAT THE HOLDERS OF COMMON SHARES
VOTE FOR THE CONSOLIDATION, THE
---
DOMESTICATION, THE MERGER AND THE
ADOPTION OF THE 1996 OPTION PLAN AND
EXECUTE PROXIES AUTHORIZING THE
PERSONS NAMED THEREIN TO APPROVE THE
MERGER BY WRITTEN CONSENT.
THE CONSENT
Purpose of Consent To approve the Merger.
Time and Date of Consent The Consent will be executed at or
about the opening of business on
__________ ___, 1996, or on such
later date that the Domestication
shall have become effective and the
directors of ATSI shall have approved
the Merger.
Who May Consent Holders of Common Shares at the time
the Domestication becomes effective
(who will be the persons registered
as shareholders of ATSI once it is
domiciled in Delaware) will
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2
<PAGE>
- -------------------------------------------------------------------------------
be entitled to express their consent
to the Merger by means of the proxies
solicited hereby. ANY PROXY RELATING
TO THE CONSENT EXECUTED BY A HOLDER
WHO IS NO LONGER A SHAREHOLDER OF
RECORD AT THE TIME THE DOMESTICATION
BECOMES EFFECTIVE AND THE CONSENT IS
EXECUTED, SHALL BECOME NULL AND VOID
AND OF NO FURTHER FORCE AND EFFECT.
RECOMMENDATION OF THE BOARD OF THE BOARD OF DIRECTORS OF ATSI
DIRECTORS RECOMMENDS THAT THE HOLDERS OF ATSI
COMMON SHARES EXECUTE PROXIES
AUTHORIZING THE PERSONS NAMED THEREIN
TO EXECUTE WRITTEN CONSENTS
EXPRESSING CONSENT FOR THE MERGER.
---
THE CONSOLIDATION
Consolidation The Company is asking its
shareholders to pass (i) a special
resolution, subject to requisite
regulatory approval, authorizing the
filing of Articles of Amendment
consolidating the Company's issued
and outstanding Common Shares on the
basis of one Post-Consolidation
Common Share for every two
Pre-Consolidation Common Shares (the
"First Consolidation") and (ii) a
special resolution, subject to
requisite regulatory approval,
authorizing the filing in the future
of one additional charter amendment
(without further action of
shareholders) further consolidating,
on a one-for-two basis, the issued
and outstanding Common Shares, or
shares of Common Stock of ATSI Merger
Corp., par value $0.001 per share, in
the event the Merger of the Company
with and into ATSI Merger Corp.
occurs, if the Board of Directors in
its sole discretion deems such
further consolidation necessary to
satisfy the minimum per share price
requirements for listing on the
Nasdaq National Market, Nasdaq
SmallCap Market or another securities
market or exchange (the "Second
Consolidation" and, together with the
First Consolidation, the
"Consolidation").
Treatment of Pre-Consolidation Common If the First Consolidation occurs and
Shares and Warrants the Domestication and Merger do not,
(i) holders of Pre-Consolidation
Common Shares will receive one
Post-Consolidation Common Share for
every two Pre-Consolidation Common
Shares held by such holder and (ii)
each ATSI Warrant will be exercisable
for one-half of a Post-Consolidation
Common Share. No fractional
interests in a Post-Consolidation
Common Share will be issued. All
fractions of Post-Consolidation
Common Shares which holders of
Pre-Consolidation Common Shares and
holders of ATSI Warrants would
otherwise be entitled to receive will
be rounded up to the next highest
whole number.
- -------------------------------------------------------------------------------
3
<PAGE>
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Principal Reasons for the
Consolidation The Board of Directors believes that
the Consolidation is in the best
interests of the shareholders because
over the long term the Company will
have greater flexibility with respect
to future equity financings which may
be necessary to develop the Company's
business. Furthermore, the Company,
or ATSI Merger Corp. in the event the
Merger occurs, may in the future
apply for listing on the Nasdaq
National Market, Nasdaq SmallCap
Market or another securities market
or exchange, which listing may
require the satisfaction of certain
conditions, including without
limitation minimum per share price
requirements.
Conditions to Consolidation The First Consolidation and Second
Consolidation must each receive the
favorable vote, in person or by
proxy, of the holders of at least
two-thirds of the Common Shares
voting on the special resolution at
the Meeting.
DOMESTICATION AND MERGER
Domestication ATSI will change its jurisdiction of
incorporation from Ontario to
Delaware by means of a domestication
under the DGCL. Upon the
effectiveness of the Domestication,
ATSI will become a Delaware
corporation as if it had originally
been incorporated in that
jurisdiction and ATSI will be
discontinued in Ontario.
Merger Subject to completion of the
Domestication and the execution of
consents by persons holding proxies
of holders of a majority of the
outstanding Common Shares, ATSI, then
a Delaware corporation, will be
merged with and into ATSI Merger
Corp. pursuant to the DGCL and ATSI
Merger Corp. will be the surviving
corporation. If approved by the
shareholders of ATSI pursuant to the
Consent, immediately following the
Merger the name of the surviving
company will change to American
Telesource International, Inc. or
such other name as may be authorized
by the Board of Directors of ATSI.
If the Merger fails to occur, ATSI
will continue operating as a Delaware
corporation.
Treatment of ATSI Common Shares Immediately following the completion
and Warrants of the Domestication, each Common
Share and ATSI Warrant will remain
issued and outstanding as an
equivalent security of ATSI, then a
Delaware corporation.
As a result of the Merger, (i)
holders of Common Shares will receive
one share of ATSI Merger Corp. Common
Stock for every Common Share held by
such holder and (ii) each ATSI
Warrant will be exercisable for
one-half of a share of ATSI Merger
Corp. Common Stock.
- -------------------------------------------------------------------------------
4
<PAGE>
- -------------------------------------------------------------------------------
Once the First Consolidation,
Domestication and Merger have been
effected, each holder of certificates
formerly representing Common Shares
will be required to surrender such
certificates for a certificate
representing the appropriate number
of shares of ATSI Merger Corp. Common
Stock, subject to certain appraisal
and other statutory rights afforded
by applicable law. If the
Domestication occurs but the Merger
does not, each holder of Common
Shares will be requested to surrender
the certificate representing such
shares in order for such certificates
to be replaced with new Delaware
certificates of ATSI. In either
case, holders of ATSI Warrants will
continue to hold such securities
which will be exercisable for Common
Shares or ATSI Merger Corp. Common
Stock, as the case may be. See
"Description of the ATSI Merger Corp.
Securities."
Directors and Officers The ATSI Board currently consists of
three members, Arthur L. Smith,
Murray R. Nye and John R. Moses.
Upon Domestication, the ATSI Board
will be increased to five members and
will be divided into three classes,
one class of which is to be elected
each year to hold office for a
three-year term and until successors
are elected and qualified, as
provided by the terms of the
Certificate of Incorporation to be
filed pursuant to the Company's
Domestication into Delaware. It is
anticipated that immediately
following the Domestication, John R.
Moses will resign as a director of
ATSI and Arthur L. Smith and Murray
R. Nye, representing a majority of
the directors then in office, will
elect, in order to fill such
vacancies and newly created
directorships on the Board of ATSI,
then a Delaware corporation, Terry
Colbert and Tomas Revesz to serve as
the Class B directors and Arthur L.
Smith and Murray R. Nye to serve as
the Class C directors. Messrs. Smith
and Nye also intend to appoint a
fifth director immediately following
the Domestication to serve as the
Class A director, and, along with Mr.
Moses, are currently in the process
of interviewing qualified candidates.
Additionally, immediately following
the Domestication, the officers of
ATSI will be as follows: Arthur L.
Smith -President and Chief Executive
Officer; H. Douglas Saathoff -
Secretary, Treasurer and Chief
Financial Officer; Craig K. Clement -
Vice President; and Everett Waller -
Vice President. All such individuals
who are expected to be the directors
and officers of ATSI immediately
prior to the Merger currently are or
will be, and immediately after the
Merger will be, the directors and
officers of ATSI Merger Corp. See
"Management--Executive Officers and
Directors" for more information
concerning such individuals.
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5
<PAGE>
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Principal Reasons for the The Domestication and Merger are
Domestication and Merger intended to enhance shareholder value
over the long-term by, among other
things, improving the Company's
ability and flexibility to meet its
future equity and debt financing
needs, enhancing the marketability of
the Company's capital stock by
raising the Company's profile in U.S.
and international capital markets,
and providing greater ease in dealing
with income tax complexities
associated with multi-jurisdictional
operations.
ATSI chose the State of Delaware to
be its domicile because Delaware,
like Ontario, has a modern and
flexible corporate code. In
particular, ATSI believes that the
various indemnity and exculpation
provisions of the DGCL will help it
to attract and retain competent
directors at a time when the
escalating risks and resultant costs
of director liability have made it
increasingly difficult for
corporations to find and retain
competent directors. In addition,
the State of Delaware has an active
bar which is continually assessing
and recommending improvements to the
DGCL, and the substantial body of
settled case law under the DGCL adds
greater certainty in assessing risks
associated with conducting business.
Conditions to Domestication and Merger The Domestication must receive the
favorable vote, in person or by
proxy, of the holders of at least
two-thirds of the Common Shares
voting on the special resolution at
the Meeting. The Domestication is
also conditioned upon the receipt of
the requisite authorization of the
Director under the OBCA (the "OBCA
Director") and applicable regulatory
authorities.
The Merger is conditioned upon the
effectiveness of the Domestication,
the approval of the Merger by the
Board of Directors of ATSI
immediately following the
effectiveness of the Domestication
and the approval by holders of a
majority of the outstanding Common
Shares pursuant to the Consent.
The Domestication and/or the Merger
are also subject to abandonment or
termination by the Board of Directors
under certain circumstances. See
"Domestication and Merger--Conditions
to Domestication and Merger."
Effect of Transactions on Because ATSI currently prepares its
Consolidated Financial Statements consolidated financial statements in
U.S. dollars using U.S. generally
accepted accounting principles ("U.S.
GAAP") and, after the Domestication
and Merger, the consolidated
financial statements of the Company
will continue to be presented in
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6
<PAGE>
- -------------------------------------------------------------------------------
U.S. dollars and prepared in
accordance with U.S. GAAP, the
Consolidation, Domestication and
Merger will have no accounting
implications with respect to the
consolidated financial statements of
the Company, except for the per share
data presented, which will change as
the result of the effect of a
one-for-two share consolidation (or
reverse stock split) occurring in
connection with the First
Consolidation.
Certain Differences Between Common ATSI Merger Corp.'s authorized
Shares and ATSI Merger Corp. Common capital stock will consist of
Stock 55,000,000 shares (50,000,000 shares
of ATSI Merger Corp. Common Stock and
5,000,000 shares of preferred stock,
par value $0.001 per share (the "ATSI
Merger Corp. Preferred Stock")) as
compared to an unlimited number of
authorized common shares of ATSI.
The par value per share of ATSI
Merger Corp. Common Stock will be
$0.001, while the common shares of
ATSI currently are without par value.
The Domestication will not affect the
Common Shares outstanding immediately
prior to the Merger, except to the
extent of differences in governing
law and changes to ATSI's charter and
bylaws being effected in the
Domestication.
Certain Differences Between Rights Of After the Domestication, ATSI, and
Shareholders Before And After The after the Merger, ATSI Merger Corp.
Domestication And Merger (as the surviving corporation), will
be subject to the provisions of the
DGCL. The DGCL and OBCA are similar
in many respects, but do differ from
each other in certain areas. These
differences include, among other
things, the percentage and basis for
calculating the number of shares
needed to approve extraordinary
matters submitted to a shareholder
vote, the obligation of a corporation
to indemnify its officers and
directors for liabilities, losses or
claims incurred while acting on
behalf of the corporation,
restrictions on business combinations
with related parties, the percentage
of shareholders needed to act by
written consent without a meeting,
the right to appoint more than one
class of directors, the types of
transactions for which statutory
appraisal rights are available,
calling a shareholders meeting, the
availability of a corporation's
shareholder list for inspection, the
liability and qualification of
corporate directors, the parties that
may bring a derivative action, the
manner of setting the number of
directors and the remedies for
oppression with respect to corporate
security holders. See "Effect of
Domestication and Merger on
Shareholder Rights."
In addition to the differences
embodied in the applicable governing
statutes, there are also differences
between the ATSI Certificate of
Incorporation and the Certificate of
Incorporation of ATSI Merger Corp.
These include the
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7
<PAGE>
- -------------------------------------------------------------------------------
capitalization of the two
corporations, the directors' power to
adopt bylaws without shareholder
approval, the indemnification of
directors and officers, the expanded
limitations on director liability,
the notice and calling of a
shareholders meeting, the ability of
the shareholders to take action
without a meeting, the power to
effect certain business combinations
with related parties, the power of
the shareholders to remove directors
and the establishment of the number
of directors that will comprise the
Board of Directors. See "Effect of
Domestication and Merger on
Shareholder Rights" and "Description
of ATSI Merger Corp. Securities."
Right to Dissent Holders of Common Shares have the
right to dissent from the
Domestication and, if such event
becomes effective, to be paid the
fair value of all but not less than
all of their shares provided that
written objection is received at or
prior to the Meeting and such holders
otherwise comply strictly with the
applicable provisions of the OBCA.
See "Dissent Rights of ATSI
Shareholders." No dissenter's rights
are available under Delaware law in
connection with the Merger.
Timing of the Effective Date Assuming that the First
Consolidation, Domestication and
Merger are each approved by requisite
shareholder action and all other
conditions thereto are satisfied, it
is currently expected that the First
Consolidation, Domestication and
Merger will all be completed on or
about __________ ___, 1996 subject to
receipt of requisite regulatory
approval or as soon thereafter as
practicable.
Stock Exchange Listings The Common Shares are listed on the
Canadian Dealing Network. Upon the
consummation of the Merger, the ATSI
Merger Corp. Common Stock will be
listed on the Canadian Dealing
Network. Furthermore, ATSI, or ATSI
Merger Corp. in the event the Merger
occurs, may in the future apply for
listing on the Nasdaq National
Market, Nasdaq SmallCap or another
securities market or exchange,
provided that ATSI or ATSI Merger
Corp., as the case may be, is at the
time of a proposed listing able to
satisfy applicable listing
conditions, including possible
minimum per share price requirements.
Recent Market Prices for ATSI There is no established market in the
Common Stock United States for the Common Shares.
However, the Common Shares are listed
and traded on the Canadian Dealing
Network. The closing sales price of
the Common Shares on the Canadian
Dealing Network on May 15, 1996 was
CDN$0.75. For additional information
see "Price Range of Common Shares."
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8
<PAGE>
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Future Dividend Policy ATSI Merger Corp. does not expect to
pay dividends on its capital stock in
the foreseeable future. See
"Description of ATSI Merger Corp.
Securities -- Dividend Policy."
TAX CONSEQUENCES OF CONSOLIDATION, DOMESTICATION AND MERGER
Canadian Income Neither the Consolidation nor the
Tax Consequences Domestication will constitute a
taxable event for the Company's
shareholders or holders of Warrants.
Shareholders or holders of Warrants
of the Company will continue to hold
their shares or Warrants at the same
aggregate adjusted cost base as
before the Consolidation and
Domestication.
Any dividends paid by the Company or
ATSI Merger Corp. after the
Domestication must be included by
shareholders in computing their
income and will not be eligible for
the gross up and dividend tax credit
or other rules applicable to
dividends from Canadian corporations.
Shareholders who exercise dissenters'
rights in respect of the
Domestication may be deemed to have
received a dividend and may realize a
capital gain or loss on receipt of
payment for their shares.
A shareholder will not realize a
capital gain or loss on the Merger,
unless he or she elects otherwise.
Absent such election, the shareholder
will continue to hold his or her
shares at the same adjusted cost base
as before the Merger. A holder of
Warrants of ATSI may realize a
capital gain or loss as a result of
the Merger. See "Canadian and United
States Income Tax Considerations".
United States Federal Income The Company believes that the
Tax Consequences Consolidation will not constitute a
taxable event to the Company and that
the Domestication and Merger will
constitute a tax-free reorganization
for United States federal income tax
purposes and that no gain or loss
will be recognized by United States
shareholders of ATSI as a result of
the Consolidation and on the exchange
of Common Shares for shares of ATSI
Merger Corp. Common Stock in
connection with the Domestication and
Merger. Thus, provided they satisfy
the necessary filing requirements,
shareholders will not be subject to
United States income tax as the
result of the Domestication and
Merger except to the extent that (i)
they receive cash as a result of
dissenting and (ii) either such
shareholders are U.S. persons or such
gain is effectively connected to a
U.S. trade or business of such
shareholder. See "Canadian and
United States Income Tax
Considerations." After the Effective
Date, dividends
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9
<PAGE>
- -------------------------------------------------------------------------------
received by corporate shareholders
will, subject to applicable
exceptions and restrictions, be
eligible for the 70% dividends
received deduction. Moreover,
dividends paid to United States
shareholders after the Domestication
and Merger will no longer be subject
to Canadian withholding tax. ATSI
has never paid cash dividends on its
Common Shares. There is no current
expectation that dividends will be
paid on the ATSI Merger Corp. Common
Stock for the foreseeable future.
See "Description of ATSI Merger Corp.
Securities--Dividend Policy."
Holders of Warrants of ATSI should not
recognize gain or loss. However, the
IRS or courts could disagree with
this characterization of the results
to Warrant holders and instead treat
the transaction in connection with
the Warrants as a taxable exchange of
the Warrants.
ALL COMPANY SHAREHOLDERS SHOULD READ
CAREFULLY THE MORE DETAILED
DISCUSSIONS UNDER "CANADIAN AND
UNITED STATES INCOME TAX
CONSIDERATIONS" AND ARE URGED TO
CONSULT THEIR OWN TAX ADVISORS.
1996 OPTION PLAN
1996 Option Plan The Board of Directors of the Company
adopted the American Telesource
International Inc. 1996 Stock Option
Plan (the "1996 Option Plan") in June
1996. The Company will submit the
1996 Option Plan to shareholders for
their approval. If approval by at
least a majority of the votes cast by
the holders of the Common Shares
represented in person or by proxy at
the Meeting, 1996 Option Plan
provides that options to purchase up
to 4,000,000 Common Shares may be
granted to employees and directors
of, and consultants and advisors to,
the Company or any subsidiary
corporation or entity. Such number
of shares shall be subject to
adjustment to 2,000,000 shares in the
event that the proposed one-for-two
reverse stock split of the Common
Shares pursuant to the First
Consolidation is approved by the
shareholders at the Meeting.
The Company's employees will be
eligible to receive either incentive
stock options or nonqualified stock
options or a combination of both, as
the Company determines. Non-employee
participants may be granted only
nonqualified stock options.
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10
<PAGE>
- -------------------------------------------------------------------------------
The 1996 Option Plan provides that
each outside director (as defined
therein) will automatically receive a
grant of nonqualified stock options
for 7,500 shares (3,750 shares as
adjusted for the First Consolidation)
each year. Subject to availability
of shares allocated to the 1996
Option Plan and not already reserved
for other outstanding stock options,
outside directors who join the Board
in the future will in addition
receive an initial grant of
nonqualified options for 75,000
shares (37,500 shares as adjusted for
the First Consolidation).
No options may be granted under the
1996 Option Plan subsequent to 10
years after the date such plan was
adopted by the Board of Directors.
The Board of Directors may, however,
terminate the 1996 Option Plan at any
time prior to the end of such period.
Termination of the 1996 Option Plan
will not alter or impair, without the
consent of the optionee, any of the
rights or obligations pursuant to any
then-outstanding option granted under
the 1996 Option Plan.
Principal Reasons for Approving the The purpose of the 1996 Option Plan
1996 Option Plan is to promote the interest of the
Company and its shareholders by
providing an effective means to
attract, retain and increase the
commitment of certain individuals and
to provide such individuals with
additional incentive to contribute to
the success of the Company.
Tax Consequences There exist certain tax consequences
in connection with options granted
under and exercised pursuant to the
1996 Option Plan. For a general
description of such tax consequences
based on present tax law, which is
subject to change, see "1996 Option
Plan--U.S. Federal Income Tax
Consequences."
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11
<PAGE>
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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA
The summary historical financial data set forth below for the period from
December 17, 1993 through July 31, 1994, the year ended July 31, 1995 and the
six months ended January 31, 1995 and 1996 have been derived from the Company's
historical financial statements appearing elsewhere in this Prospectus. The
results for the six months ended January 31, 1996 are not necessarily indicative
of the results to be expected for the full year.
The Company has a limited operating history, has incurred significant losses
from oeprations since its inception and has had working capital deficits in the
past. There is no assurance that the Company will become profitable or will be
able to generate future revenue levels sufficient to support operations or
recover its investment in property and equipment. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
The independent accountant's report on the Company's financial statements for
the year ended July 31, 1995 contains an explanatory paragraph regarding the
Company's ability to continue as a going concern. See Report of Independent
Accountants contained in, and Note 2 to, the Financial Statements for the year
ended July 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources;" and
"Risk Factors - Risks Relating to the Company - Limited Operating History;
History of Losses; Need for Capital; Report of Independent Accountants." The
summary historical financial data presented below should be read in conjunction
with the Company's historical financial statements included elsewhere in this
Prospectus, the notes thereto and the information set forth under the headings
"Selected Consolidated Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and "Business." The Company's
historical financial statements have been prepared on the accrual basis of
accounting in conformity with U.S. GAAP. The following data is presented in U.S.
dollars.
<TABLE>
<CAPTION>
Period from Six months ended January 31,
Dec. 17, 1993 ------------------------------
through Year Ended
July 31, 1994(1) July 31, 1995 1995 1996
---------------- ------------- ------------ ------------
(In thousands of $, except per share data)
<S> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating revenues:
Private network services........................... $132 $318 $154 $564
Operator services.................................. 110 4,470 1,147 4,303
----- ------- ------ ------
Total operating revenues......................... 242 4,788 1,301 4,867
----- ------- ------ ------
Operating expenses:
Cost of services................................... 201 4,061 1,198 4,061
Selling, general and administrative................ 373 2,588 962 2,094
Depreciation and amortization...................... 11 141 51 122
----- ------- ------ ------
Total operating expenses........................ 585 6,790 2,211 6,277
----- ------- ------ ------
Loss from operations................................. (343) (2,002) (910) (1,410)
----- ------- ------ ------
Net loss............................................. $(343) $(2,004) $(907) $(1,421)
----- ------- ------ -------
Per share information:
Net income (loss)..................................
$(0.04) $(0.14) $(0.07) $(0.07)
Weighted average common shares outstanding........... ------ ------ ------- ------
9,146 13,922 12,546 19,094
</TABLE>
- ---------------
(1) Represents the period from the date of organization of Latcomm
International Inc., an Alberta, Canada corporation, which company
amalgamated with Willingdon Resources Ltd., an Ontario, Canada corporation,
in May 1994 to form American Telesource International Inc., until July 31,
1994, the date of the Company's fiscal year end.
- -------------------------------------------------------------------------------
12
<TABLE>
<CAPTION>
July 31, 1994(1) July 31, 1995 January 31, 1996
---------------- ------------- ----------------
(In thousands of $, except per share data)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)............................ $114 $(446) $(1,334)
Current assets....................................... 344 1,088 1,442
Total assets......................................... 1,049 2,766 3,310
Long-term obligations, including current portion..... 0 133 249
Total stockholders' equity........................... 819 1,231 359
</TABLE>
- -------------------------------------------------------------------------------
<PAGE>
RISK FACTORS
The Company's operations and the transactions described herein are subject to
certain significant risks, including the following:
RISKS RELATING TO THE COMPANY
LIMITED OPERATING HISTORY; HISTORY OF LOSSES; NEED FOR CAPITAL; REPORT OF
INDEPENDENT ACCOUNTANTS. The Company has a limited operating history, has
incurred significant losses from operations since its inception and has had
working capital deficits in the past. In addition, the Company had negative cash
flows from operations during fiscal years 1994 and 1995 and during the six
months ended January 31, 1996. Since its formation, the Company has required
ongoing capital investment. There can be no assurance that the Company will
become profitable or will be able to generate future revenue levels sufficient
to support operations or recover its investment in property and equipment. The
Company anticipates that significant financing will be required from time-to-
time to fund various of the Company's capital commitments, expansion plans and
ongoing operations. These matters raise substantial doubt about the Company's
ability to continue as a going concern. The ability of the Company to continue
as a going concern is dependent upon the ongoing support of its stockholders and
customers and its ability to obtain capital resources. Although the Company is
currently involved in discussions with potential investors and/or strategic
partners, there can be no assurance that additional capital will be available to
the Company from any source or that, if available, it will be on terms
acceptable to the Company. The unavailability of acceptable financing would
materially and adversely impact the Company's ability to implement development
plans for its operations. The independent accountant's report on the Company's
financial statements for the year ended July 31, 1995 contains an explanatory
paragraph regarding the Company's ability to continue as a going concern. See
Report of Independent Accountants contained in, and Note 2 to, the Financial
Statements for the year ended July 31, 1995. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources."
DEVELOPMENT PLANS. Although the Company believes that its infrastructure
relative to private networks and long distance call services is relatively
complete and, therefore, capable of handling substantial amounts of traffic, the
Company's business development plans, particularly with respect to private
networks and international long distance call services, are currently in the
initial stages. The Company believes, however, that the markets it serves with
respect to private networks and long distance call services have the potential
to grow significantly in the future. Accordingly, the Company expects that the
number of and volume utilization within its private networks, and volume of
international long distance calls handled, will be relatively low initially, but
that such volume will increase as the development plans are implemented.
Because of all of the factors described herein affecting the Company's
operations, however, there can be no assurance that such market growth or volume
increase will actually be realized or, if so, when such growth or increase will
occur.
RELIANCE ON KEY PERSONNEL. The Company's success depends to a significant
extent on a small number of key technical and managerial personnel, the loss of
any one of which could have a material adverse effect on the Company's
operations. The Company believes that its future success will also depend in
part upon its ability to attract and retain highly skilled technical and
managerial personnel. Competition for such personnel is intense. On May 10,
1994, the Company purchased a $500,000 life insurance policy on Arthur L. Smith,
the Company's President, in his name. Mr. Smith has named the Company as the
beneficiary of the policy. There can be no assurance that the Company will be
successful in attracting and retaining the personnel it requires to grow and
operate profitably. See "Management."
COMPETITION. The U.S.-based international communications services market is
dominated by American Telephone and Telegraph Company ("AT&T"), MCI
Communications Corporation ("MCI") and Sprint Communications Company, L.P.
("Sprint"). The Company competes with Telmex and GeoComm/SERSA, among
13
<PAGE>
others, in providing private network management services to and from Mexico. As
the Company's network expands to serve a broader range of users, ATSI expects to
encounter increasing competition from major domestic and international
communications companies, including the aforementioned carriers, many of which
have significantly greater resources and more extensive domestic and
international satellite and fiber optic communications networks than the
Company. See "Business--Network Management--Competition" and "Business--Long
Distance Call Services--Competition."
The long distance call services market is intensely competitive and is
significantly affected by new service introductions and the market activities of
major industry participants. Competition in the operator services business is
based upon pricing, customer service, network quality and value-added services.
In operator services within the U.S., the Company competes with AT&T, MCI,
Sprint and over 100 other operator services companies across the continental
United States. Some of the Company's competitors have greater name recognition,
more extensive transmission networks and greater engineering and marketing
capabilities than the Company and have, or have access to, substantially greater
financial and personnel resources than those available to the Company. The
Company competes in the international long distance call service market with
AT&T, Sprint, MCI, CNSI and others, many of which also have considerably greater
financial and other resources than the Company. The ability of the Company to
compete effectively in the telecommunications industry will depend upon its
continued ability to maintain high quality, market driven services at prices
generally equal to or below those charged by its competitors. There can be no
assurance that the Company will be able to compete successfully with existing or
future competitors.
REGULATIONS.
The Company's domestic long distance call services activities are subject to
the regulations of the U.S. Federal Communications Commission ("FCC") and the
public utility commissions of the various states in which the Company operates.
These regulatory agencies are governed by respective federal or state
legislation and, therefore, any change or modification to such regulation or
legislation can result in positive or negative effects upon the Company.
Decisions by the state or federal legislative or regulatory bodies with respect
to the permissible business activities or pricing practices of the Company's
competitors, such as AT&T and the seven Regional Bell Operating Companies
("RBOCs"), may also have an adverse impact on the Company's operations.
Moreover, any significant change in regulations by federal or state governmental
agencies could significantly increase the Company's costs or otherwise have an
adverse effect on the Company's activities and on its expansion efforts.
Federal. The Company is subject to regulation by the FCC, and the
regulations promulgated by the FCC are subject to change in the future. There
can be no assurance that future judicial and legislative changes will not have a
material adverse effect on the Company, that regulators or third parties will
not raise material issues with regard to the Company's compliance with
applicable regulations, or that regulatory activities will not have a material
adverse effect on the Company.
The Company has been granted requisite authorization from the FCC to operate
its San Antonio, Texas-based satellite teleport (the "Teleport"), which
transmits and receives signals from the Solidaridad international satellite
system. FCC licensing decisions or changes in U.S. government policies
increasing or decreasing access to non-Intelsat satellites or other network
components could adversely affect the Company, particularly if such decisions or
changes were to result in a reallocation of access rights among the Company and
its competitors. There can be no assurance that the Company will receive all
authorizations or licenses necessary for new communications services or that
delays in the licensing process will not adversely affect the Company's
business. In addition, there can be no assurance that such authorizations will
not be rescinded, although such action is unlikely.
The Company's transmitting equipment must comply with FCC technical standards,
which are subject to change and can result in the premature obsolescence of
equipment. The Company monitors its compliance
14
<PAGE>
with federal, state, and local regulations governing the discharge and disposal
of hazardous and environmentally sensitive materials including, but not limited
to, the emission of electromagnetic radiation. Although the Company believes it
is in compliance with such regulations, there can be no assurance that any such
discharge, disposal or emission will not expose the Company to claims or actions
that could have a material adverse effect on the Company's financial results.
To originate and terminate calls in connection with providing their services,
long distance carriers such as the Company must purchase "access" from the local
exchange carriers ("LECs"). Access charges represent a portion of the Company's
cost of services and, generally, such access charges are regulated by the FCC.
The FCC has informally announced that it intends, in the near future, to
undertake a comprehensive review of its regulation of LEC access charges to
better account for increasing levels of local competition. Implementation of a
new access charge structure could place many interexchange carriers, including
the Company, at a significant cost disadvantage, either in absolute terms or in
relative terms, to the larger competitors. Agreements with foreign carriers are
also subject to FCC regulations, foreign laws, and the terms of international
treaties. If these regulations, laws or treaties are construed in such fashion
to require changes to the Company's current agreements, such changes could have
a material adverse effect on the Company. Additionally, if a concept proposed
by the FCC whereby a caller could make a long distance call from any publicly
available telephone and have the call automatically routed over the long
distance telephone network of the caller's choice, called Billed Party
Preference ("BPP"), is implemented, such implementation could have a material
adverse effect on the Company. See "Business-Regulation."
State. The Company is subject to state regulation that varies by
jurisdiction and is subject to change. Generally, the Company must obtain and
maintain certificates of public convenience and necessity from many state
regulatory authorities where it offers intrastate long distance services. In
most cases, it must also file tariffs for its intrastate offerings. To date,
the Company has experienced no unusual difficulties or delays in obtaining
necessary state authorizations. However, there can be no assurance that the
Company will not experience difficulties or delays in the future or that any
such difficulties or delays will not adversely affect the Company's business.
Additionally, many states are relaxing the regulatory restrictions currently
imposed on the LECs. There can also be no assurance that future judicial and
legislative changes will not have a material adverse effect on the Company. See
"Business-Regulation."
Foreign. The services currently provided by the Company are not directly
subject to laws of other countries, but the foreign carriers with which the
Company conducts business are subject to those laws. Certain countries are
considering opening their markets to competition. In the process, they may
impose regulatory requirements that could have a material adverse effect on the
Company. See "Business-Regulation."
POSSIBLE UNAVAILABILITY OF LEASED TRANSMISSION FACILITIES. The Company
believes it has ample access to leased transmission facilities at cost-effective
rates and expects to continue to have such access in the foreseeable future
because technological improvements in recent years have increased the capacity
of existing digital fiber optic and satellite-based transmission facilities.
There can be no assurance, however, that such leased facilities will be
available to the Company at cost-effective rates in the future.
The Company currently owns only a portion of the transmission facilities
needed to complete long distance telephone calls. Therefore, the Company's long
distance call services business is dependent upon contractual arrangements, both
long and short-term, with carriers for the transmission of calls. While the
Company believes that it has ample access to transmission facilities at
competitive rates and expects to continue to have such access in the foreseeable
future, this ongoing availability cannot be assured.
Since its inception, the Company has provided long distance services for calls
originating from Mexico without the benefit of laws in Mexico requiring
Telefonos de Mexico ("Telmex") to resell its available network capacity to other
carriers at a wholesale price. Although the Company has contracted with major
15
<PAGE>
U.S. carriers to originate calls from Mexico, Telmex has on occasion refused to
provide those services to those carriers. Telmex has also increased per minute
charges to those carriers, and, consequently, those carriers have increased per
minute charges to the Company, the result of which has been a rapidly changing,
and often increasing cost structure relative to the Company's international long
distance services. The Company, through ATSI-Mexico, has applied or intends to
apply to the SCT for several licenses, which, if obtained, the Company believes
will enable it to expand significantly its call services business in Mexico by,
among other things, permitting the Company to purchase Telmex network capacity
at a more stable wholesale price. There can be no assurance, however, that such
licenses will be obtained, and, if obtained, that Telmex will not again refuse
to provide service or increase charges, the result of either of which could have
a materially adverse effect on the Company's business. See "Business--ATSI-
Mexico."
RISK OF DAMAGE, LOSS OR MALFUNCTION OF SATELLITE. The loss, damage or
destruction of any of the Solidaridad satellites as a result of military actions
or acts of war, anti-satellite devices, electrostatic storm or collision with
space debris, or a temporary or permanent malfunction of any of the Solidaridad
satellites, would have a material adverse short-term effect on the Company;
however, the Company believes that suitable arrangements could be obtained with
other satellite operators to provide satellite transmission capacity, although
the interruption of service, if any, could have a detrimental effect on the
Company's business.
DEPENDENCE ON INDEPENDENT MARKETING REPRESENTATIVES. The Company's business
depends on its major independent marketing representatives continuing to provide
the Company with customers requiring the provision of long distance call
services, such as hotels, motels and pay telephone owners. The loss of one or
more such independent marketing representative, or the loss of active
solicitation of customers on behalf of the Company by one or more such
independent marketing representative, would have a materially adverse effect on
the Company's business, the effect of which would depend primarily on the length
of time necessary for the Company to find suitable alternative independent
marketing representatives, which the Company believes, in most instances, would
be relatively short. There can be no assurance, however, that alternative
independent marketing representatives can be located in a timely manner.
TECHNOLOGICAL CHANGE AND NEW SERVICES. The telecommunications industry has
been characterized by steady technological change, frequent new service
introductions and evolving industry standards. The Company believes that its
future success will depend on its ability to anticipate such changes and to
offer on a timely basis market responsive services that meet these evolving
industry standards. The Company has constructed its San Antonio, Texas-based
Network Control Center/Teleport using state-of-the-art digital satellite
communications equipment, and built the network operating system modularly to
enable it to expand telecommunications capacity quickly, on an as-needed basis.
However, there can be no assurance that the Company will have sufficient
resources to make the investments necessary to acquire new technology or to
introduce new services that would satisfy an expanded range of customer needs.
SERVICE INTERRUPTIONS; EQUIPMENT FAILURES. The Company's business requires
that transmission and switching facilities and other equipment be operational 24
hours per day, 365 days per year. Long distance telephone companies such as the
Company on occasion may experience temporary service interruptions or equipment
failures, in some cases resulting from causes beyond their control. Any such
event experienced by the Company would impair the Company's ability to service
its customers and could have a material adverse effect on the Company's
business. The Company's Control Center is, however, protected through an
uninterruptable power supply system which, upon commercial power failure,
utilizes battery back-up until an on-site natural gas generator is automatically
triggered to supply AC power.
INCREASED EXPENDITURES FOR ANTICIPATED EXPANSION. To facilitate and support
the growth anticipated in its business, the Company anticipates that it will
expand operations, and thus increase its investments in personnel and
facilities. Due to the anticipated increase in the Company's overhead and
operating expenses resulting from any such expansion, the Company's operating
results may be adversely affected if its revenues do not increase to the extent
expected.
16
<PAGE>
SEASONAL VARIATIONS IN REVENUES. Seasonal variation in call volume is
expected by the Company from hospitality and payphone subscribers, reflecting
the higher occupancy rates during the winter vacation months in Mexico (when
U.S. volume is at its lowest) and lower rates during summer months in Mexico
(when U.S. volume is at its peak).
CUSTOMER ATTRITION. The Company believes that a certain level of customer
attrition is common in the long distance call services industry. Although the
Company has not experienced significant attrition in its various businesses, the
Company's historical levels of customer attrition may not be indicative of
future attrition levels, and there can be no assurance that any steps taken by
the Company to counter increased customer attrition would accomplish the
Company's objectives. In addition, recent acquisitions and consolidations in
the telecommunications industry have resulted in, and may in the future result
in, the loss of customers by the Company because of the acquisition of these
customers by large companies that have existing contractual relationships with
the Company's competitors.
RISKS OF LATIN AMERICAN OPERATIONS
GENERAL. The majority of the Company's international operations are currently
being conducted in Mexico. As a result, such operations are subject to
political, economic and other uncertainties, including, among others, risk of
war, revolution, expropriation, renegotiation or modification of existing
contracts, communications regulations, standards and tariffs, taxation policies,
licensing requirements, as well as international monetary fluctuations which may
make payment in U.S. dollars more expensive for foreign customers and other
uncertainties and trade barriers. Consequently, the Company may encounter
unforeseen difficulties in conducting operations in Mexico, including but not
limited to the risks set forth below. The Company also intends to conduct
operations in other countries within Latin America and all of these factors
could also apply to a greater or lesser extent to operations conducted by the
Company in such other countries.
LEGAL FRAMEWORK GOVERNING COMMUNICATIONS OPERATIONS. On June 7, 1995, the
Secretaria de Communicaciones y Transportes ("SCT"), the agency which is
responsible for governing telecommunications services in Mexico, promulgated a
law prescribing the method by which companies could apply for concessions and
licenses to establish and operate telecommunications services businesses within
Mexico. This was, effectively, the first step in the deregulation of the
telephone industry within Mexico. It also formalized the methods by which
companies such as ATSI may compete against Telmex, the privately owned
telecommunications monopoly in Mexico. The Company, through ATSI-Mexico, has
applied or intends to apply for several licenses to provide various
telecommunications services within Mexico. The Company anticipates receiving
various of these licenses during calendar year 1996, and believes that the
receipt of such licenses will enable the Company to expand significantly its
call services business in Mexico; however, there can be no assurance that such
licenses will be obtained, and, if obtained, that such licenses will enable the
Company to expand operations or increase revenues in Mexico. In the event that
there is a significant delay in obtaining the licenses, or in the event that
future regulations promulgated by the SCT are unfavorable to the Company's
business, the Company could be materially adversely affected.
CHANGES IN LAWS. Changes in laws applicable to the Company's business,
including income tax laws, communications laws, foreign investment laws and
currency exchange laws could materially and adversely affect the results of the
Company's operations. Recently, certain changes in some laws have been
implemented which the Company believes will enable it to expand its business,
particularly in Mexico. There can be no assurance, however, that subsequent
changes in such laws will not have a material adverse effect on the Company or
the material terms of contracts to which it is a party.
POLITICAL INSTABILITY. The political and economic instability in Mexico and
other countries in Latin America could result in the adoption of new policies,
lead to trade disputes or impede the access of the Company to sources of
financing for its operations in the future, any of which could materially and
adversely affect the Company. The Company has no insurance against political
instability.
17
<PAGE>
UNCERTAIN OPERATING CONDITIONS. The Company believes that, through its own
resources and those of potential joint venture partners and available
independent contractors, it will have adequate access to the equipment,
personnel, communications service organizations and technical expertise
necessary to conduct future operations in Mexico and other countries in Latin
America. However, if any of the Company's understandings or assumptions change
or prove inaccurate, the Company's operations could be materially adversely
affected.
RISKS RELATING TO OWNERSHIP OF COMPANY SECURITIES AND THIS OFFERING.
ANTI-TAKEOVER PROTECTIONS. ATSI Merger Corp.'s Certificate of Incorporation
and Bylaws contain certain provisions, including a classified board of
directors, prohibitions on stockholder actions by written consent in certain
circumstances, "blank check" preferred stock, advance notice requirements for
director nominations and actions to be taken at annual meetings and the
protections afforded by Section 203 of the DGCL and certain super-majority
voting requirements. Such provisions could impede any merger, consolidation,
takeover or other business combination involving the Company or discourage a
potential acquiror from making a tender offer or otherwise attempting to obtain
control of the Company. See "Description of ATSI Merger Corp. Securities--
Provisions Having Anti-Takeover Effects" and "Management--Executive Officers and
Directors."
ISSUANCE OF ADDITIONAL SHARES. The Company currently has outstanding warrants
to purchase approximately 5.19 million Common Shares at a weighted average
purchase price of $0.92 per share. See "Description of ATSI Merger Corp.
Securities." In view of the Company's continued cash needs to meet it
commitments, the Company is currently involved in discussions with potential
investors and/or strategic partners. Transactions with such persons could
involve the issuance of shares of additional capital stock. However, ATSI has
no definitive agreement with any such potential investor or strategic partner
and there can be no assurances that such an agreement will be concluded. Sales
of a substantial amount of Common Shares or a perception that such sales could
occur, may adversely affect the prevailing market price of the Common Shares.
NO DIVIDENDS. The Company intends to retain future earnings for use in its
business and does not anticipate paying any dividends on any of its capital
stock in the near future. See "Dividend Policy."
INABILITY TO EXERCISE, CONVERT OR EXCHANGE THE SECURITIES UNDER FEDERAL AND
STATE SECURITIES LAWS. No warrants, the underlying shares of which are
registered hereunder, will be exercisable unless at the time of exercise the
Company has a current prospectus effective with the Commission covering the
Common Shares, or shares of ATSI Merger Corp. Common Stock in the event the
Merger occurs, issuable upon exercise of such warrants and such shares have been
registered or qualified or deemed to be exempt under the securities laws of the
state of residence of the holder. The Company will endeavor to have the Common
Shares or shares of Common Stock, as the case may be, so registered or qualified
on or before the exercise or exchange date (as applicable) and to maintain a
current prospectus relating thereto, although there can be no assurance that the
Company will be able to do so (or determine that doing so is cost effective).
If a registration statement covering such shares is not kept effective for any
reason, or if the shares issuable upon the exercise of the warrants are not
registered in the state in which a holder resides, the warrants will not be
exercisable and may be deprived of substantial or all of their value.
ABSENCE OF EFFICIENT PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE. The
Company's Common Shares are currently traded on the Canadian Dealing Network.
Such exchange may not provide for an active public market for the Company's
securities and there can be no assurance that an active trading market for the
Common Shares, or shares of ATSI Merger Corp. Common Stock in the event the
Merger occurs, will develop or, if developed, that it will be sustained. The
market price of the Common Shares or shares of Common Stock, as the case may be,
could be subject to significant fluctuations in response to variations in
results of operations and other factors. Developments affecting the
telecommunications industry generally, including national and international
economic conditions and government regulations, could also have a
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significant impact on the market price of the Common Shares or shares of Common
Stock, as the case may be. In addition, the equity markets in recent years have
experienced price and volume fluctuations that often have been unrelated or
disproportionate to the operating performance of companies; the price of the
Common Shares or shares of Common Stock, as the case may be, could be affected
by such fluctuations.
MARKET LISTING. ATSI Merger Corp., or ATSI in the event the Merger is not
approved by the shareholders or otherwise does not occur, may in the future
apply for listing on the Nasdaq National Market, Nasdaq SmallCap Market or
another securities market or exchange, which listing may require the
satisfaction of certain conditions, including without limitation minimum per
share price requirements. There can be no assurance, however, that ATSI or ATSI
Merger Corp., as the case may be, will at the time of a proposed listing be able
to satisfy such listing requirements or, if so, that the applicable securities
market or exchange would in any event accept the Common Shares or ATSI Merger
Corp. Common Stock for listing. The ATSI Merger Corp. Common Stock or the
Common Shares, as the case may be, would, however, remain listed on the Canadian
Dealing Network.
TAX CONSEQUENCES OF THE DOMESTICATION AND MERGER ON HOLDERS OF WARRANTS
Although the matter is not free from doubt, for United States federal income tax
purposes, the Domestication and Merger should not result in the recognition of
gain or loss under Section 1001 of the Internal Revenue Code of 1986, as amended
(the "Code") to the holders of Warrants in ATSI. The Internal Revenue Service or
the courts could disagree with this characterization of the results to Warrant
holders and instead treat the transaction in connection with the Warrants as a
taxable exchange. In such event, each U.S. Holder (as defined under "Canadian
and United States Income Tax Considerations--United States Tax Consequences") of
Warrants will recognize gain or loss on the exchange equal to the difference
between the fair market value of its Warrants after the Merger and the adjusted
tax basis of its Warrants of ATSI (which such gain or loss will be capital gain
or loss if the Warrants are capital assets that have been held for more than one
year). Each holder of Warrants is urged to consult its own tax advisor regarding
the tax consequences of the Domestication and Merger on its particular
circumstances.
See "Canadian and United States Income Tax Considerations" for a further
description of the tax consequences of the Consolidation, Domestication and the
Merger.
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GENERAL PROXY INFORMATION
SOLICITATION OF PROXIES
Proxies are being solicited by and on behalf of the management of ATSI. All
expenses in connection with the solicitation of proxies will be borne by ATSI,
including charges made by brokers and other persons holding stock in their names
or in the names of nominees for reasonable expenses incurred in sending proxy
material to beneficial owners and obtaining their proxies. Solicitation will be
by mail or by regular employees of ATSI. No arrangement has been entered into
with any other party for the solicitation of proxies for a fee.
APPOINTMENT AND REVOCATION OF PROXIES
The persons named in the enclosed forms of proxy (the "Proxy") are members of
management of ATSI. Two forms of Proxy are being solicited through this
Prospectus: the first form seeks to appoint the persons named therein to
represent the holder at the Meeting to vote on special resolutions to authorize
the First Consolidation, Second Consolidation and the Domestication and the
adoption of the 1996 Option Plan and certain related matters, and to transact
such other business as may properly come before the Meeting or any
adjournment(s) thereof. The second form seeks to appoint the persons named
therein to act as proxy and attorney-in-fact to execute the Consent following
the completion of the Domestication to authorize the Merger.
THE HOLDER OF OR A PERSON DEEMED TO BE THE HOLDER OF COMMON SHARES HAS THE
RIGHT TO APPOINT A PERSON TO REPRESENT HIM OR HER AT THE MEETING OR FOR THE
EXECUTION OF THE CONSENT OTHER THAN THE PERSONS DESIGNATED IN THE RESPECTIVE
FORM OF PROXY. SUCH RIGHT MAY BE EXERCISED BY STRIKING OUT THE NAMES OF THE
PERSONS NAMED IN THAT FORM OF PROXY AND INSERTING THE NAME OF THE SHAREHOLDER'S
NOMINEE IN THE SPACE PROVIDED, OR BY COMPLETING ANOTHER PROPER FORM OF PROXY. A
PROXY FOR THE MEETING OR THE EXECUTION OF THE CONSENT MUST BE RECEIVED (I) IN
THE CASE OF THE MEETING, BY THE SECRETARY OF ATSI OR THE CHAIRMAN OF THE
MEETING, AT ANY TIME PRIOR TO OR DURING THE MEETING OR ANY ADJOURNMENT THEREOF
OR (II) IN THE CASE OF THE CONSENT IN LIEU OF MEETING, BY THE SECRETARY PRIOR TO
EFFECTIVENESS OF THE CONSENT.
A shareholder forwarding the Proxy may indicate the manner in which the
appointee is to vote with respect to any specific item by checking the
appropriate space. If the shareholder giving the Proxy wishes to confer a
discretionary authority with respect to any item of business then the space
opposite the item is to be left blank. The shares represented by the Proxy
submitted by a shareholder will be voted in accordance with the directions, if
any, given in the Proxy.
A shareholder who has given a Proxy may revoke it at any time in so far as it
has not been exercised. A Proxy may be revoked, as to any matter on which a
vote shall not already have been cast pursuant to the authority conferred by
such Proxy, by depositing an instrument in writing executed by the shareholder
or by his attorney authorized in writing or, if the shareholder is a body
corporate, by an officer or attorney thereof duly authorized, at the registered
office of ATSI at any time up to and including the last business day preceding
the day of the Meeting or any adjournment(s) thereof at which the Proxy is to be
used or with the Chairman of such Meeting on the date of the Meeting or any
adjournment(s) thereof. A Proxy may also be revoked in any manner permitted by
law.
VOTING OF SHARES REPRESENTED BY MANAGEMENT PROXIES
GENERAL
As at the date hereof, 19,965,312 Common Shares were issued and outstanding.
Each such Common Share entitles the holder thereof to one vote on all matters to
be acted upon at the Meeting. All holders of Common Shares of record as of the
time of the Meeting or any adjournment(s) thereof are entitled either to
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attend and vote thereat in person the Common Shares held by them or, provided an
executed Proxy shall have been delivered to ATSI within the time specified in
the attached Notice of Meeting, to attend and vote thereat by Proxy the Common
Shares held by them. See "Description of ATSI Merger Corp. Securities."
MEETING
A shareholder forwarding the Proxy may indicate the manner in which the
appointee is to vote with respect to any specific item by checking the
appropriate space. The persons named in the form of Proxy will vote the shares
in respect of which they are appointed in accordance with the direction of the
shareholders appointing them. However, in the absence of such direction, THE
NOMINEES INTEND TO VOTE THE SHARES REPRESENTED BY THE PROXY:
1. FOR the special resolution authorizing and approving the First
Consolidation (See "The Consolidation").
2. FOR the special resolution authorizing and approving the Second
Consolidation (See "The Consolidation").
3. FOR the special resolution authorizing the Domestication (See
"Domestication and Merger -- The Domestication").
4. FOR the resolution authorizing the adoption of the 1996 Option Plan (See
"The 1996 Option Plan").
The enclosed form of Proxy, when properly signed, confers discretionary
authority upon the persons named therein with respect to amendments or
variations to matters identified in the Notice of Meeting and with respect to
other matters which may properly come before the Meeting or any adjournment(s)
thereof. At the time of the printing of this Prospectus, management knows of no
such amendments, variations or other matters to come before the Meeting other
than the matters referred to in the Notice of Meeting. However, if any other
matters which are not now known to management should properly come before the
Meeting or any adjournment(s) thereof, the Proxy will be voted on such matters
in accordance with the best judgment of the proxies named therein.
CONSENT
A Proxy from a shareholder for the Consent in lieu of meeting received by
management will be exercised in the manner specified in the Proxy by such
shareholder, unless authority to exercise the Proxy is withheld or the Proxy is
left blank. If the Proxy is left blank, the proxies named in the Proxy for the
Consent in lieu of meeting will exercise the authority with respect to the
shares represented by such Proxy by executing a Consent FOR the Merger.
BECAUSE THE CONSENT IS EFFECTIVE ONLY IF EXECUTED ON BEHALF OF A MAJORITY OF
THE TOTAL NUMBER OF COMMON SHARES OUTSTANDING, THE FAILURE TO CONVEY A PROXY TO
EXPRESS CONSENT OR THE WITHHOLDING OF AUTHORITY TO EXPRESS CONSENT HAS THE SAME
EFFECT AS A VOTE "AGAINST" THE MERGER.
VOTING SHARES AND RECORD DATE
MEETING
The Board of Directors has fixed __________, 1996 as the record date, being
the date for the determination of the registered holders of securities entitled
to receive Notice of the Meeting pursuant to National Policy No. 41, as amended,
issued by the securities commissions and comparable regulatory bodies of the
Provinces of Canada. Any non-registered shareholder that has requested or
requests to be registered
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as a shareholder in the time allotted pursuant to such Policy will be listed on
the list of shareholders referred to below.
In accordance with the provisions of the OBCA, ATSI will prepare a list of
holders of Common Shares at the close of business on a date not later than 10
days after the record date. Each holder of Common Shares named in the list will
be entitled to vote the Common Shares shown opposite his name except to the
extent that: (i) the shareholder has transferred any of his shares after the
record date and (ii) the transferee of those shares produces properly endorsed
share certificates or otherwise establishes that he owns such shares and demands
not later than 48 hours before the Meeting that his name be included in the list
before the Meeting, in which case the transferee is entitled to vote his shares
at the Meeting.
CONSENT
After the Domestication becomes effective, pursuant to the DGCL, the Consent
will be executed on behalf of those shareholders who (i) have delivered proxies
marked in favor of or not against the Merger and (ii) are shareholders of the
Company on the record date with respect to the Merger. The record date with
respect to shareholders entitled to be included in the Consent to the Merger
will be deemed to be the date the Consent is presented to the Company. This
date will be as soon as practicable after the Domestication becomes effective.
SINCE A SHAREHOLDER MUST HOLD THE COMMON SHARES TO BE VOTED IN HIS NAME UNDER
THE CONSENT ON THE DATE THE CONSENT IS EXECUTED, NO PROXY WITH RESPECT TO THE
CONSENT WILL BE EFFECTIVE IF THE HOLDER EXECUTING THE PROXY IS NO LONGER A
HOLDER OF RECORD AT THE TIME THE CONSENT IS EXECUTED. ACCORDINGLY, HOLDERS OF
COMMON SHARES WHO WISH TO HAVE THEIR SHARES REPRESENTED IN THE EXECUTION OF THE
CONSENT TO THE MERGER SHOULD REFRAIN FROM SELLING OR TRANSFERRING ANY COMMON
SHARES UNTIL AFTER THE MERGER BECOMES EFFECTIVE.
THE CONSOLIDATION
The Company is asking its shareholders to pass (i) a special resolution
authorizing the filing of Articles of Amendment consolidating the issued and
outstanding Common Shares on the basis of one Post-Consolidation Common Share
for every two Pre-Consolidation Common Shares of the Company (the "First
Consolidation") and (ii) a special resolution authorizing the filing in the
future of one additional charter amendment (without further action of
shareholders) further consolidating, on a one-for-two basis, the issued and
outstanding Common Shares, or shares of ATSI Merger Corp. Common Stock in the
event the Merger occurs, if the Board of Directors in its sole discretion deems
necessary to satisfy the minimum per share price requirements for listing on the
Nasdaq National Market, Nasdaq SmallCap Market or another securities market or
exchange (the "Second Consolidation" and, together with the First Consolidation,
the "Consolidation").
The Board of Directors believes that the Consolidation is in the best
interests of the shareholders because over the long term the Company will have
greater flexibility with respect to future equity financings which will be
necessary to develop the Company's business. Furthermore, the Company, or ATSI
Merger Corp. in the event the Merger occurs, may in the future apply for listing
on the Nasdaq National Market, Nasdaq SmallCap Market or another securities
market or exchange, which listing may require the satisfaction of certain
conditions, including without limitation minimum per share price requirements.
It is currently anticipated that the Articles of Amendment effecting the First
Consolidation will be filed regardless of whether the Domestication and Merger
are effected. If the First Consolidation is effected without the Domestication
or Merger being completed, shareholders will be required to surrender their
certificates representing Pre-Consolidation Common Shares in exchange for
certificates representing Post-Consolidation Common Shares. Appropriate
transmittal forms will be sent to shareholders for this purpose. Prior to a
share certificate being surrendered, such share certificate will represent whole
shares of the
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Company on a post-consolidated basis, (an amount equal to one-half of the amount
represented by such share certificate).
The special resolutions approving the Consolidation will provide that any
person who, on the date that either charter amendment is filed with the Ministry
of Consumer and Commercial Relations or Secretary of State of Delaware, as the
case may be, to give effect to either such resolution, is the registered holder
of a number of Common Shares not divisible by two shall not be entitled to
receive any fractional interest in a Common Share following such consolidation.
All fractions of Post-Consolidation Common Shares will be rounded up to the next
highest whole number.
The special resolutions will not be effective unless passed at the Meeting by
at least two-thirds of the votes cast. Notwithstanding such approval, the Board
of Directors may determine not to proceed with the filing of either charter
amendment effecting the Consolidation.
Exhibits A-1 and A-2 to this Prospectus contain the text of the special
resolutions with respect to the Consolidation to be submitted to the
Shareholders at the Meeting.
DOMESTICATION AND MERGER
THE DOMESTICATION
ATSI is proposing to continue its existence through a "domestication" under
Section 388 of the DGCL. The continued, or domesticated, corporation will
become subject to the DGCL on the date of its domestication, but will be deemed
to have commenced its existence in Delaware on the date it originally commenced
existence in Ontario. Under the DGCL, a corporation becomes domesticated in
Delaware by filing a certificate of domestication and a certificate of
incorporation for the corporation being domesticated. A copy of the proposed
form of the Certificate of Domestication of ATSI that will be filed in Delaware
is attached as Exhibit D. The Certificate of Incorporation of ATSI that will
be filed in Delaware is the same as the Certificate of Incorporation of ATSI
Merger Corp. (except for the name of the corporation), a copy of which is
attached as Exhibit H. The Domestication will be effective upon the filing of
such certificates and thereafter ATSI will be subject to such Certificate of
Incorporation. ATSI will be discontinued in Ontario as of the date a
certificate of discontinuance is issued by the OBCA Director. Upon the
Domestication, the Board of Directors of ATSI will adopt bylaws which are the
same as the Bylaws of ATSI Merger Corp. (except for the name of the
corporation), a copy of which is attached as Exhibit I.
The Domestication will not interrupt the existence of ATSI. Each Common Share
will remain issued and outstanding as a Common Share of ATSI after its corporate
existence is continued from Ontario under the OBCA and domesticated in Delaware
pursuant to the DGCL. For a summary of certain of the rights of shareholders of
the Company before and after the Domestication, see "Effects of Domestication on
Shareholder Rights."
THE MERGER
The Merger is proposed to be accomplished as a "short-form" merger of ATSI,
then a Delaware corporation, into its wholly-owned subsidiary, ATSI Merger
Corp., pursuant to Section 253 of the DGCL. The Certificate of Incorporation
and Bylaws of ATSI Merger Corp. (the "ATSI Merger Corp. Certificate" and "ATSI
Merger Corp. Bylaws," respectively) attached as Exhibits H and I, respectively,
will remain the Certificate of Incorporation and Bylaws of the surviving
corporation in connection with the Merger. A copy of each of the proposed
Certificate of Ownership and Merger relating to the Merger, the ATSI Merger
Corp. Certificate and the ATSI Merger Corp. Bylaws is attached as Exhibit G, H
and I, respectively.
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In the Merger, each Common Share issued and outstanding immediately prior to
the Merger will be converted into one share of ATSI Merger Corp. Common Stock.
See "-- Mechanics of Merger." If the Merger fails to occur, ATSI will continue
its operations as a Delaware corporation and will be governed by the Certificate
of Incorporation of ATSI that will be filed in Delaware and the Bylaws that will
be adopted by the Board of Directors in connection with the Domestication, the
provisions of which are the same as the provisions of the Certificate of
Incorporation and Bylaws of ATSI Merger Corp., copies of which are attached as
Exhibits H and I, respectively.
Additionally, if approved by the shareholders of ATSI pursuant to the Consent,
immediately following the Merger the name of the surviving company will change
to American Telesource International, Inc. or such other name as may be
authorized by the Board of Directors of ATSI.
In the Merger, holders of Common Shares will receive one share of ATSI Merger
Corp. Common Stock for every Post-Consolidation Common Share held by such
holder. Following the Merger, holders of Common Shares will continue to hold
the same percentage interest in ATSI Merger Corp. that they held in ATSI
immediately prior to the Merger. In addition, in connection with the Merger,
the ATSI Warrants outstanding immediately prior to the Merger will become
obligations of ATSI Merger Corp.
OFFICERS AND DIRECTORS
The ATSI Board currently consists of three members, Arthur L. Smith, Murray R.
Nye and John R. Moses. Upon Domestication, the ATSI Board will be increased to
five members and will be divided into three classes, one class of which is to be
elected each year to hold office for a three-year term and until successors are
elected and qualified, as provided by the terms of the Certificate of
Incorporation to be filed pursuant to the Company's Domestication into Delaware.
It is anticipated that immediately following the Domestication, John R. Moses
will resign as a director of ATSI and Arthur L. Smith and Murray R. Nye,
representing a majority of the directors then in office, will elect, in order to
fill such vacancies and newly created directorships on the Board of ATSI, then a
Delaware corporation, Terry Colbert and Tomas Revesz to serve as the Class B
directors and Arthur L. Smith and Murray R. Nye to serve as the Class C
directors. Messrs. Smith and Nye also intend to appoint a fifth director
immediately following the Domestication to serve as the Class A director, and,
along with Mr. Moses, are currently in the process of interviewing qualified
candidates. Additionally, immediately following the Domestication, the officers
of ATSI will be as follows: Arthur L. Smith - President and Chief Executive
Officer; H. Douglas Saathoff - Secretary, Treasurer and Chief Financial Officer;
Craig K. Clement - Vice President; and Everett Waller - Vice President. All
such individuals who are expected to be the directors and officers of ATSI
immediately prior to the Merger currently are or will be, and immediately after
the Merger will be, the directors and officers of ATSI Merger Corp. See
"Management--Executive Officers and Directors" for more information concerning
such individuals.
EXCHANGE OF SHARE CERTIFICATES
As soon as practicable on or after the Merger, ATSI shareholders of record
immediately prior to the Merger will be sent detailed instructions concerning
the procedures to be followed for submission of certificates representing Common
Shares to an exchange agent appointed by ATSI (the "Exchange Agent"), together
with a form of transmittal letter to be sent to the Exchange Agent at the time
such certificates are submitted.
After the Merger, the Exchange Agent will deliver to any holder who has
previously submitted a duly completed and executed transmittal letter and a
certificate representing Common Shares, a certificate issued by ATSI Merger
Corp. representing the appropriate number of shares of ATSI Merger Corp. Common
Stock into which such Common Shares were converted.
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After the Merger but before a certificate representing Common Shares is
surrendered, certificates representing Common Shares will represent the number
of shares of ATSI Merger Corp. Common Stock into which such Common Shares were
converted pursuant to the terms of the Merger. The transfer agent for the
Company will be instructed to forward to the Exchange Agent any certificates for
shares of capital stock of ATSI otherwise delivered by the shareholder. The
Exchange Agent will deliver certificates representing the appropriate amount and
type of ATSI Merger Corp. capital stock in accordance with the stockholder's
instructions for transfer or exchange.
CONDITIONS TO DOMESTICATION AND MERGER; SHAREHOLDER APPROVALS
DOMESTICATION
The Domestication is subject to, among other things, (i) approval by the ATSI
shareholders of a special resolution authorizing the Domestication (a copy of
which is attached as Exhibit B) by the affirmative vote of at least two-thirds
of the Common Shares voting in person or by proxy at the Meeting or any
adjournment(s) thereof and (ii) authorization of the OBCA Director (ATSI intends
to apply to the OBCA Director to authorize the Domestication sufficiently in
advance of the Domestication in order to obtain such authorization as soon as
possible following approval of the Domestication by the ATSI shareholders).
MERGER
The consummation of the Merger is subject to the following conditions: (i)
the effectiveness of the Domestication; (ii) the adoption of a resolution
approving the Merger by the Board of Directors of ATSI after the Domestication;
and (iii) the approval of the Merger by the Consent executed on behalf of
holders of record of a majority of the outstanding Common Shares after the
Domestication.
The shareholders of ATSI are being requested to approve the Merger by written
consent, instead of at a special meeting, because the notice and voting
requirements under the DGCL could not be satisfied on a timely basis if a
meeting of the shareholders of ATSI, once domesticated under the DGCL, were held
immediately following the Domestication. For the Consent to be effective under
the DGCL, it must be expressed, in person or by proxy, by the holders of record
of a majority of the outstanding Common Shares, once ATSI is domesticated under
the DGCL. Under the DGCL, notice of the Merger must be sent to the non-
consenting shareholders of ATSI promptly following the effectiveness of the
Merger.
Notwithstanding the requisite shareholder approvals of the Domestication and
Merger, the Board of Directors of ATSI has reserved the right to terminate or
abandon the Domestication and/or the Merger without further shareholder approval
if the Board of Directors determines that the consummation of the Domestication
and/or the Merger would be inadvisable or not in the best interests of ATSI or
its shareholders, or if all of the respective conditions to consummation of the
Domestication and Merger have not occurred within a reasonable period of time.
PROCEEDINGS BEFORE GOVERNMENTAL AUTHORITIES
ONTARIO REGISTRAR
The Domestication is subject to the authorization of the OBCA Director
pursuant to Section 181 of the OBCA. If the special resolution is passed by the
requisite number of Common Shares, ATSI intends to apply to the OBCA Director
for authorization of the Domestication. The OBCA Director is empowered to
authorize the Domestication if, among other things, the OBCA Director is
satisfied that the Domestication will not adversely affect creditors or
shareholders of ATSI and has set out five conditions in this regard.
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Under the laws of the State of Delaware:
(i) the property of ATSI continues to be the property of ATSI, once
domiciled in Delaware;
(ii) ATSI, once domiciled in Delaware, continues to be liable for the
obligations of ATSI prior to the Domestication;
(iii) an existing cause of action, claim or liability to prosecution is
unaffected;
(iv) a civil, criminal or administrative action or proceeding pending by
or against ATSI may be continued to be prosecuted by or against ATSI after the
Domestication; and
(v) a conviction against, or ruling, order or judgment in favor of or
against ATSI prior to the Domestication may be enforced by or against ATSI
after the Domestication.
Furthermore, pursuant to Section 51 of the Regulations to the OBCA, an
application for authorization of an Ontario company to continue in another
jurisdiction must be accompanied by:
(i) a consent from the Corporations Tax Branch of the Ministry of
Revenue;
(ii) a consent from the Ontario Securities Commission;
(iii) a legal opinion to the effect that the laws of the other
jurisdiction meet the requirements of Section 181 of the OBCA.
DELAWARE
Subject to receipt of the authorization of the OBCA Director to the
Domestication, ATSI anticipates that it will file with the Secretary of State of
Delaware a Certificate of Domestication and a Certificate of Incorporation under
Section 388 of the DGCL, and that ATSI will be domesticated in Delaware on the
date that all of the conditions to the Domestication have been satisfied.
Promptly thereafter, ATSI intends to give notice to the OBCA Director that ATSI
has been continued under the laws of Delaware and, pursuant to Section 181 of
the OBCA, request that the OBCA Director issue a Certificate of Discontinuance
bearing the same date as the date shown in the Certificate of Incorporation
issued under the DGCL.
PRINCIPAL REASONS FOR THE DOMESTICATION AND MERGER
The Domestication and Merger will result in ATSI Merger Corp., a Delaware
corporation, succeeding to all of the operations, assets and liabilities of
ATSI, an Ontario, Canada corporation. The Board of Directors believes that, by
domiciling in the United States, ATSI will be able to enhance shareholder value
over the long term. The Board's belief is based, in part, on the following
factors:
(i) by domiciling in the United States, the marketability of the
Company's Common Shares will be enhanced by raising the Company's
profile in various capital markets; and
(ii) by becoming subject to United States tax laws, it will be provided
with greater ease in dealing with income tax complexities associated
with multi-jurisdictional operations.
Furthermore, in the experience of management, potential debt and equity
capital sources and strategic partners in the United States are more comfortable
dealing with a United States corporation than a foreign corporation. Management
believes this may be because U.S. entities are likely to be more familiar with
U.S. standards of accounting, U.S. securities law disclosure requirements and
U.S. legal principles.
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The Company chose the State of Delaware to be its domicile because Delaware,
like Ontario, has a modern and flexible corporate code. The escalating risks
and resultant costs of director liability have made it increasingly difficult
for corporations to find and retain competent directors, and the Company
believes the various indemnity and exculpation provisions of the DGCL will help
it to attract and retain competent directors. Delaware has an active bar which
is continually assessing and recommending improvements to the DGCL, and the
substantial body of settled case law under the DGCL adds greater certainty in
assessing risks associated with conducting business.
The Company does not believe that there will be any material disadvantages
associated with the Domestication.
The Company was formed in May 1994 as a result of the amalgamation (the
"Amalgamation") of Willingdon Resources Ltd., an Ontario, Canada corporation
("Willingdon"), with Latcomm International Inc. ("Latcomm"), an Alberta, Canada
corporation organized contemporaneously in December 1993 with its wholly-owned
subsidiary, Latin American Telecomm, Inc., a Texas corporation formed for the
primary purpose of providing private international telecommunications networks
between Latin America and the United States, to carry on the business of Latcomm
as American Telesource International Inc. Prior to the Amalgamation, Willingdon
carried on exploration on its mining property in Northern Ontario, but was
unable to prove up an economic orebody. Because the corporate records relating
to Willingdon's operations prior to the Amalgamation are incomplete, the Company
cannot accurately establish with complete certainty the circumstances
surrounding each and every share issuance. Although the Company has not
identified any defects in share issuances during the period of time prior to the
Amalgamation, and has not been notified that any exist, it intends to undertake
the Merger in an effort to ensure that no such issues arise in the future.
Accordingly, in connection with the Merger, when each shareholder surrenders his
certificate, he will be deemed to be surrendering any and all claims, if any, he
may have against the Company in respect of a defective issuance which he alleges
may have occurred.
If the Merger is not completed, the Company will not have the same level of
certainty with respect to the circumstances relating to the issuance of the
Common Shares that would be afforded if the Merger were to occur. The Company
does not believe, however, that it will be adversely affected in any material
way by the failure to complete the Merger.
EFFECT OF DOMESTICATION ON SHAREHOLDER RIGHTS
On the effective date of the Domestication, ATSI will be deemed incorporated
under the laws of the State of Delaware and will be governed by the Certificate
of Incorporation filed with the Certificate of Domestication and the new
Delaware bylaws adopted in connection therewith. On the effective date of the
Merger (as soon as practicable after the Domestication), ATSI will be merged
into ATSI Merger Corp., the shareholders of ATSI will become stockholders of the
surviving corporation and the surviving corporation will be governed by the
Certificate of Incorporation and Bylaws of ATSI Merger Corp., both of which will
be identical to the Delaware Certificate of Incorporation and Bylaws of ATSI.
Accordingly, because the rights of shareholders of ATSI after the Domestication,
but prior to the Merger will be substantially similar to their post-Merger
rights, the discussion below sets forth the rights of the shareholders of ATSI
following the Domestication, whether or not the Merger occurs.
Differences between the OBCA and the DGCL and between the ATSI Articles and
the proposed ATSI Merger Corp. Certificate will result in various changes in the
rights of shareholders of ATSI. The following is a summary of the rights of the
Company's stockholders after the Domestication, as compared with those of ATSI
shareholders prior to the Domestication. This summary does not purport to be
complete and is qualified in its entirety by reference to the ATSI Merger Corp.
Certificate, ATSI Merger Corp. Bylaws, ATSI Articles and ATSI Bylaws, the text
of which are included in this Prospectus as Exhibits H, I, E and F,
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respectively. For further discussion of certain provisions of the ATSI Merger
Corp. Certificate, see "Description of ATSI Merger Corp. Securities."
DIFFERENCES BETWEEN ONTARIO AND DELAWARE CORPORATE LAW
Upon the consummation of the Domestication and Merger, the Corporation will be
subject to the provisions of the DGCL. Set forth below is a comparison of
certain material provisions of the DGCL and the OBCA.
Vote on Extraordinary Corporate Transactions. Under the OBCA, amalgamations,
continuances, sales or leases or exchanges of all or substantially all of the
assets of a company and other extraordinary corporate actions require the
approval of the holders of two-thirds of the shares being voted thereon in
person or by proxy. Under the DGCL, mergers or consolidations require the
approval of the holders of a majority of the outstanding stock of the
corporation entitled to vote thereon except: (i) for a corporation that survives
the merger where the merger requires the issuance of Common Stock not exceeding
20% of such corporation's shares outstanding immediately prior to the merger,
the merger agreement does not amend in any respect the survivor's certificate of
incorporation and shareholder approval is not specifically mandated in the
survivor's certificate of incorporation; and (ii) for both corporations where
the corporation surviving the merger was a 90% or greater parent of the other
corporation. Unless a greater percentage is required by the charter, a sale,
lease or exchange of all or substantially all the property or assets of a
corporation or an amendment to the certificate of incorporation also require the
approval of the holders of a majority of the outstanding stock entitled to vote
thereon.
Bylaw Amendments. Under the OBCA, either shareholders or directors may make,
amend or repeal bylaws, but director bylaws are subject to later confirmation by
the shareholders. Under the DGCL, stockholders may adopt, amend or repeal
bylaws. In addition, directors of a corporation, if authorized by the
certificate of incorporation, may adopt, amend or repeal bylaws, such action not
being subject to later shareholder confirmation.
Amendments to the Charter. Under the OBCA, an amendment to a corporation's
articles of incorporation requires the affirmative vote of at least two-thirds
of the votes cast by shareholders entitled to vote thereon represented in person
or by proxy and in most instances, the affirmative vote of at least two-thirds
of the votes cast within each class or series of outstanding shares by
shareholders represented in person or by proxy. Under the DGCL, an amendment to
a corporation's certificate of incorporation requires the approval of a majority
of the outstanding stock entitled to vote, unless such level of approval is
increased by the certificate of incorporation. In addition, under the DGCL, if
the amendment to the certificate of incorporation adversely affects the rights
of a particular class of stock, that class is entitled to vote separately on the
amendment whether or not it is designated as voting stock.
Removal of Directors. Under both the OBCA and the DGCL, directors may
generally be removed, with or without cause, by a vote of the holders of a
majority of the shares being voted. However, under the DGCL, if the board is
classified, which the Board of ATSI Merger Corp. is, directors may be removed
only for cause, unless the certificate of incorporation provides otherwise,
which the ATSI Merger Corp. Certificate of Incorporation does not. Further, if
a director is elected by holders of a class or series of shares, the OBCA
provides that only the shareholders of that class or series can vote to remove
that director, with or without cause, whereas the DGCL provides that only the
shareholders of that class or series can vote to remove that director without
cause. Finally, in the case of a corporation having cumulative voting, under
both the OBCA and the DGCL a director may not be removed from office if the
votes cast against the director's removal would be sufficient to elect such
director and such votes could be voted cumulatively at an election at which the
same total number of votes were cast and, (i) in the case of the OBCA, the
number of directors required by the articles were then being elected, or (ii) in
the case of DGCL, the entire board is being elected or, if there are classes of
directors, the class of directors of which such director is a part is being
elected.
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Quorum of Shareholders. Under the OBCA, a quorum for shareholders' meetings
consists of the holders of a majority of the outstanding shares, present in
person or represented by proxy, unless the bylaws otherwise provide. Under the
DGCL, a quorum consists of a majority of shares entitled to vote, present in
person or represented by proxy, unless the charter or bylaws provide otherwise,
but in no event may a quorum consist of less than one-third of the shares
entitled to vote at the meeting.
Notice and Calling of Shareholder Meetings. Under the OBCA, shareholders'
meetings may be called by the board of directors who must call a meeting when so
requested by the holders of not less than 5% of the voting shares, on a minimum
of 21 days' notice. Under the DGCL, unless the certificate of incorporation or
bylaws authorize additional persons, only the board of directors may call a
shareholders' meeting, on ten days' notice.
Shareholder Consent in Lieu of Meeting. Under the OBCA, shareholder action
without a meeting may only be taken by unanimous written consent of all
shareholders. Under the DGCL, unless otherwise provided in the charter,
shareholders may act by written consent without a meeting if holders of
outstanding stock representing not less than the minimum number of votes that
would be necessary to take such action at an annual or special meeting execute a
written consent providing for such action.
Appraisal Rights. The DGCL does not give appraisal rights in a merger or
consolidation to holders of stock listed on a national securities exchange (such
as the Nasdaq National Market) or held of record by more than 2,000
shareholders, provided that such holders receive shares of stock of the company
surviving the merger or consolidation or shares of stock of any other company
which is either listed on a national securities exchange or held of record by
more than 2,000 shareholders. The OBCA does not contain any similar exemption
from its provisions relating to dissenter's rights of appraisal for
amalgamations. In addition, appraisal rights are available under the DGCL for
sales of all or substantially all of the Corporation's assets or charter
amendments only if the charter so provides. Shareholders are entitled to
appraisal rights under the OBCA in connection with the sale, lease or exchange
of all or substantially all the assets of a company and for charter amendments
which affect share issuance or transferability or corporate purposes or which
would require a separate class vote.
Shareholder Register. A Delaware company's stock ledger showing the names,
addresses and security ownership of its shareholders may be inspected only by
directors and shareholders of record for a purpose reasonably related to their
respective interests as directors or shareholders. Shareholders and certain
other persons may inspect the shareholder list of an Ontario company that is an
offering corporation.
Dividends and Distributions. The DGCL and OBCA treat dividends similarly.
The DGCL permits a company, unless otherwise restricted by the certificate of
incorporation, to pay dividends out of surplus or, if there is no surplus, out
of net profits for the current and preceding fiscal year (provided that the
amount of capital of the company is not less than the aggregate amount of the
capital represented by the issued and outstanding stock of all classes having a
preference upon the distribution of assets). In addition, the DGCL generally
provides that a company may redeem or repurchase its shares only if such
redemption or repurchase would not impair the capital of the corporation. The
ability of a Delaware company to pay dividends on, or to make repurchases of
redemptions of, its shares is dependent on the financial status of the company
standing alone and not on a consolidated basis. In determining the amount of
surplus of a Delaware company, the assets of the company, including stock of
subsidiaries owned by the company, must be valued at their fair market value as
determined by the board of directors if fair market value is less than
historical book value and may be valued at their fair market value if fair
market value is greater than historical book value. Under the OBCA, a company
may not declare or pay a dividend if there are reasonable grounds for believing
that the company is or after the payment would be, unable to pay its liabilities
as they become due, or if the realizable value of the company's assets would
thereby be less than the aggregate of its liabilities and stated capital of all
classes.
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Director Qualification and Number. A majority of the directors of an Ontario
company must be Canadian residents. The DGCL has no similar requirement. The
number of directors of a Delaware company may be changed by resolution of the
directors if the charter or bylaws so provide (as will be the case with the
proposed ATSI Merger Corp. certificate and bylaws) while the charter of an
Ontario company must specify the number or a range for the number of directors
and if authorized by a special shareholders' resolution, in between
shareholders' meetings, the directors may increase the number of directors
within the minimum and maximum range provided that they may not do so if after
such appointment, the total number of directors would be one and one-third times
greater than the number of directors required to have been elected at the last
annual meeting of shareholders.
Director Liability. Under the DGCL, the charter of a Delaware company may
limit the personal liability of a director to the shareholders of the company
for monetary damages for breach of fiduciary duty, except for: (i) any breach of
a director's duty of loyalty to the company or its shareholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) paying a dividend or approving a stock repurchase in
violation of statutory limitations; or (iv) any transaction from which a
director derived an improper personal benefit. The OBCA has no comparable
provision. Such a charter provision under the DGCL does not affect the right of
a company or its shareholders to pursue equitable remedies such as an action to
enjoin or rescind a transaction involving a breach of a director's duty of care
(although such equitable remedies may not always be available) and in no way
affects a director's liability under United States federal securities laws.
Oppression Relief and Equitable Remedies. The OBCA creates a cause of action
for "oppression" and "unfairness" with respect to shareholders, creditors,
directors and officers and vests the court with broad remedial powers in
connection therewith. The DGCL contains no comparable provision and the scope
of the equitable powers of the Delaware courts as defined by existing case law
is less certain than the scope of the powers of Ontario courts.
In addition, certain differences between the powers granted to companies under
the DGCL and the powers granted to companies under the OBCA may make a Delaware
company less vulnerable than an Ontario company to hostile takeover attempts.
These differences include the absence of power of shareholders to call special
meetings unless expressly granted as discussed above. On the other hand,
because of such provisions as the power of shareholders to take action without a
meeting by less than unanimous consent, the DGCL may, under some circumstances,
facilitate a hostile takeover attempt.
DIFFERENCES BETWEEN THE ATSI ARTICLES AND THE ATSI MERGER CORP. CERTIFICATE
The ATSI Merger Corp. Certificate to be adopted in connection with the Merger
(and the ATSI Certificate after the Domestication) differ substantially from the
ATSI Articles. Differences include, but are not limited to, the following:
Capital Structure. Under the ATSI Merger Corp. Certificate, the total number
of shares of capital stock that the Company will have the authority to issue is
55,000,000, $0.001 par value per share, consisting of 50,000,000 shares of ATSI
Merger Corp. Common Stock and 5,000,000 shares of ATSI Merger Corp. Preferred
Stock. Under the ATSI Articles, the Company has the authority to issue
unlimited amounts of no par value stock for common shares.
Board of Director Size. The ATSI Merger Corp. Certificate (i) provides for an
initial board of directors consisting of five members but contains no
restrictions on the minimum or maximum number of directors except as provided by
Delaware law and (ii) divides the Board of Directors into three classes, one of
which is elected each year to hold office for a three-year term and until
successors are elected and qualified. The ATSI Articles provide for a minimum
of three and a maximum of ten directors. ATSI currently has three directors,
although the ATSI Board will be increased to five members, and will be divided
into three classes,
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one of which is elected each year to hold office for a three-year term and until
his successors are elected and qualified, under the terms of the Certificate of
Incorporation to be filed pursuant to the Company's Domestication into Delaware.
ATSI Merger Corp. has five directors. See "Management."
Liability of Directors. The ATSI Merger Corp. Certificate provides that
directors of the corporation shall not be personally liable to the corporation
or its shareholders for monetary damages for breach of fiduciary duty as a
director, except that a director may be personally liable to the extent provided
by applicable Delaware law which currently prohibits limitation of director
liability for: (i) any breach of the director's duty of loyalty to the
corporation or its shareholders; (ii) acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law; (iii)
authorizing the payment of a dividend or repurchase of stock; or (iv) any
transaction from which the director derived an improper personal benefit. The
ATSI Articles prior to the Domestication contain no similar provision.
Indemnification. The ATSI Merger Corp. Certificate provides that ATSI Merger
Corp. will indemnify each director and officer of ATSI Merger Corp. who may be
indemnified, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law ("Section 145"), as it may be amended from time to time,
in each and every situation where ATSI Merger Corp. is obligated to make such
indemnification pursuant to Section 145. In addition, ATSI Merger Corp. will
indemnify each of ATSI Merger Corp.'s directors and officers in each and every
situation where, under Section 145, ATSI Merger Corp. is not obligated, but is
permitted or empowered, to make such indemnification. ATSI Merger Corp. may, in
the sole discretion of the Board, indemnify any other person who may be
indemnified pursuant to Section 145 to the extent the Board deems advisable, as
permitted by such section. ATSI Merger Corp. will promptly make or cause to be
made any determination which Section 145 requires. The ATSI Articles prior to
the Domestication contain no similar provision.
Shareholder Consent in Lieu of Meeting. As noted previously, under the OBCA,
the shareholders of a corporation may take action without a meeting only by
unanimous consent of all shareholders. Under the ATSI Merger Corp. Certificate
(and the ATSI Certificate after the Domestication), the shareholders of the
Company will not be permitted to take action without a meeting unless the board
of directors shall have previously approved the taking of such action by written
consent.
Shareholder Nomination of Directors. The ATSI Merger Corp. Certificate (and
the ATSI Certificate after the Domestication) will require shareholder
nominations of directors for an election to be held at an annual meeting or
special meeting of shareholders to meet certain procedural requirements
including disclosure of such information regarding the proposed nominees as
would be required to be included in a proxy statement filed pursuant to the
proxy rules of the Commission, a description of all arrangements or any
affiliation between the shareholder and the proposed nominee and the consent of
the nominee to serve as a director of the Corporation if so elected. Although
such provision is not explicitly provided for in the ATSI Articles prior to the
Domestication, the OBCA contains similar provisions.
Business Combinations. After both the Domestication and the Merger, the
Company will be subject to the provisions of Section 203 of the DGCL ("Section
203"). Section 203 provides, with certain exceptions, that a Delaware
corporation may not engage in any of a broad range of business combinations with
a person, or an affiliate or associate of such person, who is an "interested
stockholder" for three years from the date that such person became an interested
stockholder unless: (i) the transaction resulting in a person becoming an
interested stockholder, or the business combination, is approved by the Board of
Directors of the corporation before the person becomes an interested
stockholder, (ii) the interested stockholder acquired 85% or more of the
outstanding voting stock of the corporation in the same transaction that makes
such person an interested stockholder (excluding shares owned by persons who are
both officers and directors of the corporation, and shares held by certain
employee stock ownership plans), or (iii) on or after the date the person
becomes an interested stockholder, the business combination is approved by the
corporation's board of directors and by the holders of at least 66 2/3% of the
corporation's outstanding voting stock at an annual
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or special meeting, excluding shares owned by the interested stockholder. Under
Section 203, an "interested stockholder" is defined as any person who is (i) the
owner of 15% or more of the outstanding voting stock of the corporation or (ii)
an affiliate or associate of the corporation and who was the owner of 15% or
more of the outstanding voting stock of the corporation at any time within the
three years immediately prior to the date on which it is sought to be determined
whether such person is an interested stockholder.
A corporation may, at its option, exclude itself from the coverage of Section
203 by amending its certificate of incorporation or bylaws by action of its
stockholders to exempt itself from coverage. The Company has not adopted such
an amendment to its Certificate of Incorporation or Bylaws. There is no
comparable provision under the OBCA. For further discussion of the ATSI Merger
Corp. Certificate of Incorporation, see "Description of ATSI Merger Corp.
Securities."
DISSENT RIGHTS OF ATSI SHAREHOLDERS
In addition to any other rights a shareholder may have when a Certificate of
Domestication is filed with the Secretary of State of Delaware pursuant to the
special resolution authorizing a company to be domesticated in Delaware under
the provisions of the DGCL (the "Domestication Resolution"), a shareholder who
complies with the dissent procedure of Section 185 of the OBCA is entitled to be
paid by the Company the fair value of the shares held by him in respect of which
he dissents determined as of the close of business on the day before the
Domestication becomes effective. The dissent procedure of Section 185 of the
OBCA is summarized below and shareholders who may wish to dissent are
specifically referred to the disclosure set forth below, as failure by such
shareholder to adhere strictly to the requirements of such section may result in
the loss of such shareholder's rights under that section. Each shareholder who
might desire to exercise these rights of dissent should carefully consider and
comply with the provisions of such section and consult with his legal advisor.
The following summary is qualified in its entirety by reference to Section 185
of the OBCA, a copy of which is attached as Exhibit J.
BUSINESS CORPORATIONS ACT (ONTARIO)
A dissenting shareholder may only claim under Section 185 of the OBCA with
respect to all of the shares of a class held by the dissenting shareholder on
behalf of any one beneficial owner and registered in the name of the dissenting
shareholder.
A shareholder who wishes to invoke the provisions of Section 185 of the OBCA
must send a written objection (the "Objection Notice") to the Domestication
Resolution at or before the meeting at which such resolution is to be
considered.
The sending of a written objection to the Domestication Resolution does not
deprive the shareholder of the right to vote thereon. Moreover, the OBCA
specifically provides that the execution or exercise of a proxy does not
constitute a written objection for the purposes of the dissent procedure.
A vote in favor of the Domestication Resolution or the execution of a proxy
which is so voted, will constitute a waiver of the right of dissent with respect
to such resolution.
Within ten days of the passing of the Domestication Resolution, the Company is
required to notify in writing each dissenting shareholder that such resolution
has been adopted.
A dissenting shareholder shall within 20 days after he receives notice of the
adoption of the Domestication Resolution or, if he does not receive such notice,
within 20 days after he learns that the Domestication
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Resolution has been adopted, send to the Company a written notice (the "Demand
for Payment"), containing his name and address, the number and class of shares
in respect of which he dissents and a demand for payment of the fair value of
the shares of the Company held by him.
Within 30 days of the sending of the Demand for Payment, the dissenting
shareholder shall send the certificates representing the shares of which he
dissents to the Company or to the Company's transfer agent. The Company or the
Company's transfer agent shall endorse thereon notice that the holder thereof is
a dissenting shareholder and shall forthwith return the share certificates to
the dissenting shareholder. A dissenting shareholder who fails to forward an
Objection Notice, Demand for Payment and share certificates within the time
required will lose any right to make a claim to be paid the fair value of his
securities.
On sending a Demand for Payment, a dissenting shareholder ceases to have any
rights as a shareholder other than the right to be paid the fair value of the
shares held by him, unless (i) the dissenting shareholder withdraws his demand
for payment before the Company makes an offer to pay (the "Offer to Pay"), (ii)
the Company fails to make an Offer to Pay and the dissenting shareholder
withdraws his Demand for Payment or (iii) the directors revoke the Domestication
Resolution, in which case his rights as a shareholder are reinstated as of the
date he sent the Demand for Payment.
Not later than seven days after the later of the day on which the action
approved by the Domestication Resolution is effective or the day the Company
receives a Demand for Payment, the Company shall send to each dissenting
shareholder who has sent a Demand for Payment, an Offer to Pay for the shares of
the dissenting shareholder in an amount considered by the directors of the
Company to be the fair value thereof, accompanied by a statement showing how the
fair value was determined or a notification that it is lawfully unable to pay
the dissenting shareholders for their shares. Every Offer to Pay for shares of
the same class or series held by dissenting shareholders for their shares shall
be on the same terms. Any Offer to Pay accepted by a dissenting shareholder
shall be paid by the Company within ten days of the acceptance but an Offer to
Pay lapses if the Company has not received an acceptance thereof within 30 days
after the Offer to Pay has been made.
If an Offer to Pay is not made by the Company or if a dissenting shareholder
fails to accept an Offer to Pay, the Company may, within 50 days after the
action approved by the Domestication Resolution is effective or within such
further period as the court may allow, apply to a court to fix a fair value for
the shares of any dissenting shareholder. If the Company fails to apply to a
court within such 50 day period, the dissenting shareholder may apply to a court
for the same purpose within a further period of 20 days or within such further
period as the court may allow. Any such application shall be made to the
Ontario Court (General Division).
A dissenting shareholder is not required to give security for costs in any
application to the court and all dissenting shareholders whose shares have not
been purchased by the Company shall be deemed to be joined as parties and be
bound by the decision of the court. The Company shall notify each affected
dissenting shareholder of the date, place and consequences of any application
and of the right of a dissenting shareholder to appear and be heard in person or
by counsel.
The court shall fix a fair value for the shares of all dissenting shareholders
and may in its discretion allow a reasonable rate of interest on the amount
payable to each dissenting shareholder from the date the action approved by the
Domestication Resolution is effective until the date of payment of the amount
ordered by the court.
If the Company fails to make an Offer to Pay, then the costs of a shareholder
application to the court shall be borne by the Company unless the court
otherwise orders. In other cases, the cost of any application to a court by the
Company or a dissenting shareholder will be in the discretion of the court.
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THE FOREGOING TEXT PROVIDES ONLY A SUMMARY OF THE HIGHLY TECHNICAL AND COMPLEX
PROVISIONS OF SECTION 185 OF THE OBCA. FAILURE TO STRICTLY COMPLY WITH THE
REQUIREMENTS SET FORTH IN THE FOREGOING SECTION MAY RESULT IN THE LOSS OF A
SHAREHOLDER'S APPRAISAL RIGHTS. ACCORDINGLY, ANY HOLDER OF COMMON SHARES
WISHING TO ASSERT HIS RIGHT TO DISSENT SHOULD SEEK LEGAL ADVICE.
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
Shareholders of ATSI will not be entitled to dissenter's or appraisal rights
under the DGCL in connection with the Domestication or Merger.
THE 1996 OPTION PLAN
The Board of Directors unanimously adopted the American Telesource
International Inc. 1996 Stock Option Plan (the "1996 Option Plan") in June 1996
and directed that the 1996 Option Plan be submitted to the shareholders for
their approval.
The following summary of the 1996 Option Plan is qualified in its entirety by
reference to the text of such Plan, which is set forth in Appendix A.
SUMMARY OF THE 1996 OPTION PLAN
Under the 1996 Option Plan, options to purchase up to 4,000,000 Common Shares
may be granted to employees and directors of, and consultants and advisors to,
the Company or any subsidiary corporation or entity. Such number of shares
shall be subject to adjustment to 2,000,000 shares in the event that the
proposed one-for-two reverse stock split of the Company's Common Shares pursuant
to the First Consolidation is approved by the shareholders at the Meeting. The
1996 Option Plan is intended to permit the Company to retain and attract
qualified individuals who will contribute to its overall success. Shares that
by reason of the expiration of an option (other than by reason of exercise) or
which are no longer subject to purchase pursuant to an option granted under the
1996 Option Plan may be reoptioned thereunder. The 1996 Option Plan will be
administered by the Compensation Committee (the "Committee"). The Committee
will set the specific terms and conditions of options granted under the 1996
Option Plan.
The Company's employees will be eligible to receive either incentive stock
options or nonqualified stock options or a combination of both, as the Committee
determines. Non-employee participants may be granted only nonqualified stock
options. Stock options may be granted for a term not to exceed ten years (five
years with respect to a holder of 10% or more of the Company's shares in the
case of an incentive stock option) and are not transferable other than by will
or the laws of descent and distribution. Each option may be exercised within
the term of the option pursuant to which it is granted (so long as the optionee,
if an employee, continues to be employed by the Company). In addition, unless a
shorter period is specified in a particular option agreement, an option may be
exercised within three months after the termination of employment of the
optionee (subject to any limitations in the particular option), within one year
after termination in case of termination because of disability, or throughout
the term of the option in the event of the optionee's death, to the extent in
each case the option was exercisable at the termination date.
The exercise price of all nonqualified stock options must be at least equal to
100% of the fair market value of the Common Shares on the date of grant. The
exercise price of all incentive stock options must be at least equal to 100% of
the fair market value of the Common Shares on the date of grant, or 110% of the
fair market value with respect to any incentive stock option issued to a holder
of 10% or more of the Company's shares. Stock options may be exercised by
payment in cash of the exercise price with respect to each share to be purchased
or by delivering Common Shares of the Company already owned by such optionee
with a
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market value equal to the exercise price, or by a method in which a concurrent
sale of the acquired stock is arranged, with the exercise price payable in cash
from such sale proceeds.
The 1996 Option Plan provides that each outside director (as defined therein)
will automatically receive a grant of nonqualified stock options for 7,500
shares (3,750 shares as adjusted for the First Consolidation) each year on the
fifth business day following the first public release of the Company's audited
earnings report on results of operations for the preceding fiscal year. Each
such option will become exercisable in whole or in part on the first anniversary
of the award through the balance of its ten-year term. Subject to availability
of shares allocated to the 1996 Option Plan and not already reserved for other
outstanding stock options, each outside director who is a member of the Board
immediately following the Domestication (anticipated to be Murray Nye, Terry
Colbert, Tomas Revesz and one additional person to be identified) and each
outside director who joins the Board thereafter will in addition receive an
initial grant of nonqualified options for 75,000 shares (37,500 shares as
adjusted for the First Consolidation), which will become exercisable in four
equal increments (9,375 shares each as adjusted for the First Consolidation)
beginning on the first anniversary of the award and on each of the next three
succeeding anniversary dates. Such options will be exercisable for a term of
ten years. Such options will be awarded upon their appointment or election to
the Board. Options, once granted and to the extent exercisable, will remain
exercisable throughout their term, regardless of whether the holder continues as
a director. The option exercise price of the options is equal to 100% of the
fair market value of the covered Common Shares at the time of grant.
The 1996 Option Plan will terminate 10 years after the date such plan was
adopted by the Board of Directors. The Board of Directors may, however,
terminate the 1996 Option Plan at any time prior to such date. Termination of
the 1996 Option Plan will not alter or impair, without the consent of the
optionee, any of the rights or obligations pursuant to any option granted under
the 1996 Option Plan.
U.S. FEDERAL INCOME TAX CONSEQUENCES
The following is a general description of the U.S. federal income tax
consequences of options granted and exercised under the 1996 Option Plan based
upon federal tax law as it exists on the date of this Prospectus. Statements
made in this description may become inaccurate or incorrect in the event of a
change in U.S. federal tax law. Each optionee should consult with his or her
own tax advisor with respect to the specific tax treatment of his or her
particular transactions under the Plan.
INCENTIVE STOCK OPTIONS
Incentive options issued to employees under the 1996 Option Plan are intended
to qualify as "incentive stock options" under Section 422 of the Internal
Revenue Code of 1986, as amended from time to time (the "Code"). These options
may only be issued to employees.
Grant and Exercise. The granting of an incentive stock option is a non-
taxable event. The exercise of an incentive stock option is also a non-taxable
event provided the option is exercised during the employment of the optionee or
within three months after the optionee's employment has been terminated;
however, the "spread" between the fair market value of the optioned stock and
the exercise price is an adjustment to alternative minimum taxable income and
may be subject to the alternative minimum tax as discussed below.
Disposition. The optionee will recognize gain or loss in the year in which
the shares purchased under an incentive option are sold or otherwise made the
subject of disposition. Generally, a disposition of the purchased shares will
include any transfer of legal title, including a transfer by sale, exchange or
gift, but it will not include (i) a transfer into joint ownership with right of
survivorship if the optionee remains one of the joint owners, (ii) a pledge, or
(iii) a transfer by bequest or inheritance.
35
<PAGE>
For federal income tax purposes, dispositions of incentive option shares are
divided into two categories: (i) qualifying and (ii) disqualifying. A
qualifying disposition of the purchased shares will occur if the sale or other
disposition is made after the optionee has held such shares for more than two
years after the date the option is granted and more than one year after the date
the particular shares involved in the disposition are transferred to the
optionee. If the optionee fails to satisfy either of these two holding periods
prior to the sale or other disposition of the purchased shares, then a
disqualifying disposition will result.
Upon a qualifying disposition, the optionee will recognize gain or loss in an
amount equal to the amount realized upon the sale or disposition, less the
exercise price paid for such shares. Any gain recognized will generally be
subject to capital gain treatment. Upon a disqualifying disposition, the
optionee will recognize ordinary income in the year of disposition in an amount
equal to the excess of the fair market value of such shares on the date of
exercise over the exercise price paid for such shares, and the Company will be
required to satisfy reporting and federal tax withholding requirements. If the
disqualifying disposition is effected by means of an arms-length sale or
exchange to an unrelated party, the ordinary income will be limited to the
amount by which the amount realized, or the fair market value at the date of
exercise, whichever is less, exceeds the exercise price. The amount of ordinary
income recognized is added to the basis of the stock for purposes of determining
the additional gain, if any, on the disposition of the shares. If additional
gain is recognized, it will be subject to capital gain treatment.
Payments in Common Shares. U.S. Treasury Regulations provide the following
guidelines with respect to the delivery of Common Shares in payment of the
exercise price of an incentive stock option:
(a) Disqualifying Disposition of Delivered Shares. The use of Common
Shares acquired upon the exercise of an earlier granted incentive option to
exercise an outstanding incentive option will constitute a "disqualifying
disposition" of the delivered shares if such shares have not been held long
enough to satisfy the requisite two-year and one-year holding periods
applicable to incentive options. Such a disposition will generally render the
optionee subject to ordinary income taxation on the difference between (i) the
fair market value of the delivered shares at the time of their original
purchase and (ii) the purchase price paid for such shares. In all other cases,
no taxable income will be recognized with respect to the delivered shares.
(b) Attributes of Purchased Shares Where There Is No Disqualifying
Disposition. If an incentive stock option is exercised with (i) Common Shares
acquired under an incentive option and held for the requisite holding periods
prior to delivery, (ii) Common Shares acquired under a nonqualified option, or
(iii) Common Shares acquired through open-market purchases, then the optionee
will not recognize any taxable income with respect to the Common Shares
purchased upon exercise of the incentive stock option. To the extent the
purchased shares equal in number the Common Shares delivered in payment of the
option price, the new shares will have the same basis and holding period as
the delivered shares. The balance of the purchased shares will have a zero
basis for tax purposes, and their holding period will commence on the date
these shares are transferred to the optionee. However, all the purchased
shares will be subject to the "disqualifying disposition" rules applicable to
incentive options, and the two-year and one-year holding periods will be
measured, respectively, from the date the incentive option was granted and the
date it was exercised.
(c) Attributes of Purchased Shares Where There is A Disqualifying
Disposition of Delivered Shares. If the delivery of shares acquired under an
incentive option results in a disqualifying disposition pursuant to the
principles of paragraph (a) above, then the tax basis and holding periods for
the new shares transferred to the optionee upon exercise of the incentive
option will be determined as follows:
1. To the extent the number of new shares equals the number of
delivered shares as to which there was a disqualifying disposition, the
basis for such shares will be equal to the fair market value of the
delivered shares at the time they were originally purchased and the holding
period for these
36
<PAGE>
shares will, except for disqualifying disposition purposes, include the
period for which the delivered shares were held; and
2. To the extent the number of new shares exceeds the number of
delivered shares, these shares will have a zero basis and a holding period
measured from the date of exercise of the option.
For disqualifying disposition purposes, all the shares received will be
subject to the two-year and one-year holding period requirements for incentive
option shares, measured, respectively, from the date the incentive option was
granted and the date it was exercised.
Special Rule. If the shares purchased under the incentive option are subject
to a substantial risk of forfeiture, such as the insider trading restrictions of
Section 16(b) of the Exchange Act, the amount of ordinary income recognized by
the optionee upon a disqualifying disposition will be based upon the fair market
value of such shares on the date such risk of forfeiture lapses rather than the
date the option is exercised. In the absence of final U.S. Treasury regulations
relating to incentive options, it is not certain whether such result can be
avoided by making a conditional election pursuant to Section 83(b) of the Code
at the time the incentive option is exercised.
Federal Tax Rates. On the date of this Prospectus, income is subject to a
maximum U.S. federal tax rate of 39.6% and net capital gains are subject to a
maximum U.S. federal tax rate of 28%.
Alternative Minimum Tax. Unless the optionee makes a disqualifying
disposition or his rights are not fully transferrable or subject to a
substantial risk of forfeiture, the amount by which the value of the optioned
stock at the time of exercise exceeds the option price will increase the
optionee's alternative minimum taxable income in the year the option is
exercised. If the optionee makes a disqualifying disposition in the year in
which the option is exercised, the maximum amount that will be included in
alternative minimum taxable income is the gain on the disposition of the stock.
Income triggered by a disqualifying disposition in a year other than the year of
exercise will not affect the optionee's alternative minimum taxable income.
The alternative minimum tax will be equal to 26% of the amount by which the
optionee's taxable excess does not exceed $175,000 ($87,500 in the case of a
married taxpayer who files a separate return) plus 28% of the amount by which
the optionee's taxable excess exceeds $175,000 ($87,500 in the case of a married
taxpayer who files a separate return). The optionee's "taxable excess" is the
amount by which the optionee's alternative minimum taxable income exceeds the
optionee's exemption amount which is $45,000 for married individuals filing
jointly, $33,750 for single individuals and $22,500 for married individuals
filing separately.
The allowable exemption from the alternative minimum tax is reduced by 25% of
the excess of an individual's alternative minimum taxable income for the year
over $150,000 for a married taxpayer filing a joint return, $112,500 for an
unmarried taxpayer, and $75,000 for a married taxpayer filing a separate return.
A married taxpayer who files a separate return must increase his alternative
minimum taxable income by the lesser of (i) 25% of the excess of alternative
minimum taxable income (determined without regard to this sentence) over
$165,000 or (ii) $22,500.
For purposes of determining an individual's alternative minimum taxable income
(but not regular taxable income) for any subsequent year in which the shares are
sold, the basis of such shares will be their fair market value at the time the
incentive stock option was exercised. If an individual pays alternative minimum
taxes for one or more taxable years after December 31, 1986, the amount of such
taxes (subject to certain adjustments and reductions) will be applied as a
partial credit against the individual's regular tax liability (but not
alternative minimum tax liability) for subsequent taxable years.
37
<PAGE>
Employer Deduction. If the optionee makes a disqualifying disposition and the
Company complies with reporting requirements, then the Company will be entitled
to an income tax deduction equal to the amount by which the fair market value of
such shares on the date of exercise exceeded the option exercise price. The
deduction will only be allowed for the Company's taxable year in which the
optionee makes a disqualifying disposition.
Nonqualified Stock Options
Options issued under the 1996 Option Plan which are intended not to qualify as
incentive stock options are referred to herein as "nonqualified stock options."
The taxability of nonqualified stock options is governed by Section 83 of the
Code. The recipients of nonqualified stock options will not be taxed upon the
grant of such options, because such options, which will not be actively traded
on an established market, have no readily ascertainable fair market value. The
optionee will, in general, recognize ordinary income in the year in which the
nonqualified option is exercised, equal to the excess of the fair market value
of the purchased shares at the date of exercise over the exercise price, and the
Company will be required to satisfy federal reporting and tax withholding
requirements. If the shares purchased by an optionee are subject to the insider
trading restrictions of Section 16(b) of the Exchange Act, taxation of the
income may be deferred from the date of exercise to the date the optionee
becomes free to sell the shares without liability under Section 16(b). An
optionee subject to Section 16(b) restrictions may, however, elect under Section
83(b) of the Code to include as ordinary income in the year of exercise the fair
market value of the shares received on the date of exercise. The Section 83(b)
election must be made within 30 days following the date the nonqualified stock
option is exercised, and if made, the optionee will not recognize additional
income at the time the shares may first be sold free of the Section 16(b)
restrictions. The Company will generally be entitled to an income tax deduction
equal to the amount of ordinary income recognized by the optionee in connection
with the exercise of the nonqualified option, provided the Company complies with
applicable reporting requirements. The deduction will only be allowed for the
Company's taxable year in which ordinary income is recognized by the optionee.
If the option price under any nonqualified option is paid in the form of
Common Shares previously acquired either upon the exercise of stock options
(incentive, if held for the requisite holding period, or nonqualified) or
through open-market purchases, then the optionee will not recognize any taxable
income to the extent that the Common Shares received upon the exercise of the
option equal the number of Common Shares delivered in payment of the option
price. For federal income tax purposes, these newly acquired shares will have
the same basis and holding period as the delivered shares. The fair market
value of additional Common Shares received upon the exercise of the nonqualified
option will, in general, have to be reported as ordinary income for the year of
exercise, and the Company will be required to satisfy federal reporting and tax
withholding requirements. These additional shares will have a tax basis equal
to such fair market value, and their holding period will, in general, be
measured from their date of transfer to the optionee.
In the event an optionee surrenders an exercisable option in exchange for a
cash payment from the Company, the optionee will recognize ordinary income equal
to the amount of the cash payment due the optionee (before required income tax
withholding). The Company will generally be entitled to an income tax deduction
equal to the amount of ordinary income recognized by the optionee in connection
with the surrender of the option, provided the Company complies with applicable
reporting requirements. The deduction will only be allowed for the Company's
taxable year in which ordinary income is recognized by the optionee.
The affirmative vote of a majority of the Common Shares present and entitled
to vote at the Meeting is required to approve the 1996 Option Plan. Appendix A
to this Prospectus contains the text of the 1996 Option Plan to be submitted to
the shareholders at the meeting.
38
<PAGE>
PRICE RANGE OF COMMON SHARES
Since June 7, 1994, the Common Shares have been traded on the Canadian Dealing
Network under the symbol ATIL.CDN. The following table sets forth the high and
low bid prices, in Canadian dollars, per Common Share for the periods indicated
as reported by the Canadian Dealing Network. The prices are also provided in
U.S. dollars determined using the exchange rates based on published spot
exchange rates for United States dollars on the respective dates.
<TABLE>
<CAPTION>
Price Range
-----------------------------------
High Low
------------- --------------
CDN$ US$ CDN$ US$
------ ----- ---- ---
<S> <C> <C> <C> <C>
FISCAL 1994:
Fourth quarter..... $1.40 $1.01 $1.00 $0.72
FISCAL 1995:
First quarter...... $1.00 $0.72 $0.75 $0.55
Second quarter..... .90 .65 .70 .52
Third quarter...... .95 .69 .50 .36
Fourth quarter..... .90 .66 .55 .41
FISCAL 1996:
First quarter...... $1.20 $0.88 $0.65 $0.48
Second quarter..... 1.15 .84 .65 .48
Third quarter...... 1.05 .77 .85 .62
Fourth quarter(1).. .92 .68 .50 .37
</TABLE>
___________________
(1) On May 24, 1996, the last sale price of the Common Shares as reported by the
Canadian Dealing Network was CDN$0.80 per share, which, using the exchange
rate based on the published spot exchange rate for United States dollars on
such date, converts to US$0.58 per share.
At May 15, 1996, the Company had 3,618 holders of record of its Common Shares.
39
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company at January
31, 1996. This table should be read in conjunction with the Company's
consolidated financial statements and the related notes thereto included
elsewhere in this Prospectus. The following table reflects U.S. dollar amounts
included in the Company's consolidated financial statements.
<TABLE>
<CAPTION>
January 31, 1996 ($)
-------------------------------------------------------------
As Adjusted for the As Further
Consolidation and the Adjusted for the
Actual Domestication Merger
------------ --------------------- --------------------
<S> <C> <C> <C>
Notes Payable, including current portion........... $100,000 $100,000 $100,000
Capital Leases, including current portion.......... $149,470 $149,470 $149,470
Total Long-Term Obligations....................... $249,470 $249,470 $249,470
Stockholders' equity:
Common Stock of American Telesource
International Inc.; no par value, an unlimited
number of shares authorized and 19,502,118
shares issued and outstanding as of January 31,
1996; $0.001 par value, 50,000,000 authorized
and 9,982,656 issued and outstanding as adjusted.. $4,181,766 $4,181,766 -
Preferred Stock of American Telesource
International Inc., $0.001 par value, 5,000,000
shares authorized, none issued or outstanding..... - - -
Preferred Stock of ATSI Merger Corp., par
value $0.001, 5,000,000 shares to be authorized,
none issued and outstanding....................... - - -
Common Stock of ATSI Merger Corp., par
value $0.001, 50,000,000 shares to be
authorized, 9,982,656 issued and outstanding...... - - $9,983
Capital in excess of stated value................. - - $4,171,783
Accumulated Deficit............................... ($3,823,218) ($3,823,218) ($3,823,218)
Total stockholders' equity........................ $358,548 $358,548 $358,548
Total capitalization.............................. $608,018 $608,018 $608,018
</TABLE>
40
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below for the period from
December 17, 1993 through July 31, 1994, the year ended July 31, 1995 and for
the six months ended January 31, 1995 and 1996 have been derived from the
Company's historical financial statements appearing elsewhere in this
Prospectus. The results for the six months ended January 31, 1996 are not
necessarily indicative of the results to be expected for the full year.
The independent accountant's report on the Company's financial statements for
the year ended July 31, 1995 contains an explanatory paragraph regarding the
Company's ability to continue as a going concern. See Report of Independent
Accountants contained in, and Note 2 to, the Financial Statements for the year
ended July 31, 1995. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations - Liquidity and Capital Resources;" and
"Risk Factors - Risks Relating to the Company - Limited Operating History;
History of Losses; Need for Capital; Report of Independent Accountants."
The selected consolidated financial data presented below should be read in
conjunction with the Company's historical financial statements included
elsewhere in this Prospectus, the notes thereto and the information set forth
under the headings "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business." The Company's historical financial
statements have been prepared on the accrual basis of accounting in conformity
with U.S. GAAP. The following data is presented in U.S. dollars.
<TABLE>
<CAPTION>
Period from
Dec. 17, 1993 Six months ended January 31,
through Year Ended ------------------------------
July 31, 1994(1) July 31, 1995 1995 1996
---------------- ------------- --------- ---------
<S> <C> <C> <C> <C>
(In thousands of $, except per share data)
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Operating revenues:
Private network services........................... $132 $318 $154 $564
Operator services.................................. 110 4,470 1,147 4,303
------ ------- ------- -------
Total operating revenues......................... 242 4,788 1,301 4,867
------ ------- ------- -------
Operating expenses:
Cost of services................................... 201 4,061 1,198 4,061
Selling, general and administrative................ 373 2,588 962 2,094
Depreciation and amortization...................... 11 141 51 122
------ ------- ------- -------
Total operating expenses........................ 585 6,790 2,211 6,277
------ ------- ------- -------
Loss from operations................................. (343) (2,002) (910) (1,410)
------ ------- ------- -------
Net loss............................................. $(343) $(2,004) $(907) $(1,421)
------ -------- -------- --------
Per share information:
Net income (loss).................................. $(0.04) $(0.14) $(0.07) $(0.07)
------ ------- ------- -------
Weighted average common shares outstanding........... 9,146 13,922 12,546 19,094
</TABLE>
________________
(1) Represents the period from the date of organization of Latcomm International
Inc., an Alberta, Canada corporation, which company amalgamated with
Willingdon Resources Ltd., an Ontario, Canada corporation, in May 1994 to
form American Telesource International Inc., until July 31, 1994, the date
of the Company's fiscal year end.
- --------------------------------------------------------------------------------
41
<TABLE>
<CAPTION>
July 31, 1994 July 31,1995 January 31, 1996
------------- ------------ ----------------
(In thousands of $, except per share data)
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)............................ $114 $(446) $(1,334)
Current assets....................................... 344 1,088 1,442
Total assets......................................... 1,049 2,766 3,310
Long-term obligations, including current portion..... 0 133 249
Total stockholders' equity........................... 819 1,231 359
</TABLE>
- --------------------------------------------------------------------------------
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the financial statements and notes thereto included elsewhere in this
Prospectus. The Company's historical financial statements have been prepared on
a accrual basis in accordance with U.S. GAAP, and the financial information
utilized in the following discussion and analysis is presented in U.S. dollars.
OVERVIEW
American Telesource International Inc. provides international
telecommunications networks for voice, data, fax and video transmission via
satellite between the United States and Latin America and within Latin America,
and call services for domestic and international long distance.
The Company began operations in December of 1993, and first generated
revenues in April 1994. Since that time, monthly revenues have increased from
approximately $17,000 to approximately $1.3 million in March 1996. Such rapid
growth in revenue has resulted primarily from the provision of operator services
to customers in the United States and Mexico, which in March 1996 represented
94% of the total revenues. The remainder of the Company's revenue has come
primarily from the sale, installation and monthly maintenance of satellite-based
international private networks. The Company seeks to expand its revenues and
customer base from internal growth, primarily through direct sales and marketing
efforts and an agent sales network.
Since its inception, the Company's near-term strategy has been to position
itself to take advantage of the deregulation of the Mexican telecommunications
industry. The Company believes that significant opportunities to provide call
services within Mexico and between Mexico and the U.S. will arise from the law
written into effect in June 1995 by the Secretaria de Communicaciones y
Transportes ("SCT"), which provides for the methods by which companies can apply
for concessions and licenses to establish and operate telecommunications
services businesses within Mexico. This law is, effectively, the first step in
the deregulation of the telephone industry within Mexico. It also formalizes
the methods by which companies such as ATSI may compete against Telefonos de
Mexico ("Telmex"), the privately owned telecommunications monopoly in Mexico.
However, there can be no assurance that the deregulation of the Mexican
telephone industry will continue and, if so, that such deregulation will occur
to an extent that will provide ATSI opportunities to provide additional call
services within Mexico and between Mexico and the U.S. See "Business--ATSI-
Mexico."
The Company has built an international long distance operator services
customer base in Mexico through the use of a small direct sales force and
independent marketing representatives. Additionally, the Company has developed
an operator services customer base in the United States; however, because the
Company believes that international long distance will continue to grow at a
faster rate and provide higher revenue and gross profit per minute than domestic
long distance, the Company intends to decrease its efforts toward providing
operator services in the United States in the fourth quarter of fiscal 1996 and
increase its focus on the international long distance market, and, as a result,
the Company does not foresee significant growth of this portion of its revenue
base. The Company has also focused direct sales efforts on international
private networks between the United States and Latin America.
By providing international operator services to hotels and properties in
major tourist areas of Mexico, the Company has been able to quickly generate
high volume business. The Company has complemented this business with the higher
margin, relatively low monthly revenue business generated by the international
private networks. As regulatory environments permit in Latin America, the
Company anticipates that it will benefit from the synergy of its long distance
and private networks by transporting international long distance traffic over
its own satellite-based network. However, there can be no assurance that
adequate, if any, deregulation
42
<PAGE>
will occur and, if so, that the Company will be able to benefit from any such
business synergy. See "Business."
The Company provides international telecommunications networks through
utilization of its teleport and switching facility in San Antonio, Texas (the
"Teleport"). Typically, the Company installs its own equipment on a customer's
foreign premises. This equipment is used to send and/or receive signals from
the Teleport via the Solidaridad Satellite System ("Solidaridad"), which
satellite system is owned by Telecomunicaciones de Mexico ("Telecomm"). The
Company provides fiber optic integration into U.S.-based private and public
telecommunications networks from its Teleport for its customers via a fiber
optic link to a facility in downtown San Antonio, where all major long distance
carriers have a point of presence. The Company considers itself to be the owner
of that portion of the network between the customer's premises and the point at
which the signal is integrated into a third party's network. Any costs
associated with connecting to or utilizing third party carriers is considered to
be a direct cost of services. The Company must pay a tariff to Telecomm for
utilization of Solidaridad, which cost is passed through on a dollar-for-dollar
basis to the customer. As a result, revenues from private network customers are
recorded net of any associated tariffs paid. Due to the increasing volume of
traffic transported by the Company over Solidaridad, the Company anticipates
becoming a licensed agent for Telecomm during calendar 1996, thus allowing the
Company to earn commissions from Telecomm on future network traffic.
Cost of services related to operator services includes primarily those
costs associated with originating and terminating calls which pass through the
Company's switch and operator center (collectively referred to as "transmission
costs"), commissions paid to properties which subscribe to the Company's
services or their representatives, wages and benefits paid to operators and
costs of billing those calls.
Since its inception, the Company has provided long distance services for
calls originating from Mexico without the benefit of laws in Mexico requiring
Telmex to resell its available network capacity to other carriers at a wholesale
price. Although the Company has contracted with major U.S. carriers to originate
calls from Mexico, Telmex has on occasion refused to provide those services to
those carriers. Telmex has also increased per minute charges to those carriers,
and, consequently, those carriers have increased per minute charges to the
Company, the result of which has been a rapidly changing, and often increasing
cost structure relative to the Company's international long distance services.
The Company, through ATSI-Mexico, has applied or intends to apply to the
SCT for several licenses, which, if obtained, the Company believes will enable
it to expand significantly its call services business in Mexico by, among other
things, permitting the Company to purchase Telmex network capacity at a more
stable wholesale price. However, there can be no assurance that such licenses
will be obtained, and, if obtained, that such licenses will enable the Company
to expand operations or increase revenue in Mexico. See "Business--ATSI-Mexico."
Because of the rapid growth of ATSI's customer base and the uncertainties
surrounding the regulatory environment in Mexico during the past two years, the
Company's results of operations in any reporting period may not be directly
comparable to (i) its results of operations in other reporting periods or (ii)
the results of operations of other telecommunications companies operating in the
United States or Mexico.
RESULTS OF OPERATIONS
Six Months Ended January 31, 1996 Compared to Six Months Ended January 31, 1995
The following table represents certain operating results and their
percentage relationship to total revenue for the six-month periods ended January
31, 1996 and 1995:
43
<PAGE>
<TABLE>
<CAPTION>
Six Months Ended January 31,
-----------------------------------------------------
1995 1996
---------------------- ---------------------
Dollars % Dollars %
------- ----- ------- -----
(in thousands of $) (in thousands of $)
<S> <C> <C> <C> <C>
Operator services $1,147 88% $ 4,303 88%
Private network services 154 12% 564 12%
Total operating revenues 1,301 00% 4,867 100%
Cost of services 1,198 92% 4,061 83%
Selling, general & admin. 962 74% 2,094 43%
Depr. and amort. 51 4% 122 3%
Total operating expenses 2,211 70% 6,277 129%
Loss from operations ($910) 70% ($1,410) -29%
</TABLE>
Operating revenues. Operating revenues for the six-month period ended
January 31, 1996 increased approximately $3.6 million, or 275%, when compared to
the same period in the prior year. Operating revenues attributable to new
operator services locations contributed approximately $3.2 million, or 89%, of
this growth. The number of operator service calls processed by the Company
increased to 302,014 during the six months ended January 31, 1996, as compared
to 107,976 for the same period ended January 31, 1995, representing an overall
increase in call volume of 180%. Additionally, growth in the percentage of
calls handled by the Company which originated in Mexico and terminated in the
United States (referred to hereinafter as "Mexico International Calls")
increased from 17% during the six months ended January 31, 1995 to 23% for the
same period ended January 31, 1996. During the six-month period ended January
31, 1996, revenue from Mexico International Calls averaged in excess of $30 per
call, while revenue from domestic U.S. calls averaged less than $7 per call.
See "Business--Long Distance Call Services."
Subsequent to January 31, 1995, the Company implemented several call
services which also contributed to the growth in revenues between the six-month
periods ended January 31, 1996 and 1995. In June 1995 the Company began
distributing calling cards to Visa cardholders issued by the Bank of Brazil.
These cards may be used by Brazilians traveling outside of their native country,
but primarily in the United States, for calling within the United States or to
other world-wide destinations. Additionally, in November 1995 the Company began
providing service to cellular telephone customers of a Mexican based cellular
company with in excess of 40,000 subscribers, which service enables subscribers
to access the Company's network when traveling in the United Sates for the
purpose of placing cellular calls domestically within the United States or
internationally to Mexico. The Company also expanded its international operator
services to locations in Jamaica in October 1995. Collectively, the above-
mentioned services accounted for approximately 9% of the Company's operator
services revenues for the six-month period ended January 31, 1996. See
"Business--Long Distance Call Services."
Revenues generated from private network services increased $409,833, or
266%, from the six-months ended January 31, 1995 to the same period ended
January 31, 1996. Included in this amount is the sale and installation of an
approximately $200,000 private network, which was completed in January 1996. As
of January 31, 1996, the Company had nine private network customers generating
monthly services fees, as compared to two such customers as of the same date in
1995.
Cost of services. Cost of services increased 239%, or approximately $2.9
million, from the six months ended January 31, 1995 to the six months ended
January 31, 1996. The majority of the Company's direct costs are variable.
Commissions paid to properties which utilize the Company's operator services are
based on
44
<PAGE>
revenues generated, and therefore increased significantly between periods.
Transmission costs are incurred on each minute of traffic carried by the
Company. However, the increased volume of traffic allowed the Company to
benefit from volume-related discounts from carriers, and also allowed the
Company's operator center to function more efficiently. As a result, overall
cost of services decreased as a percentage of overall revenues.
During the six-month period ended January 31, 1996, the Company
incurred costs ranging from $0.35 to in excess of $1.50 per minute to transport
completed and non-completed calls from Mexico to its operator center in San
Antonio. The Company will continue to process these calls under varying cost
scenarios until such time as it receives licenses from the SCT, and
interconnection agreements and prices are established and implemented with
Telmex. There can be no assurance, however, that ATSI will receive any such
licenses and, if received, that ATSI will be able to establish interconnection
agreements and/or arrange for a more stable price structure.
Gross Profit. The Company's gross profit margin increased from 8% to
17% from the six-month period ended January 31, 1995 to the same period ended
January 31, 1996. The improved margin is a result of several factors. As the
Company produces larger traffic volumes, the Company becomes more efficient, and
its fixed cost components become smaller as a percentage of overall revenue.
The cost of operators, for example, decreased as a percentage of revenues from
15.6% during the six months ended January 31, 1995 to 8.4% during the six months
ended January 31, 1996. Each operator was able to handle more calls during a
shift in the six months ended January 31, 1996 as compared to the six months
ended January 31, 1995. As discussed previously, the number and percentage of
calls, and consequently revenues, from Mexico International Calls also increased
from the six months ended January 31, 1995 to the six months ended January 31,
1996. Mexico International Calls typically produce a higher margin than
domestic calls made within the United States. The increased overall traffic
volumes have also allowed the Company to negotiate lower costs for transporting
the calls it handles.
Selling, General and Administrative. SG&A expenses rose 118%, or
approximately $1.1 million, from the six-month period ended January 31, 1995 to
the same period ended January 31, 1996. However, these expenses decreased as a
percentage of revenues from 74% in the six-month period ended January 31, 1995
to 43% in the same period ended January 31, 1996. Due to economies of scale,
the Company anticipates SG&A expenses to continue to decline as a percentage of
revenues; however, there can be no assurance that such a decline will continue.
The Company's teleport and switching facility in San Antonio (the "Teleport")
became fully operational subsequent to January 31, 1995. The facility was
modularly built, thereby enabling expansion of the system to process additional
volumes of traffic in a cost-efficient manner. See "Business--ATSI's
International Teleport & Network Control Center."
The Company's San Antonio-based headquarters has grown from 32 employees at
January 31, 1995 to 67 employees at April 30, 1996. In March 1996, the Company
negotiated the lease of an additional 5,400 square feet of office space to
provide for further growth in its San Antonio work force. The majority of the
Company's anticipated growth in administrative expenses is expected to occur in
relation to ATSI-Mexico. The Company has incurred expenses related to this
entity since June 1995, and its Mexico City headquarters is expected to become
fully operational in May 1996. The Company expects ATSI-Mexico to become a
center for sales, marketing, maintenance and customer service for its business
in Mexico.
Depreciation and amortization. Depreciation and amortization grew
approximately $71,000, or 139%, from the six-month period ended January 31, 1995
to the six-month period ended January 31, 1996, primarily due to the completion
of the Company's Teleport. However, depreciation and amortization as a percent
of revenues remained relatively flat at approximately 4% and 3%, respectively,
for both such periods.
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Loss from Operations. The loss from operations increased approximately
$500,000 from $910,000 for the six months ended January 31, 1995 to $1.41
million for the same period ended January 31, 1996 due to the above factors.
Year Ended July 31, 1995 Compared to Year Ended July 31, 1994
The following table represents certain operating results and their
percentage relationship to total revenue for the Company's fiscal years ended
July 31, 1995 and 1994:
<TABLE>
<CAPTION>
Year Ended July 31,
-----------------------------------------------------
1994 1995
---------------------- ---------------------
Dollars % Dollars %
------- ------ ------- ------
(in thousands of $) (in thousands of $)
<S> <C> <C> <C> <C>
Operator Services $ 110 46% $ 4,470 93%
Private Network Services 132 54% 318 7%
Total operating revenues 242 100% 4,788 100%
Cost of services 201 83% 4,061 85%
Selling, general & admin. 373 154% 2,588 54%
Depr. and amort. 11 5% 141 3%
Total operating expenses 585 242% 6,790 142%
Loss from operations ($343) -142% ($2,002) -42%
</TABLE>
Operating revenues. Operating revenues increased approximately $4.5 million
from the fiscal year ended July 31, 1994 to the fiscal year ended July 31, 1995.
During this time, the Company's private network customer base grew from a single
customer generating $17,334 in monthly revenues to five customers producing
$43,220 in monthly revenues. The Company initially provided operator services in
May 1994 for a resort property in Cancun, Mexico. As of July 31, 1995, the
Company's operator services division was servicing in excess of 5,600 rooms and
1,900 public telephones in the United States and Mexico. Approximately 33% of
the operator services revenues for the year ended July 31, 1995 were generated
from calls originating in the United States. The Company gained regulatory
approval to process interstate calls originating in the United States on
September 8, 1994. During 1995, the Company gained the authority to process
intrastate calls in 15 states. As of July 31, 1995 the majority of the Company's
domestic operator services revenues were being produced by payphones located in
Virginia and Michigan, hotels and payphones in Florida and Texas, and casinos
located in Mississippi and Louisiana. The remaining 67% of the operator services
revenue for fiscal 1995 were produced by calls originating outside the United
States. Utilizing a bilingual and bicultural direct sales staff, as well as
independent marketing representatives, the Company was able to establish and
grow customer bases in the following major tourist destinations in Mexico:
Cancun, Cozumel, Cabo San Lucas, Guadalajara and Puerto Vallarta.
Cost of services. As the Company's customer base grew, the cost of
providing those services grew at a correlative rate from $201,000 in fiscal 1994
to $4.06 million in fiscal 1995. Although the Company had contracted with MCI to
transport its operator services calls from Mexico to its operator center in San
Antonio, Telmex began refusing such services to MCI in July 1994. During the
1995 fiscal year, the Company originated calls from Mexico through a combination
of MCI's network and utilization of Telmex's network.
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At times this methodology proved neither reliable nor cost effective. MCI was
unable to guarantee reliable services, and subsequently increased prices during
the year ended July 31, 1995 by more than 50%. As a result, the Company utilized
direct dial services offered by Telmex, which were less costly due to the
devaluation of the peso, but more difficult for the Company to monitor and
administer.
Gross Profit. The Company's gross profit margin decreased from 17% for the
period ended July 31, 1994 to 15% for the year ended July 31, 1995. This was due
to the increased percentage of overall revenues generated by operator services
as compared to private network services.
Selling, General and Administrative. SG&A expenses also grew throughout
fiscal 1995 to approximately $2.6 million from approximately $373,000 in fiscal
1994, as the Company completed the buildout of its Teleport; however, such
expenses steadily decreased as a percentage of overall revenues. The largest
increase was in the provision for bad debt related to the Company's operator
services calls. Throughout fiscal 1995, the Company provided for uncollectible
operator services revenues at the rate of 8% in anticipation of the rates to be
charged by local exchange carriers ("LEC's") who ultimately bill and collect on
the calls processed by the Company. The LEC's charge an average rate for the
initial six to eighteen months, and then "true-up" these rates based upon actual
results. The net effect of the "true-ups" has been positive subsequent to July
31, 1995.
Depreciation and amortization. Depreciation and amortization increased
$130,085 between the years ended July 31, 1994 and 1995 as the Company steadily
completed the buildout and increased utilization of its Teleport.
Loss from Operations. The loss from operations increased approximately
$1.66 million from $343,000 for the fiscal year ended July 31, 1994 to
approximately $2 million for the fiscal year ended July 31, 1995 due to the
above factors.
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from working capital needs,
primarily the maintenance and growth of its satellite network and switching
capacity and cost of services. The Company has relied primarily on private
equity placements to fund its operations since its formation in December 1993.
From that time through July 31, 1994, the Company generated $922,835 in cash
from its founding shareholders in the form of a private placement. An additional
$294,067 was generated by warrants and options which were exercised. During this
time, $617,645 was spent on the buildout of the Company's Teleport and $426,893
was used to fund its operations, resulting in a cash balance of $117,540 and net
working capital of $113,637 at July 31, 1994.
The Company's cash position remained relatively constant during the fiscal
year ended July 31, 1995. The Company generated approximately $2.0 million in
cash through private placements and warrant conversions during the fiscal year,
of which approximately $1.3 million was used in the operation of the Company. An
additional $858,616 was used to purchase equipment utilized in the Company's
Teleport. The Company also generated approximately $175,000 through the issuance
of promissory notes to two of its shareholders in 1995, of which one 12%
convertible promissory note in the amount of $100,000, due on July 1, 1996,
remains outstanding. See "Description of ATSI Merger Corp. Securities--Warrants
and Convertible Securities." During this period, the Company did not obtain any
long-term financing to assist it in the purchase of assets. As such, the
Company's working capital position declined to a deficit of $446,370 at July 31,
1995.
For the six months ending January 31, 1996, the Company generated negative
cash flow from operations of $104,989 and produced $817,062 of net cash proceeds
from private equity placements. In December 1995, the Company signed a contract
with a company in Mexico which called for the sale and installation of a private
network for a total price of approximately $1.4 million. Terms of the contract
called for the Company to receive 60% of such amount upon signing the contract,
which resulted in a net increase in deferred revenue of approximately $733,000
for the six-month period ended January 31, 1996. During this time, approximately
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$135,568 in cash was spent on the purchase of fixed assets related to further
buildout of the Company's Teleport, as the Company's working capital position
decreased further to a deficit of approximately $1.3 million.
The Company anticipates that it will continue to undertake to raise money
from time-to-time in private financings, although there can be no assurance that
such private financings will be completed or in sufficient amounts. In addition
to the capital raised from private placements of the Company's equity, the
Company has utilized amounts received from the advanced funding program which it
utilizes to sell its operator services receivables to satisfy vendors. The
Company currently receives in excess of 70% of the value of its receivables
within five days of generating the revenues. The remaining 30% is received, net
of fees and uncollectible amounts, over periods ranging from 30 to 75 days after
the associated revenue is generated.
Until the Company, if ever, is able to generate positive cash flow from its
operations, or until the Company is able to borrow material amounts from
financial institutions, the Company will be dependent upon its shareholders
and/or its ability to complete private equity placements in order to fund its
current working capital deficit and monthly cash flow deficits. There can be no
assurances, however, that the Company will be able to achieve future revenue
levels sufficient to support operations or that such equity offerings or other
financing arrangements will actually be consummated or that such funds, if
received, will be sufficient to support existing operations until revenue levels
are achieved sufficient to generate positive cash flow from operations. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. The Company's ability to continue as a going concern is
dependent upon the ongoing support of its stockholders, customers and its
ability to obtain capital resources to support development operations. See
"Notes to Consolidated Financial Statements-Note 2." During the period ended
January 31, 1996, the Company was able to obtain long-term leasing arrangements
in order to assist it in purchasing equipment for its Teleport. As of March 31,
1996 the Company had approximately $280,000 outstanding under these
arrangements. The independent accountants report on the Company's financial
statements for the year ended July 31, 1995 contains an explanatory paragraph
regarding the Company's ability to continue as a going concern. See Report of
Independent Accountant's contained in, and Note 2 to, the Financial Statements
for the year ended July 31, 1995.
The Company has contracted with Boles & Company, Inc., an investment
banking entity of which Terry Colbert, a director of ATSI Merger Corp., is a
partner, to assist it in finding a long-term strategic investment partner to
help it meet its working capital and growth needs. If successful (of which there
can be no assurance), planned expenditures relate to the buildout of a teleport
facility in Mexico, the purchase and installation of public coin phones in
strategic locations throughout Mexico, as well as the distribution and sale of
international travel cards to be used throughout Latin America and the United
States.
As of April 30, 1996 the Company had warrants outstanding to purchase
approximately 5 million Common Shares which, if exercised, would generate
approximately $4.57 million in cash proceeds for the Company's use. See
"Description of the ATSI Merger Corp. Securities."
INFLATION/FOREIGN CURRENCY
Inflation has not had a significant impact on the Company's operations.
With the exception of a portion of the $1.4 million contract mentioned above for
the sale and installation of a private network in Mexico, all of the Company's
contracts call for payments to be made in U.S. dollars. The devaluation of the
Mexican peso over the past two years has not had a material adverse effect on
the Company's financial condition or operating results. Conversely, the
devaluation has stimulated tourism in Mexico, which is a primary source of the
Company's operator services revenues.
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SEASONALITY
As the portion of the Company's revenues which are generated from tourists
in Mexico continues to increase, so does the effect of seasonality on the
Company's long distance services business. The Company's operator services
revenues are typically higher on a per phone basis during the peak tourism
months in Mexico of January through July than in the remaining months of the
year.
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BUSINESS
American Telesource International Inc. provides international
telecommunications networks for voice, data, fax and video transmission via
satellite between the United States and Latin America and within Latin America,
and call services for domestic and international long distance. The Company has
chosen to concentrate on the niche market of Latin America because it believes
that the recent privatization of many of the region's major telephone companies
and overall trend towards deregulation, particularly in Mexico where the Company
has focused the majority of its initial efforts, present significant
opportunities to provide international telecommunications services to, from and
within this fast-growing market. ATSI is able to provide United States
telecommunications standards of reliability and connectivity to the Latin
American region, where telecommunications services remain limited and unreliable
in many areas due to poor local infrastructure, through its San Antonio, Texas-
based satellite teleport (the "Teleport").
The Company was formed in May 1994 as a result of the amalgamation (the
"Amalgamation") of Willingdon Resources Ltd., an Ontario, Canada corporation
("Willingdon"), with Latcomm International Inc. ("Latcomm"), an Alberta, Canada
corporation organized contemporaneously in December 1993 with its wholly-owned
subsidiary, Latin American Telecomm, Inc. (now ATSI-Texas), a Texas corporation
formed for the primary purpose of providing international telecommunications
networks between Latin America and the United States, to carry on the business
of Latcomm as American Telesource International Inc. Prior to the Amalgamation,
Willingdon carried on exploration on its mining property in Northern Ontario,
but was unable to prove up an economic orebody. Willingdon paid down various of
its outstanding liabilities prior to the Amalgamation, and also transferred all
of its remaining assets to a wholly-owned subsidiary, which was subsequently
spun off to its shareholders. As a result, at the time of the Amalgamation
Willingdon had no material assets and only one material liability in the amount
of approximately $55,000, which debt was assumed by the Company. ATSI assumed
no other assets or liabilities of Willingdon; however, ATSI succeeded to all of
the assets and liabilities of Latcomm.
The Company commenced operations with network management services in April
1994, and expanded to long distance call services in May 1994. In June 1995
American Telesource International de Mexico, S.A. de C.V. ("ATSI-Mexico") was
formed to aid the Company in the provision of long distance and private network
services within Mexico and internationally. ATSI's mission is to become a full-
service international telecommunications carrier providing private line, direct
dial and other long distance and value added network services between and within
Latin America and the U.S.
NETWORK MANAGEMENT
Overview
ATSI offers domestic and international private-line telecommunications
services via satellite between the United States and Latin America and within
Latin America to commercial customers for a number of applications. These
applications generally involve creating private international point-to-point
communications links for clients who need special services, such as heavy data
and voice usage at lower cost and greater dependability. In addition, ATSI
offers telecommunications hauling capacity via satellite into the U.S. to
domestic and regional communications carriers in Latin America. The Company
believes that as Latin American markets continue to develop and as multi-
national corporations globalize and expand into the region, the demand for
customized telecommunications services between the United States and Latin
America and within Latin America, as well as for communications transmissions
into the U.S., will continue to grow.
ATSI anticipates that the demand for international satellite services in
the business communications market and carrier services market will grow
substantially in the foreseeable future, particularly within the Latin American
region. This growth is expected to result from (i) continuing deregulation of
telecommunications markets in Latin America, (ii) continuing technological
advancement, (iii) economic development in Latin
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America, and (iv) the increasing globalization of business. However, there can
be no assurance that demand for international satellite services will grow as
anticipated, if at all.
ATSI provides modern telecommunications standards of reliability and
connectivity to the Latin American region from its Teleport via the Hughes
built, Mexican owned and operated Solidaridad Satellite System ("Solidaridad").
Solidaridad consists of the Solidaridad I and II satellites, which are replacing
the older Mexican Morelos Satellite System. Solidaridad I and II were
successfully launched into orbit in November 1993 and the fourth quarter of
1994, respectively. These satellites have increased capacity for
telecommunications services (i.e., "C," "Ku" and "L" bands) and define ATSI's
market, covering portions of North America, all of Mexico, the Carribbean Basin
and Central America, and the western portion of South America.
ATSI entered into an agreement with Telecomunicaciones de Mexico
("Telecomm") in October 1995 to purchase transponder services on Solidaridad for
a period of five years (the "Solidaridad Agreement"). The Company chose Telecomm
based upon its favorable transmission rates and Solidaridad's area of satelite
coverage. Pursuant to the Solidaridad Agreement, ATSI pays a tariff to Telecomm
based upon the amount of satellite capacity it uses. Telecomm offers a volume
discount to users of 10 Megahertz of capacity or more. As of May 1996, ATSI
leased 13.8 Megahertz of capacity on Solidaridad. The following charts display
the Company's areas of satellite coverage.
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MAP OF
SOLIDARIDAD SATELLITE SYSTEM
The depiction on this page illustrates Solidaridad's entire area of
satellite coverage by displaying Solidaridad's coverage "footprints" over a map
of North America, Mexico, Central America, South America and the Caribbean
Basin. Such footprints cover three separate and distinct regions, referred to as
Regions 2,3 and 5. Solidaridad's coverage footprint of Region 2 includes cities
on the southwestern border of the United states, all of Mexico and Central
America, the Caribbean Basin and the northern portion of South America. Its
coverage footprint of Region 3 includes the western portion of South America,
and its footprint of Region 5 covers parts of the midwestern, eastern and
southern regions of the United States, as well as the San Francisco Bay Area.
Solidaridad's coverage of Regions 2,3 and 5 is more fully described in the
following three pages.
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MAP OF
BAND C COVERAGE, REGION 2
The depiction on this page illustrates Solidaridad's area of satellite
coverage over the southwestern border of the United States, the southern tip of
Florida, the Caribbean Basin, Mexico, Central America and the Northern tip of
South America by displaying Solidaridad's coverage "footprint" over a map of
such area. Solidaridad utilizes band "C" frequency to cover such area, referred
to as Region 2, which includes the cities of San Antonio (the location of the
Company's Teleport), Los Angeles, Las Vegas, Phoenix and other major cities in
the southwestern United States, Miami, Florida, all of Mexico and Central
America, the Caribbean Basin, Venezuela and Columbia.
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MAP OF
BAND C COVERAGE, REGION 3
The depiction on this page illustrates Solidaridad's area of satellite
coverage over the western portion of South America by displaying Solidaridad's
coverage "footprint" over a map of South America. Solidaridad utilizes band "C"
frequency to cover such area, referred to as Region 3, which includes Ecuador,
Peru, Bolivia, Paraguay, Uruguay, Chile, Argentina and the western border of
Brazil.
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MAP OF
BAND KU COVERAGE, REGION 5
The depiction on this page illustrates Solidaridad's area of satellite
coverage over the midwestern, eastern and southern regions of the United States
by displaying Solidaridad's coverage "footprint" over a map of the United
States. Solidaridad utilizes band "Ku" frequency to cover such area, referred to
as Region 5, which includes the cities of Detroit, Chicago, Toronto, New York,
Pittsburgh, Washington, Atlanta, New Orleans, Dallas, Austin, Houston, San
Francisco and other major U.S. cities in the Midwest, East and South.
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Private Networks
ATSI offers domestic and international private telecommunications networks
via satellite between the U.S. and Latin America and within Latin America for
voice and fax communications, data transmission, point-to-point
videoconferencing links and value added network services, such as credit card
processing, Internet, E-Mail and reservation networks. ATSI also intends to
offer frame relay services.
Satellite technology's accessibility in remote areas, its distance-
insensitivity and its ability to be rapidly deployed have encouraged its use for
specialized private telecommunications networks. Private business network users
utilizing satellites rather than ground-based transmission media enjoy the
following additional advantages:
. greater reliability, including increased network availability and lower
transmission error rates;
. cost savings for large, geographically dispersed networks;
. independence from telephone companies;
. predictability of costs over a long period through fixed-rate contracts;
. flexibility in changing and adding remote locations to a network; and
. integrated network management and control of all remote locations.
Many businesses and organizations currently use satellite communications
networks for certain of their communications needs. For example, retail chains
use satellite business communications networks for rapid credit card
authorization and inventory control. Banks use satellite networks to connect
automated teller machines to processing computers. News agencies use satellite
networks to distribute information continuously to numerous locations, and
paging companies use satellite networks to distribute paging information from a
central switch to multiple remote transmitters for retransmission to pagers.
ATSI provides end-to-end very small aperture terminal ("VSAT") private
network satellite services via Solidaridad between the United States and Latin
America and within Latin America for its business communications customers. The
Company's fiber-optic and satellite transmission capabilities enable its
customers to bypass limited telecommunications services which remain in many
areas of Latin America. VSAT networks consist of very small (e.g., 1.8 to 3.8
meters) rooftop antennas and are utilized by customers that need a network over
which to send communications and data transmissions at any time. Through the use
of VSAT technology and sophisticated software, these networks can be served with
a relatively small amount of satellite capacity. Generally, the user pays for
this service based on the capacity leased regardless of volume of use.
In addition to providing satellite capacity for private networks, the
Company's services to its business communications customers include customized
end-to-end solutions to their communications needs by providing survey and
analysis of customer needs, network design, engineering and integration,
coordination and filing of permits for access to Solidaridad, importation and
shipping of equipment, complete installation and network testing, systems
operations training and ongoing maintenance and technical support. ATSI commits
to provide its customers error-free transmission at U.S. performance standards
of 99.98% reliability. All services are provided by the Company's personnel in
San Antonio, Texas and Mexico.
ATSI's business communications customers currently using Solidaridad and
the Company's Teleport include: Reuter's de Mexico, S.A. de C.V. for information
distribution between Mexico and the U.S.; Banco del Centro for credit card
authorization/verification between Mexico and the U.S.; Total Systems Services
de
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Mexico, S.A. de C.V. for credit card authorization services between Mexico and
the U.S.; Operadora Corporativo Miro Reservation Network between Mexico and the
U.S., with a link to Grand Cayman; Rooster Products International between Mexico
and the U.S.; Copamex within Mexico and between Mexico and the U.S.; and Evamex
within Mexico and between Mexico and the U.S.
Networks using VSATs have been growing rapidly to meet the specialized data
requirements of particular industries, such as banking, mining and retailing.
The Company believes that the VSAT market in Latin America has the potential to
grow significantly in the future, although there can be no assurance that such
growth will occur.
The Company's private telecommunications network services provide
substantially higher profit margins than its long distance call services. As a
result, and further due to the anticipated increase in demand for international
satellite services, ATSI intends to continue to engage in aggressive sales and
marketing efforts with respect to this aspect of its business. ATSI's private
network services generated revenues of approximately $318,000 during the
Company's 1995 fiscal year and revenues of approximately $564,000 during the
first six months of fiscal 1996. Private network services represented
approximately 6.6% of the Company's total operating revenue during fiscal 1995,
and 11.6% of total revenues during the first six months of fiscal 1996. The
Company's private network services contracts generally last from two to five
years. As a result, there exists no seasonal variation in revenues with respect
to private network services.
Carrier Services
In addition to providing private networks to business customers, ATSI
offers satellite capacity to domestic and regional communications carriers in
Latin America that lack transmission facilities to locations in the U.S. or need
more transmission capacity into the U.S. ATSI began marketing such services to
foreign telecom carriers in the last quarter of fiscal 1995. In the second
quarter of fiscal 1996, the Company entered into an agreement with TELPAN (a
Panamanian telecom carrier) to provide transmission capacity into the U.S. for
U.S. Government traffic out of Panama. Although the Company does not currently
have any additional agreements to provide such carrier services, the Company
believes that this is in part the result of the relative infancy of its efforts
in this area and that, if the regulatory environment permits, significant
opportunities could arise with respect to the provision of satellite
transmission capacity. Therefore, the Company will continue to pursue what it
believes to be opportunities with domestic and regional communications carriers
in this market.
Sales and Marketing
As of April 30, 1996, the Company employed an international sales manager
and two account executives for sales and marketing of private networks. The
sales manager is based in the U.S., while the account executives are based in
Mexico City, Mexico. However, each spends a significant amount of time working
in either country. The Company's senior management also takes an active role in
supporting the sales team and attracting new accounts for private networks and
carrier services. All of the Company's private network sales personnel are
fluent in both English and Spanish.
ATSI utilizes several marketing channels. The Company focuses on securing
new business through direct prospecting and sales efforts, as well as from leads
supplied by Telecomm, financing companies specializing in the telecommunications
industry, telecommunications equipment vendors and existing customers.
The Company locates prospects through information obtained from
institutions such as the American Chamber of Commerce in Mexico and the Mexican
Chamber of Commerce (Concanaco Servytur), as well as from trade periodicals such
as Mexico Business, Twin Plant News, and Latin Trade Magazine. When a prospect
is identified, the Company's sales personnel contact the prospect directly for
qualification. Quotas are set by the sales manager for both prospecting and
sales. Other direct marketing efforts include attendance
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at or participation in major conventions or expositions for targeted user
groups, as well as maintaining a presence on the Internet relative to satellite
private network and carrier services. In the near future, ATSI intends to
advertise in specific industry magazines aimed as its target customers, which
include:
1) U.S. corporations operating in Mexico and Latin America,
2) Mexican corporations operating in the U.S.,
3) Mexican fortune 100 companies,
4) Hotels and resorts in Mexico,
5) Mexican banks and financial institutions, and
6) Latin American telecommunications companies.
Telecomm, the owner and operator of Solidaridad, has executed bilateral
agreements with most of the Latin American countries which allow entities in
those countries to access Solidaridad. Telecomm frequently receives requests
from Latin American companies requiring private networks or carrier services.
Due to Telecomm's inability to provide end-to-end solutions to these companies,
specifically for network needs between Latin American sites and the U.S., these
requests are sometimes forwarded to ATSI sales personnel.
The leasing division of IBM de Mexico has utilized ATSI-Mexico as a
network integrator for their customers requiring turn-key domestic (intra-
Mexico) or international (U.S.-Mexico) telecommunication networks. IBM and ATSI
worked in tandem to provide the prospective customers with a complete solution
to include the computer data network, telecommunication network and financing.
IBM has periodically contacted ATSI sales personnel with prospects which they
jointly pursued.
Although no formal arrangements exists to do so, many of ATSI's vendors
such as Newbridge de Mexico, Red Uno and ISC Bunker Ramo periodically contact
ATSI sales personnel for assistance in providing their customers with turn-key
telecommunication networks. The vendors typically only provide a single
component to the complete network, and must work with a telecommunications
network provider such as ATSI in order to provide complete solutions to their
customers' needs.
ATSI sales personnel are required to contact existing customers on a
monthly basis in order to ensure that such customers' current needs are being
met. This activity may stimulate sales growth by increasing usage levels among
its current customer base. These existing customers may also provide ATSI sales
personnel with qualified leads for new business.
Competition
In providing network management services, ATSI competes with MCI/OTI, LDDS
Worldcomm, Telefonos de Mexico, GeoComm/SERSA and others, many of which have
significantly greater resources and more extensive domestic and international
satellite and fiber-optic communications networks than the Company. The Company
uses the Solidaridad Satellite System combined with fiber-optic networks in
Mexico and the U.S. to meet its customers' requirements.
For most of the Company's business communications services, the factors
critical to a customer's choice of a service provider are cost, reliability,
ease of use, speed of installation and, in some cases, geography, network size
and hauling capacity. The Company believes it has the reputation as a
responsive service provider of customized communications services. ATSI's
Teleport facility, combined with its engineering and operations capability,
provide the Company with considerable flexibility in tailoring cost-effective
communications services to meet its customers' requirements. This network
allows ATSI to implement communications networks to and from virtually any
location in the U.S. and Latin America. The Company believes that its
responsiveness is an important factor in a customer's selection of ATSI. The
Company's size also allows it to provide services more promptly and
conveniently, particularly when a customer's needs require rapid installation of
service or unique solutions. The Company believes that many markets which are
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important to ATSI are not large enough for a substantially larger competitor to
focus the resources necessary to provide cost competitive and responsive
service. In addition, ATSI's understanding of international telecommunications
issues allows it to provide prompt solutions to the diverse communications needs
of multinational corporations, government entities and news organizations.
The Company believes that it holds certain competitive advantages with
respect to conducting business in Mexico and Latin America. In the U.S., the
current trend by vendors of satellite services is to provide turnkey services
and network management, rather than simply the "up-link" and "down-link"
facilities. ATSI's concept is similar, but is targeted toward the Latin American
market, which has a greater need for total bypass telecommunications services.
Most of the Company's top management are bilingual and bicultural, which the
Company believes is essential to building effective working relationships with
persons and business entities in the Latin American region. Additionally, ATSI-
Mexico provides an array of services to aid ATSI in the provision of domestic
(Mexico) and international private networks. See "-- ATSI-Mexico."
Strategy
The Company's mission is to become a full service international
telecommunications carrier providing private line, direct dial and other long
distance and value added network services between Latin America and the U.S.
ATSI intends to pursue this strategy from the network management aspect of its
business by, among other things, attracting new private network accounts,
working to increase the usage level of current private network clients,
competing for licenses issued by Latin American countries to provide expanded
network services, including value added network services, where the regulatory
environment permits, pursuing strategic alliances with Latin American telephone
companies and international telecommunications carriers to provide satellite
transmission capacity into the U.S. and reselling excess private-line capacity.
The Company's private telecommunications network services provide substantially
higher profit margins than its long distance call services. As a result, and
further due to the anticipated increase in demand for international satellite
services, ATSI intends to continue to engage in aggressive sales and marketing
efforts with respect to this aspect of its business. Additionally, because many
costs of providing network management services are fixed costs of the Company,
ATSI expects that it will realize increased margins as network and carrier usage
expand. There can be no assurance, however, that the Company will recognize
increased revenues and/or profits from the provision of such network services in
the future.
The Company's initial focus has been on Mexico, and, because ATSI believes
that the regulatory climate in Mexico will continue to be favorable with respect
to its business, the Company intends to continue to concentrate primarily on
opportunities to provide communications services to, from and within that
country. In connection with this plan, ATSI anticipates that it will target
U.S. companies with operations in Mexico and Latin America, Mexican and Latin
American companies with operations in the U.S., U.S. and foreign companies
participating in the "in-bond" (maquiladora) manufacturing program and entities
in Mexico and Latin America with existing VSAT networks requiring connectivity
to the U.S.
LONG DISTANCE CALL SERVICES
Operator Service Provider Industry Overview
In the U.S., the Operator Service Provider ("OSP") industry developed out
of the deregulation of interstate telephone services by the Federal
Communications Commission ("FCC") in 1981, and the court-ordered divestiture in
1984 leading to the break up of AT&T and the formation of the Regional Bell
Operating Companies ("RBOCs"). Prior to 1985, virtually all interexchange
operator services were provided by AT&T. The deregulation of the telephone
industry created a substantial market opportunity for companies competing for
traffic requiring operator-assisted services and long distance processing.
Related judicial rulings permitted private ownership and operation of pay
telephones.
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Prior to deregulation, traditional operator services included no-charge
dialing assistance, verification of busy line condition, emergency interrupt and
free information requested by callers enabling them to complete calls. As
manual assistance costs increased and callers became more familiar with how to
directly dial calls, many of these services were tariffed and charged to
callers. Currently, "operator services" means providing the systems which route
and complete calls, allowing callers to be billed later from their local
telephone company, and providing alternative methods of charging calls. OSPs
are entities which process automated or live operator completed calls in a
manner that places the OSP in control of the automated or live operator function
and the billing arrangements. The OSP industry has brought innovations to the
marketplace, such as multilingual operators, teleconferencing, voice messaging
(e.g. delivering a caller's message later if a line is busy or not answering)
and multiple billing options including the use of major credit cards.
Away from home, callers are dependent upon the equipment, lines and
carriers that are selected, maintained and paid for by various location owners
or agents ("call aggregators"). Currently, call aggregators in the U.S. and
Mexico, such as hotels, convention centers, hospitals, university dormitories,
institutions and private payphone managers, can choose the long distance
telecommunications company that will complete and process their customer's "0+"
("Zero Plus," automated credit or calling card) and "0-" ("Zero Minus," operator
assisted) calls. Call aggregators contract with OSPs to provide routing and
billing arrangements for these calls and receive commission revenue from OSPs
for the use of their space, equipment and local lines. Transient callers may
have the option of billing the call to a major credit card, calling card, a
third number, or to make a collect call. It is also possible for a caller to
dial carrier access codes, such as 800, 950 or 10XXX, allowing the caller to use
the operator services of other OSPs than the primary presubscribed carrier. The
provision of operator services to call aggregators as a significant source of
revenue is a recent development in the telecommunications industry.
According to data provided to the FCC, U.S. OSP revenues in 1994 were in
excess of $10 billion. Although no such information is available with respect
to international OSP revenues, industry revenues in 1994 for international long
distance, of which OSP revenues are a component, in fact grew at a faster rate
than domestic long distance revenues. Additionally, international long distance
provided revenue and gross profit per minute at a substantially higher rate than
domestic long distance. The Company believes that as international settlement
rates (which provide the basis for determining the amount of payments owed by
U.S. carriers to foreign carriers for the services U.S. carriers bill and the
amount they are owed for services that foreign carriers bill) and costs for
leased transmission capacity decline, international long distance will continue
to grow at a faster rate and provide higher revenue and gross profit per minute
than domestic long distance.
As a result, the Company intends to decrease its efforts toward providing
OSP services in the highly competitive U.S. market in the fourth quarter of
fiscal 1996, and increase its focus on the international long distance market,
particularly between the rapidly growing market of Mexico and the U.S., for the
provision of OSP services. U.S.-billed revenues for international long distance
traffic with Mexico increased from approximately $731 million in 1988 to $1.4
billion in 1993, the most recent year for which such information is available.
The significant increase in such traffic, as well as that with other Latin
American countries, is due in part to (i) the ties that exist between many major
metropolitan areas in the U.S. and Mexico and other Latin American countries,
which have been strengthened by the rapid growth of the Hispanic segment of the
U.S. population, and (ii) the increase in trade between Mexico and other Latin
American countries and the U.S.
Competition between the Company and other operator services providers is
based upon commission programs, quality of service, reporting and customer
service. The Company's revenues from international long distance call services
were $2,952,571 during the Company's 1995 fiscal year (of which 98% was from
traffic between Mexico and the U.S.) and $2,913,515 for the six months ended
January 31, 1996 (of which 87% was from traffic between Mexico and the U.S.),
which accounted for 40% and 39%, respectively, of
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the Company's minutes of use and 66% and 68%, respectively, of its overall long
distance-related revenues. However, there can be no assurance that such an
increase in revenues will continue.
Operations and Services
The Company provides domestic and international long distance call services
through its family of "Plus" plans, as an alternative to those services offered
by AT&T, MCI, Sprint and other call service providers. See "--Competition."
The Company owns and operates its own switching facility and an operator center
located at its headquarters in San Antonio, Texas (the "Switch"). The Company
provides live and automated operator services 24 hours per day, 365 days per
year, and features multi-lingual operators versed in English, Spanish,
Portuguese and, at times, other languages. At January 31, 1996, the Company
employed 20 full-time and 12 part-time operators. The Company maintains a
sophisticated emergency call handling system for calls originating in the U.S.
that enables its operators to access police, fire and other emergency agencies
within the jurisdiction of the telephone from which the call is placed. The
Company utilizes its own transmission facilities when possible or contracts to
use facilities of other long distance network providers as necessary.
The Company provides operator-assisted services through its CallPlus(SM)
program for subscribers such as private and public telephones, hotels, motels,
casinos and resorts in the U.S. and Mexico. All long distance telephone calls
originating from a subscriber's property are directed to call destination points
by computerized switching equipment located at the Company's control center. The
digital telecommunications switching equipment is linked to the Company's
operator assistance hardware and software system, which includes a local area
network of computerized operator terminal work stations. Call processing is
either handled automatically by the Company's 0+ systems or routed to an
operator who provides the 0- assistance needed by the call originator. Users of
the Company's services can charge their calls with most Bell calling cards or
commercial credit cards. Additionally, calls handled by an operator can be
person to person, collect or third party calls.
An automated call requires the use of a touch tone telephone. This enables
the caller to provide billing information and complete the call without ever
speaking to an operator. Upon hearing the "bong" tone, the caller enters a
credit card number which can include telephone company calling cards and
commercial credit cards such as Visa, MasterCard and American Express.
To route a call to a Company operator from a subscriber telephone, a caller
in Mexico and elsewhere generally dials "0," and the area code and number. The
call is then automatically routed to the Switch. In the hospitality industry an
autodialer may be installed at the subscriber's premises. When an autodialer is
used, it monitors the numbers dialed and automatically redirects calls to the
Company. The interception and direction of telephone calls by the autodialer is
transparent to the phone user. As Company operators receive the incoming calls,
they collect billing information from the caller and enter it into the Company's
computer system from their operator terminals. Operators identify themselves as
American Telesource International and Communications Services operators to
persons placing calls from subscriber telephones in the U.S. and Mexico,
respectively. All calling information (including origination, termination and
billing numbers) is recorded for credit validation, rating the call and billing
the end user. The call is then released into the local telephone company's or
long distance carrier's system for completion. The Company selects the most cost
effective and efficient method of completing the call.
The Company contracts with subscribers to provide operator services for
calls made from telephones they operate or telephones which are located on their
property, offering them the opportunity to receive commissions on calls made on
their phones. Subscribers earn commissions based on the gross billable revenue
originating from the subscriber's property. The commission rate is determined in
accordance with an agreement between the subscriber and the Company, or between
the subscriber and an independent marketing representative used by the Company,
as the case may be.
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The Company's revenue is derived from composite charged rates for a call
which is billed to the end-user. Revenue per call is subject to limits imposed
by the Company and regulatory authorities. It is based upon operator assistance
surcharges (if applicable), per minute usage charges between points of origin
and destination, and rates determined in accordance with agreements made with
subscribers.
Approximately one-fourth of the calls handled by the Company are billed to
commercial credit cards. The Company utilizes the services of a credit card
processing company for the billing of these calls and receives cash from these
calls, net of transaction and billing fees, within seven days from the dates the
calls are made. All other calls, including calling card, collect, person-to-
person and third-party billed calls, are billed under an agreement between the
Company and Zero Plus Dialing, Inc. ("ZPDI"), one of the largest billing and
collection clearinghouses in the United States. This agreement allows ATSI to
submit call detail records to ZPDI, which in turn forwards these records to the
local telephone companies that maintain the addresses of the parties to be
billed for the calls. The local telephone company includes the call(s) in a
billed party's home telephone bill, collects the funds and remits those funds
net of charges to ZPDI. ZPDI then remits the funds net of charges to ATSI.
Because this collection process can take up to 75 days, ATSI participates in an
advance funding program offered by ZPDI under which ZPDI purchases 100% of the
call records for 75% of their value within five days of presentment to ZPDI.
The remaining 25% of the call records is remitted to ATSI net of charges as ZPDI
collects the funds from the local telephone companies. ATSI currently pays ZPDI
a funding charge of prime plus 4% per annum on the 75% of the value of the calls
which is advanced to ATSI.
The Company is able to transmit long distance telephone calls to all points
in the United States and international destinations serviced by AT&T, MCI and
Sprint. A long distance telephone call generally consists of three segments --
origination, switching and termination. A domestic long distance call originates
on a local exchange network and is transported by a long distance carrier to the
Company's Switch. The call is then carried via the long distance network to
another local exchange network where the call is terminated. An international
long distance call is similar to a domestic long distance call, but typically
involves at least two long distance carriers: a carrier transporting the call
from the country of origination and a carrier terminating the call in the
country of termination.
At January 31, 1996, the Company provided operator services to 5,693 and
3,627 hotel and motel rooms in the U.S. and Mexico, respectively. The Company's
customers include certain Holiday Inn, Best Western and Ramada Inn franchises
and the casinos of Circus Circus. In addition, at January 31, 1996, the Company
had service contracts with pay telephone owners covering 2,281 and 391 public
telephones in the United States and Mexico, respectively. The Company carried
923,341 and 590,792 minutes of operator services traffic during fiscal 1995
originating in the U.S. and Mexico, respectively, and 930,794 and 428,350
minutes, respectively, for the six months ended January 31, 1996. The Company
carried an average of 155,132 and 71,392 minutes per month of operator services
traffic originating in the U.S. and Mexico, respectively, during the six months
ended January 31, 1996, as compared to 64,936 and 22,685 minutes per month,
respectively, during the six months ended January 31, 1995. The Company's
operator services revenues from calls originating in the U.S. and Mexico
amounted to $1,516,958 and $2,890,891, respectively, in fiscal 1995, and
$1,389,417 and $2,538,280, respectively, for the six months ended January 31,
1996.
The Company also provides operator-assisted services for Latin American
travelers in the United States through its TravelPlus(SM) and RoamerPlus(SM)
programs. Latin travelers typically do not have AT&T, MCI or Sprint travel
cards, nor do their countries' national phone companies provide them with travel
cards that can be used in the United States. However, such travelers generally
carry common international credit cards, such as Visa, Mastercard and American
Express. TravelPlus(SM) enables Latin travelers to use an eligible common credit
card to place domestic or international calls from virtually any phone in the
United States and reach a Portuguese or Spanish speaking ATSI operator. By using
a credit card as a phone card, the traveler is able to avoid the high cost of
collect calls and minimize hotel and public phone surcharges. Callers using
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TravelPlus(SM) are billed directly through their credit card companies, and ATSI
is paid in U.S. dollars. ATSI has contracted to provide TravelPlus(SM) services
to the Bank of Brazil for its Visa card holders.
RoamerPlus(SM) enables Latin American travelers to use their cellular
phones while in the United States. Because of problems associated with cellular
phone fraud, United States cellular companies generally limit foreign cellular
users while traveling in the United States from placing international calls. To
avoid this problem, PIN numbers are issued to Latin Americans through their own
local cellular provider. When in the United States, the Latin American cellular
user dials a special "800" number which connects the user with an ATSI operator
and provides the operator with an account and PIN number. The operator then
completes the call, and charges are billed to the user's local cellular account.
Currently, ATSI has one agreement with a Mexican cellular company to route calls
placed by such company's customers travelling in the U.S. to ATSI's call center.
The service includes collect, calling card and credit card billed calls. As
relationships with other Latin American cellular companies are established, ATSI
anticipates expanding access to this service.
The Company's telephone services are available 24 hours a day, 365 days per
year. To assist subscribers and end users with service or billing questions,
the Company maintains a customer service department and staff which is available
during normal business hours. Emergency 24-hour service is available to all
subscribers. Seasonal variation in call volume is expected by the Company from
hospitality and payphone subscribers, reflecting the higher occupancy rates
during the winter vacation months in Mexico (when U.S. volume is at its lowest)
and lower rates during summer months in Mexico (when U.S. volume is at its
peak).
The Company's long distance call services business generated revenues of
$4,469,529 during the Company's 1995 fiscal year and revenues of $4,302,932
during the first six months of fiscal 1996. Long distance call services
represented approximately 93.4% of the Company's total operating revenue during
fiscal 1995, and 88.4% of total revenues during the first six months of fiscal
1996.
In April 1996, the Company and Long Distance Exchange Corporation ("LDEC")
entered into a litigation settlement agreement with Capital Network Systems,
Inc. ("CNSI") and Teleplus, Inc. ("Teleplus") pursuant to which the parties
agreed not to contract with, provide service to, benefit from, derive revenues
from or solicit any customer of another party with respect to operator-assisted
long distance services from Mexico for a period of 10 months. Additionally,
CNSI and Teleplus, on the one hand, and the Company and LDEC, on the other hand,
agreed to submit to binding arbitration to resolve any disputes between them for
a period of 22 months.
Switching and Operator Equipment
The Company's operator center platform consists of a fully redundant
digital Summa Four Switch interlinked with a Digital Equipment Corporation VAX
4000, which utilizes Micro Dimensions software to interconnect the computerized
operator terminal work stations at the service center. The operator center
platform enables the Company to process calling card calls, collect calls,
person-to-person, third-party and credit card calls. ATSI is currently in the
process of turning up a NACT LCX 120 switch, which will enhance its current
platform by allowing the Company to process debit cards, one-plus calls, as well
as offer inmate facility automated call processing and 800 service. The Company
expects that the LCX 120, which is scheduled to go on-line in the fourth quarter
of fiscal 1996, will enable the Company to provide a full array of call
services.
Sales and Marketing
The Company markets its long distance call services in the United States
and in Mexico through the combined effort of three direct sales representatives
based in its corporate offices, two of whom are fluent in both English and
Spanish, and a network of independent marketing representatives. The Company's
corporate sales force focuses on larger accounts, such as hotel management
companies, multi-unit franchises and large
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pay telephone companies. The Company's independent representatives in the
United States and Mexico market the Company's operator services in their
respective countries and typically receive a commission based upon the volume of
business generated. The Company also participates in various industry trade
shows and promotes its call services through advertisements in trade magazines.
The Company customizes its telecommunications services to provide individualized
reports and to achieve, for a given customer, the desired balance between high
customer commissions and low charges to the billed party.
The OSP industry has primarily provided its services to call aggregators
rather than the general public, allowing subscribers to receive revenues from
calls made from telephones they operate or which are located on their property.
Reasons for selecting call aggregators over residential customers include the
sales volume offered by call aggregators and the high advertising costs and
customer turnover associated with handling residential customers.
The Company's customers look for operator assistance services as an
additional source of revenue. Although needs vary from market to market, the
Company generally modifies the in-house phone system of subscribers, or installs
additional equipment necessary to interface with the Company's Switch. The
Company contracts with subscribers to provide operator services for calls made
from telephones they operate or telephones which are located on their property,
offering them the opportunity to receive commissions on calls made on their
phones.
Competition
The overall domestic long distance call services market is dominated by
AT&T. The Company also competes with other public and private companies, such as
Sprint and MCI, which provide long distance call services similar to those of
the Company. These long distance carriers have been in business longer than the
Company and have far greater resources, experience and reputations than the
Company. Moreover, the RBOCs are likely to become major competitors in the long
distance market for both 0+ and 1+ calls as a result of the recently passed
Telecommunications Act of 1996, which permits the RBOCs to immediately provide
long distance service outside their local exchange region. See "--Regulation-
Federal." The Company competes in the international long distance call services
market with AT&T, Sprint, MCI, CNSI and others, many of which, again, have
considerably greater financial and other resources than the Company.
The Company believes it competes favorably in its targeted markets due in
part to its bilingual operators and billing services and a broad array of
service offerings. Among them, the Company provides its customers with
customized, detailed and sophisticated reporting of calling patterns and volumes
from each customer location. This allows the Company's operator services
customers to analyze their traffic and maximize telecommunication revenues by,
for example, relocating underutilized telephones. The Company's detailed
reporting also allows its customers to reconcile the accuracy or integrity of
their commissions. The Company employs a highly skilled professional staff of
customer service employees and technicians, who provide service 24 hours per
day, 365 days per year.
Strategy
The Company's mission is to become a full service international
telecommunications carrier providing private line, direct dial and other long
distance and value added network services between Latin America and the U.S.
ATSI intends to pursue this strategy in its long distance call services business
by, among other things, competing for licenses issued by Latin American
countries where the regulatory environment permits, to provide expanded long
distance call services, working to increase the volume of calls which it
processes by attracting new call services accounts and creating billing
innovations such as using credit cards as calling cards, as the Company has done
with respect to its TravelPlus(SM) program. Because margins on international OSP
calls are substantially higher than domestic (U.S.) OSP calls, and because the
Company expects growth to continue in the market for calls between the U.S. and
Mexico, as well as other Latin American countries,
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the Company intends to focus on the international long distance market,
particularly between Mexico and the U.S., for the provision of long distance
call services. ATSI intends to decrease its efforts toward providing OSP
services in the highly competitive U.S. market in the third quarter of fiscal
1996, after which time the Company anticipates that it will offer such services
domestically on a "demand type" basis only.
The Company currently views the following target markets as ones in which
it can most profitably provide its service for the optimum benefit of the
customer:
. International Public Communications -- Includes segments such as
private and public phone operators, cellular telephone operators and
transportation centers such as airports, ship ports and marinas,
primarily in Mexico.
. International Hospitality Industry -- Includes hotels, motels and
resorts located primarily in Mexico.
In addition, ATSI intends to promote its TravelPlus(SM) program to credit
card issuers in Latin American countries where and as the regulatory environment
permits. With respect to its RoamerPlus(SM) program, ATSI has initiated
discussions with certain Mexican cellular companies to route calls placed by
U.S. citizens in Mexico to the Company's call center. If successful in these
negotiations, ATSI expects to expand RoamerPlus(SM) services to enable U.S.
citizens to use their cellular phones while travelling in Mexico.
ATSI-MEXICO
American Telesource International de Mexico, S.A. de C.V. was formed on
June 20, 1995 to aid ATSI in the provision of domestic (Mexico) and
international long distance services and private networks. At the direction of
the Company, ATSI-Mexico provides an array of services to support ATSI clients,
including frequency applications, as well as planning, design, implementation
and maintenance of satellite networks. ATSI-Mexico also provides intra-Mexico
satellite network services, utilizing ATSI's engineering team for the design of
such systems. For networks requiring U.S. connectivity, the San Antonio Teleport
is utilized. ATSI-Mexico technical personnel are trained by the Company's
technical staff in areas such as monitoring, diagnostics, and troubleshooting of
satellite channels.
ATSI-Mexico is 49% owned by ATSI and 51% owned by a Mexican citizen.
Mexican law mandates that any company participating in public communications
within Mexico be majority owned by a Mexican entity. However, ATSI maintains
significant control over the operations of ATSI-Mexico and has limited the
authority of the other shareholder to sell or transfer his shares.
ATSI intends to focus primarily on the Mexican market for the provision of
international long distance call services. The Company believes that
significant opportunities to provide call services within Mexico and between
Mexico and the U.S. will arise from the law written into effect in June 1995 by
the Secretaria de Communicaciones y Transportes ("SCT"), which provides for the
methods by which companies can apply for concessions and licenses to establish
and operate telecommunications services businesses within Mexico. This law is,
effectively, the first step in the deregulation of the telephone industry within
Mexico. It also formalizes the methods by which companies such as ATSI may
compete against Telefonos de Mexico (Telmex), the privately owned
telecommunications monopoly in Mexico.
The Company, through ATSI-Mexico, has applied or intends to apply to the
SCT for the following licenses, which, if obtained, the Company believes will
enable it to expand significantly its business in Mexico. However, there can be
no assurance that such licenses will be obtained, and, if obtained, that such
licenses will enable the Company to expand operations or increase revenue in
Mexico:
. Public Phone License (applied for) -- to install public pay phones in
Mexico, from which ATSI could provide both local call service and
domestic and international long distance service. The Company
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has received formal confirmation from the SCT that it will be granted
such a license as soon as certain regulations are published by the
SCT. The Company expects to receive such license during the fourth
quarter of fiscal 1996. The Company believes that the receipt of this
license will create opportunities to expand its long distance call
services operations and increase revenues in Mexico, and is
considering all options with respect to the license, including
possible strategic alliances and partnerships.
. Comercializadora License (applied for) -- to provide long distance and
private line services via TELMEX's or any other concessionaire's fiber
optic infrastructure and resell the existing fiber infrastructure in
Mexico for various communications services, including the provision of
"1+" long distance service to its existing hotel and commercial
clients. Receipt of a Comercializadora license would enable ATSI to
offer to its existing clients and market to potential customers a
complete package of long distance services, including private
networks, 0+, 0- and 1+ capabilities, as well as direct billing
services, which, the Company believes, could have a positive effect on
its revenues due to the desire of customers to consolidate the
provision of their communications services into a single provider. The
Company anticipates receiving approval for this license during the
fourth quarter of fiscal 1996.
. Shared Teleport License (to be applied for) -- to build a shared
teleport facility and qualify as a shared teleport facility operator
to provide communications transport capabilities for ATSI's Mexican
clients, as well as other non-shared teleport-based carriers and their
clients. A shared teleport facility would enable the Company to reduce
costs for the provision of private networks with a link in Mexico by
utilizing a centralized satellite facility (linked to the Mexican
Solidaridad Satellite System) with which private network subscribers
could connect through local fiber, thereby eliminating the need for a
VSAT on every user's premises. The Company anticipates applying for
this license in the fourth quarter of fiscal 1996.
In the third quarter of fiscal 1996, ATSI-Mexico obtained a Value-Added
Service License to provide a value added network service, delivering public
access (as distinct from current private network access) to the Internet,
including E-Mail, Local Area Network interconnection and frame relay services.
The Company will continue to apply for government-issued licenses which the
Company believes will create opportunities to expand operations in Mexico and
achieve its goal of becoming a full service telecommunications carrier.
ATSI believes that its affiliation with and interest in ATSI-Mexico gives
it a competitive advantage over other U.S. telecommunications companies
attempting to enter the Mexican market. All of ATSI-Mexico's significant
employees are Mexican citizens with substantial experience in the Mexican
telecommunications industry and solid working relationships with persons and
entities in Mexico connected with such industry. The Company believes that its
success to date in Mexico has been largely the result of, and that its future
success with respect to Mexican telecommunications licenses applied for and
implementation of business strategies in Mexico will be dependent upon, such
individuals' hard work and ability to continue to understand and develop
relationships within the Mexican telecommunications industry.
ATSI'S INTERNATIONAL TELEPORT AND NETWORK CONTROL CENTER
The Company has constructed an international teleport/satellite earth
station at its headquarters in San Antonio, Texas to serve as a
telecommunications gateway to the United States. ATSI believes that the Teleport
is one of the first facilities in the South Central United States specifically
designed to provide international telecommunications networks between the United
States and Latin America via the Mexican Solidaridad Satellite System. The
Teleport provides fiber optic integration into U.S. based private and public
telecommunications networks via a fiber optic link to a facility in downtown San
Antonio, where all major long distance carriers have a point of presence. The
Company constructed the Teleport utilizing advanced digital satellite
communications equipment, and built the network operating system modularly to
enable it to
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expand telecommunications capacity quickly, on an as-needed basis. In September
1995, the Company increased the system's networks capacity from 20 watts to 400
watts, giving ATSI the capability to operate up to 30 T-1 circuits, or 720 64K
circuits of C-band frequency and 144 64K circuits of Ku band frequency.
ATSI's Teleport facility contains a 6.1 meter "C" and a 6.1 meter "Ku" band
earth station with fully redundant electronics capable of "seeing" across the
full 500 Mhz of these two satellite bands in both horizontal and vertical
polarization schemes. The earth station electronics are state-of-the-art in
design and dependability.
The Company's Network Control Center (the "Control Center"), also located
at its San Antonio headquarters, houses the converter subsystem relative to the
networks, the modem subsystem and the data equipment. The Control Center serves
as the maintenance and control hub of the Company's private networks and long
distance call services systems. It utilizes specialized software and hardware
components to monitor subsystem elements within the Teleport. Remote VSATs are
equipped with maintenance and control processors that monitor subsystem elements
and dial into the Teleport facility to report fault conditions. The Control
Center technicians, once aware of a problem, can dial into the remote terminals
to diagnose, troubleshoot, make equipment changes or upgrade for complete system
management. The Company's Control Center is protected through an uninterruptable
power supply system which, upon commercial power failure, utilizes battery back-
up until an on-site natural gas generator is automatically triggered to supply
AC power. The Control Center facility has a dedicated environmental control
system to maintain optimal conditions of 68(degrees) F with light-to-moderate
levels of humidity.
REGULATION
The Company's business operations are subject to extensive federal and
state regulation, and more limited foreign regulation. Federal laws and U.S.
Federal Communications Commission ("FCC") regulations apply to interstate
telecommunications (including international telecommunications that originate or
terminate in the United States), while particular state regulatory authorities
have jurisdiction over telecommunications originating and terminating within the
state. The laws of other countries only apply to carriers doing business in
those countries. Thus, if the Company conducts business with such countries
through settlement agreements with a foreign carrier, or otherwise by engaging
in service to such countries, it is affected indirectly by such laws insofar as
they affect the foreign carrier. There can be no assurance that future
regulatory, judicial, and legislative changes or activities will not have a
material adverse effect on the Company, that domestic or international
regulators or third parties will not raise material issues with regard to the
Company's compliance or noncompliance with applicable regulations, or that
regulatory activities will not have a material adverse effect on the Company.
In addition, changes in certain regulations may potentially preclude or
impair the Company's ability to provide operator services in certain
jurisdictions. The Company does not foresee any such changes; however, it cannot
predict whether such changes may occur. Therefore, the Company cannot estimate
the impact of such changes upon its operator services in the event of any such
change.
FEDERAL.
The FCC has classified the Company as a non-dominant, interexchange
carrier. Generally, the FCC has chosen not to exercise its statutory power to
closely regulate the charges, practices, or classifications of non-dominant
carriers. Nevertheless, the FCC acts upon complaints against such carriers for
failure to comply with statutory obligations or with the FCC's rules,
regulations, and policies. The FCC also has the power to impose more stringent
regulatory requirements on the Company and to change the Company's regulatory
classification. In the current regulatory atmosphere, the Company believes that
the FCC is unlikely to do so.
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Among domestic carriers, only the local exchange carriers ("LECs") are
currently classified as dominant carriers. Thus, the FCC regulates many of the
LECs' rates, charges, and services to a greater degree than those of the
Company. Until October 1995, AT&T was classified as a dominant carrier, but
AT&T successfully petitioned the FCC for non-dominant status in the domestic
interstate and interexchange marketplaces. Therefore, certain pricing
restrictions that once applied to AT&T have been eliminated, likely making
AT&T's prices more competitive with those of the Company. Recently, AT&T was
also reclassified as a non-dominant carrier for international services.
The Company has the authority to provide domestic, interstate
telecommunications services. The Company also has been granted authority by the
FCC to provide switched international telecommunications services through the
resale of switched services of United States facilities-based carriers and to
provide certain international telecommunications services by acquiring circuits
on various undersea cables or leasing certain satellite facilities. The FCC
reserves the right to condition, modify, or remake such domestic and
international authority for violations of the Communications Act of 1934, as
amended (the "Communications Act") or the FCC's regulations, rules, or policies
promulgated thereunder. Although the Company believes the possibility to be
remote, a rescission by the FCC of the Company's domestic or international
authority or a refusal by the FCC to grant additional domestic or international
authority would have a material adverse effect on the Company.
Currently, the FCC requires that domestic and international non-dominant
carriers must maintain interstate and international tariffs on file with the
FCC. The Company believes it is in full compliance with all applicable FCC
tariff regulations. Prior to a recent court decision, Southwestern Bell v. FCC,
43 F.3d 1515 (D.C. Cir. 1995), domestic non-dominant carriers were permitted by
the FCC to file tariffs with a "reasonable range of rates" instead of detailed
schedules of individual charges. However, the Company must now file tariffs
containing specific rates. In reliance on the FCC's past relaxed tariff filing
requirements for non-dominant domestic carriers, the Company and most of its
competitors did not maintain such rates for domestic offerings in their tariffs.
Until the two-year statute of limitations expires, the Company could be held
liable for damages for its past failure to file tariffs containing specific
rates. The Company believes that such an outcome is remote especially in light
of the FCC's recent proposal to adopt a mandatory detariffing policy for
domestic services of non-dominant, interexchange carriers. Moreover, such an
outcome would not have a material adverse effect on the Company's financial
condition or results of operation. The Company has always been required to
include detailed rate schedules in its international tariffs.
As a non-dominant carrier, the Company is also subject to a variety of
miscellaneous regulations that, among other things, govern the documentation and
verifications necessary to change a consumer's long distance carrier, limit the
use of "800" numbers, require certain disclosures regarding operator services,
limit foreign ownership and control, and require prior approval of transfers of
control. The Company began providing operator services in the U.S. in May 1994.
The FCC requires the filing of informational tariffs concerning such services
and requires both written and verbal identification of the operator service
provider on each call processed.
To date, the FCC has only exercised its regulatory authority to supervise
closely the rates of dominant carriers. However, the FCC has increasingly
relaxed its control in this area. As an example, the FCC is considering
repricing local transport charges (the fee for the use of the LECs' transmission
facilities connecting the LECs' central offices and the interexchange carrier's
access point). In addition, the LECs have been afforded a degree of pricing
flexibility in setting access charges where adequate competition exists, and the
FCC is considering certain proposals to relax further LEC access regulation.
The impact of such repricing and pricing flexibility on facilities-based
interexchange carriers, such as the Company, cannot be determined at this time.
The Telecommunications Act of 1996 (signed into law on February 8, 1996)
permits the RBOCs to immediately provide interLATA interexchange (long distance)
services outside their local exchange region.
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Moreover, the Act allows the RBOCs to provide long distance services in-region
with FCC approval after the FCC has consulted with the Department of Justice and
determines that such market entry is consistent with the public interest,
convenience, and necessity. In order for a RBOC to provide in-region interLATA
interexchange service, it must also demonstrate that it has a facilities-based
competitor and that it has complied with a 14-point competitive checklist as
determined by the Commission. As a result, the Company will undoubtedly face
increased competition from the RBOCs. This new law attempts to guard against
anti competitive conduct that could result from an RBOC having access to all
customers on its existing networks as well as its ability to cross-subsidize its
services and discriminate in its favor against its competitors.
The FCC has determined that call-back services using uncompleted call
signaling violates neither United States domestic nor international law. Call-
back services involve calls originating in a foreign country directed in such a
manner as to give the foreign caller the advantage of the lower charges for
outbound United States calls. However, United States call-back providers are
not authorized to provide service to customers in countries that expressly have
declared such call-back services to be illegal. The FCC will receive
documentation from any government that seeks to place United States carriers on
notice that call-back services using uncompleted call signaling has been
expressly declared illegal in its country. Currently, the Company does not
itself provide call-back services and it does not provide services to resellers
and other carriers that do provide such call-back services.
The microwave and satellite communications licenses held by the Company are
subject to FCC regulations. Such licenses were granted for fixed terms with an
option to renew. The majority of these licenses expire within six years and the
remainder will expire within ten years. The Company intends to seek renewal of
its licenses and anticipates that they will be renewed in the ordinary course.
Failure to obtain renewal of its licenses could have a material adverse effect
on the Company.
Except with respect to transit agreements, authorizations held under
Section 214 of the Communications Act (such as those held by the Company) for
international services are limited to providing services or using facilities
between the United States and countries specified in the authorizations. The
Company holds all necessary Section 214 authorizations for conducting its
present business, but may need additional authority in the future. Additionally,
carriers may not lease lines between the United States and an international
point for the purpose of offering switched services without first determining
that the foreign country affords opportunities to United States carriers
equivalent to those available under United States law.
The FCC also has promulgated certain rules governing the offering of
international switched telecommunications services. Such calls typically
involve a bilateral, correspondent relationship between a carrier in the United
States and a carrier in the foreign country. Until recently, the United States
was one of a few countries to allow multiple carriers to handle international
calls; almost all foreign countries authorized only a single carrier, often a
state owned monopoly, to provide telecommunications services. In light of the
disparate bargaining positions of the United Stated carriers, the FCC imposed
certain requirements to try to minimize the opportunities that dominant foreign
telecommunications providers would have to counterpoise one United States
carrier against another. These policies include the International Settlement
Policy, which requires that rates of all carriers be uniform on parallel routes
and that traffic received by a United States carrier from a foreign carrier must
be proportional to the traffic the United States carrier terminates to a foreign
carrier. The Company currently has no agreements with foreign carriers
providing for the handling of switched calls.
For more than six years, the FCC has been considering the implementation of
a system whereby a caller could make a long distance call from any publicly
available telephone and have the call automatically routed over the long
distance telephone network of the caller's choice. The concept, called Billed
Party Preference ("BPP"), would necessitate that each local telephone company
have access to a data base that could match every U.S. calling card and
telephone number to a preferred long distance company and be able to route each
long distance call accordingly. Implementation of BPP or a similar system could
potentially have a major
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impact on U.S. operator services companies such as ATSI that depend on
telephones presubscribed, or routed, directly to their network. Although the
FCC continues to consider the adoption of BPP, it is not likely to be
operational in the near term. Moreover, less than 33% of the Company's revenues
were generated from such calls during the year ended July 31, 1995, and this
percentage is expected to decease in the future as the volume of international
calls continues to increase. The Company cannot predict when and if any final
ruling will be issued by the FCC relating to BPP, but the Company does not
expect any ruling on BPP to be implemented in the near future. See "Notes to
Consolidated Financial Statements--Note 15."
STATE.
The intrastate, long distance telecommunications operations of the Company
are also subject to various state laws, regulations, rules, and policies.
Currently, the Company is certified and tariffed to provide service in 23
states. Additionally, the Company provides service in certain states that do not
require certification or registration of any type. Many state regulatory bodies,
however, require the filing of informational tariffs concerning operator
services and require written and/or verbal identification of the operator
service provider on each call processed. The Company is currently in the process
of making the appropriate filings for these informational tariffs in order to
maintain compliance with these jurisdictional requirements. Ultimately, the
Company intends to obtain authorization in all states that require certification
or registration. The vast majority of states require the Company to apply for
certification to provide telecommunications services before commencing
intrastate service and to file and maintain detailed tariffs listing the rates
for intrastate service. Many states also impose various reporting requirements
and require prior approval for all transfers of control of certified carriers,
assignments of carrier assets, carrier stock offerings, and the incurrence by
carriers of certain debt obligations. In some states, prior regulatory approval
may be required for acquisitions of telecommunications operations.
FOREIGN.
On June 7, 1995, the SCT, the entity responsible for governing
telecommunications services in Mexico, wrote into law the method by which
companies could apply for concessions and licenses to establish and operate
telecommunications services businesses in Mexico. This was, effectively, the
first step in the deregulation of the telephone industry in Mexico. The SCT
also formalized the methods by which companies such as ATSI may compete against
Telmex, the privately owned telecommunications monopoly in Mexico. The Company,
through ATSI-Mexico, has applied for several licenses to provide various
telecommunications services in Mexico. The Company hopes to receive various
such concessions and licenses during fiscal 1996, and believes that the receipt
of such concessions and licenses will enable the Company to expand significantly
its call services business in Mexico.
The Company provides international services by either reselling the
services of other carriers or by entering into direct operating or transit
agreements with PTTs. Generally, PTTs are state-owned and operated monopolies.
Although the services currently provided by the Company are not directly subject
to the laws of other countries, the foreign carriers with whom the Company
conducts business are subject to those laws. Consequently, any changes to the
laws of a country served by the Company could have a material adverse effect on
the Company.
EMPLOYEES
At April 30, 1996, the Company had 47 full-time employees, of whom 19 are
operators, 5 are sales and marketing personnel and 23 perform administrative
functions, and 20 part-time employees, of whom all are operators. The Company
believes its future success will depend on its continued ability to attract and
retain highly skilled and qualified employees. The Company considers its
employee relations to be good. None of the Company's employees is represented
by unions.
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PROPERTIES
The Company's executive offices, Teleport and Control Center are located in
and on the premises of a leased facility in San Antonio, Texas, consisting of
6,350 square feet. The lease agreement covering such property is effective
until April 1999, and requires the Company to pay rent in the amount of $39,757
per year. The Company expects to exercise its option to expand into
approximately 5,000 square feet of adjacent office space during 1996.
The Company's offices in Mexico City are located on the premises of a
leased facility near the World Trade Center, consisting of approximately 2,150
square feet. The lease agreement covering such property is effective until
August 1997, and requires the Company to pay rent in the amount of approximately
$19,200 per year, measured at 7.5 Pesos to one U.S. Dollar.
LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the Company or any
of its subsidiaries is a party or of which any of their property is the subject.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The ATSI Board currently consists of three members, Messrs. Smith, Nye and
Moses. Upon Domestication, the ATSI Board will be increased to five members and
will be divided into three classes, one class of which is to be elected each
year to hold office for a three-year term and until successors are elected and
qualified, as provided by the terms of the Certificate of Incorporation to be
filed pursuant to the Company's Domestication into Delaware. The terms of the
initial Class A, Class B and Class C directors of the Company will expire at the
1997, 1998 and 1999 annual meetings, respectively. It is anticipated that
immediately following the Domestication, John R. Moses will resign as a director
of ATSI and Arthur L. Smith and Murray R. Nye, representing a majority of the
directors then in office, will elect, in order to fill such vacancies and newly
created directorships on the Board of ATSI, then a Delaware corporation, Terry
Colbert and Tomas Revesz to serve as the Class B directors and Arthur L. Smith
and Murray R. Nye to serve as the Class C directors. Messrs. Smith and Nye also
intend to appoint a fifth director immediately following the Domestication to
serve as the Class A director, and, along with Mr. Moses, are currently in the
process of interviewing qualified candidates. Additionally, immediately
following the Domestication the officers of ATSI will be as follows: Arthur L.
Smith - President and Chief Executive Officer; H. Douglas Saathoff -Secretary,
Treasurer and Chief Financial Officer; Craig K. Clement - Vice President; and
Everett Waller -Vice President.
The ATSI Merger Corp. Board of Directors currently consists of four
members, two of whom are Class B directors and two of whom are Class C
directors. The Board of Directors intends to appoint a fifth director to serve
in the position of Class A director, and is currently in the process of
interviewing qualified candidates. Like the ATSI Board upon Domestication, one
of the three classes of ATSI Merger Corp. directors is to be elected each year
to hold office for a three-year term and until successors are elected and
qualified. The terms of the initial Class A, Class B and Class C directors of
the Company will expire at the 1997, 1998 and 1999 annual meetings,
respectively. Terry Colbert and Tomas Revesz will serve as Class B directors and
Arthur L. Smith and Murray R. Nye as Class C directors. Successors to those
directors whose terms have expired are required to be elected by stockholder
vote while vacancies in unexpired terms and any additional positions created by
board action are filled by action of the existing Board of Directors.
Additionally, Arthur L. Smith has been elected to the offices of President and
Chief Executive Officer of ATSI Merger Corp., H. Douglas Saathoff has been
elected to the offices of Secretary, Treasurer and Chief Financial Officer of
ATSI Merger Corp., and Craig K. Clement and Everett Waller have each been
elected a Vice President of ATSI Merger Corp., all to serve in such capacities
until the next annual meeting of the Board of Directors, or until their
respective successors have been duly elected and have been qualified, or until
their earlier death, resignation, disqualification or removal from office. There
is no family relationship among any of the directors and executive officers of
the Company or ATSI Merger Corp. The persons who are directors and executive
officers of ATSI Merger Corp. immediately prior to the Merger will continue to
be the directors and executive officers of the surviving corporation immediately
following the Merger. The following table sets forth the names, ages and
positions of the directors and executive officers of ATSI (following the
completion of the Domestication) and ATSI Merger Corp.:
<TABLE>
<CAPTION>
Name Age Position Held
- ---- --- -------------
<S> <C> <C>
Arthur L. Smith 31 President, Chief Executive Officer and Director
H. Douglas Saathoff 34 Secretary, Treasurer and Chief Financial Officer
Craig K. Clement 38 Vice President
Everett Waller 44 Vice President
Murray R. Nye 43 Director
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Name Age Position Held
- ---- --- -------------
<S> <C> <C>
Terry Colbert 42 Director
Tomas Revesz 59 Director
</TABLE>
Arthur L. Smith has served as President, Chief Operating Officer and a
director of ATSI since its formation in May 1994. From December 1993 until May
1994, Mr. Smith served in the same positions with Latcomm International Inc.,
which company amalgamated with Willingdon Resources Ltd. to form ATSI in May
1994. Mr. Smith has also served as President, Chief Executive Officer and a
director of ATSI Merger Corp. since May 1996, and has served as President and
Chief Executive Officer of ATSI-Texas since December 1993. From June 1989 to
December 1993, Mr. Smith was employed by Geocomm Partners, an international
telecommunications firm, as director of international sales. Mr. Smith has over
seven years experience in the telecommunications industry.
H. Douglas Saathoff, C.P.A., has served as Secretary and Treasurer of ATSI
since February, 1996, and has served as Secretary, Treasurer and Chief Financial
Officer of ATSI Merger Corp. since May 1996. Mr. Saathoff has also served as
Vice President-Finance of ATSI-Texas since June 1994, and as Secretary and
Treasurer of ATSI-Texas since October 1994. From May 1993 to May 1994, Mr.
Saathoff served in the position of Chief Accountant for Santa Rosa Healthcare
Corporation, a San Antonio-based healthcare corporation. From January 1990 to
February 1993, Mr. Saathoff served as Financial Reporting Manager for U.S. Long
Distance Corp., a San Antonio-based long distance telecommunications company.
Prior to that time, Mr. Saathoff served as an accountant with Arthur Andersen
LLP for approximately five years.
Craig K. Clement has served as Vice President-Corporate Development for
ATSI-Texas since August 1994. Mr. Clement has also served as Vice President of
ATSI Merger Corp. since May 1996. From April 1993 to July 1994, Mr. Clement
served as Vice President of Corporate Development for LATelco, a wireless
communications company. From February 1992 until March 1993, Mr. Clement served
as Vice President of Operations for CSI Environmental, an environmental cleanup
company. From August 1983 until July 1993, Mr. Clement served as President of
Yucca Oil Company, an oil and gas exploration company. Mr. Clement served as a
director of Geocommunications, Inc., a satellite networks company, from November
1987 to November 1991. Mr. Clement also served as a director of PANACO, a
Nasdaq-traded company, from 1988 to 1993, and was a member of the compensation
committee. In July 1993, Mr. Clement became unable to satisfy the personal
guarantee made by him on the corporate bank notes of Yucca Oil Company and, as a
result, filed for relief under Chapter 7 of the Bankruptcy Code. The obligations
of Mr. Clement were discharged in the bankruptcy case.
Everett Waller has served as Senior Vice President-Operations and Sales of
ATSI-Texas since August 1995. From May 1994 to August 1995, Mr. Waller served
as Vice President-Operations of ATSI-Texas. Prior to that time, Mr. Waller
served as Vice President of Technical Services of U.S. Long Distance Corp. for a
period of seven years.
Murray R. Nye has served as Chief Executive Officer and a director of ATSI
since its formation in May 1994. From December 1993 until May 1994, Mr. Nye
served in the same positions with Latcomm International Inc., which company
amalgamated with Willingdon Resources Ltd. to form ATSI in May 1994. Mr. Nye
has also served as a director of ATSI Merger Corp. since May 1996. From 1992 to
1995, Mr. Nye served as President of Kirriemuir Oil & Gas Ltd. From 1989 until
1992, Mr. Nye was self-employed as a consultant and Mr. Nye is again currently
self-employed as a consultant. Mr. Nye serves as a director of D.M.I.
Technologies, Inc., an Alberta Stock Exchange-traded company. It is anticipated
that upon completion of the Merger, Mr. Nye will be appointed to ATSI Merger
Corp.'s (or ATSI's in the event the Domestication occurs but the Merger does
not) Audit Committee and Compensation Committee.
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Terry Colbert has served as a director of ATSI Merger Corp. since May 1996.
Mr. Colbert has been a partner of Boles & Co., an investment banking firm which
provided investment banking services to ATSI during the current fiscal year,
since August 1995. From May 1988 to May 1995, Mr. Colbert served as Chairman,
Chief Executive Officer and President of Communications Central, Inc., which
became a publicly-traded company in October 1993. It is anticipated that upon
completion of the Merger, Mr. Colbert will be appointed to ATSI Merger Corp.'s
(or ATSI's in the event the Domestication occurs but the Merger does not) Audit
Committee and Compensation Committee.
Tomas Revesz has served as a director of ATSI Merger Corp. since May 1996.
Mr. Revesz has served as President of Long Distance International, Inc., a long
distance reseller, since October 1993. From 1983 to June 1993, Mr. Revesz
served as President of Star Long Distance, Inc., also a long distance reseller.
From January 1990 until August 1993, Mr. Revesz served as Vice President of
Operations of AAA Telephone & Communications, Inc., a telephone interconnection
company.
COMPENSATION OF DIRECTORS
Except for reimbursement of their reasonable out-of-pocket expenses in
connection with their travel to and attendance at meetings of the Board of
Directors or committees thereof, none of the directors of ATSI were compensated
in their capacity as a director by ATSI and its subsidiaries pursuant to any
other arrangement or in lieu of any standard arrangement. It is anticipated,
however, that all outside directors of ATSI Merger Corp., or ATSI in the event
the Domestication occurs but the Merger does not, will receive $1,000 per
meeting.
COMMITTEES OF THE BOARD OF DIRECTORS
It is anticipated that upon completion of the Merger, ATSI Merger Corp., or
ATSI in the event the Domestication is completed but the Merger is not, will
have an Audit Committee and a Compensation Committee. Neither ATSI Merger Corp.
nor ATSI, as the case may be, intends to have a nominating committee.
The Audit Committee will review and report to the Board of Directors the
scope and results of audits by ATSI Merger Corp.'s or ATSI's, as the case may
be, outside auditor. Such committee will also recommend a firm of certified
public accountants to serve as ATSI Merger Corp.'s or ATSI's, as the case may
be, independent public accountants, subject to nomination by the Board of
Directors and approval of the stockholders, authorize all audit and other
professional services rendered by the auditor and periodically review the
independence of the auditor. ATSI Merger Corp., or ATSI in the event the
Domestication is completed but the merger is not, intends to appoint Messrs. Nye
and Colbert to the Audit Committee.
The Compensation Committee will review and recommend to the Board of
Directors the compensation to be paid to the executive officers of ATSI Merger
corp. or ATSI, as the case may be. ATSI Merger Corp, or ATSI in the event the
Domestication is completed but the merger is not, intends to appoint Messrs. Nye
and Colbert to the Compensation Committee.
EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth all annual and
long-term compensation for services in all capacities to the Company and its
subsidiaries for the years ended July 31, 1995 and 1994 in respect of its Chief
Executive Officer (the "Named Executive Officer"). None of the executive
officers of the Company received total annual salary and bonus in excess of
$100,000 for the fiscal year ended July 31, 1995. Specific aspects of the
compensation of the Named Executive Officer are dealt with in further detail in
subsequent tables.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM COMPENSATION
--------------------------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
($ EXCEPT AS INDICATED)
------------------------------------------------------------------------------------
Other
Annual Restricted Securities All Other
Name and Compen- Stock Underlying LTIP Compen-
Principal Fiscal Bonus sation Award(s) Options/ Payouts sation
Position Year Salary ($) ($) ($)(3) ($) SARs(#) ($) ($)
--------- ------ --------- ----- ------- ---------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Arthur L. Smith(1)... 1995 61,813 - - - - - -
President and Chief 1994 37,500(2) - - - - - -
Operating Officer
</TABLE>
____________
(1) Mr. Smith currently serves as President and Chief Executive Officer of ATSI-
Texas, the wholly-owned subsidiary of ATSI, through which all of the
business of ATSI is conducted.
(2) The figure given reflects payment beginning in December 1993 (inception)
through July 31, 1994.
(3) Mr. Smith receives personal benefits in addition to salary; however, the
Company has concluded that the aggregate amounts of such personal benefits
do not exceed the lesser of $50,000 or 10% of Mr. Smith's annual salary and
bonus.
EMPLOYMENT AGREEMENTS
It is anticipated that immediately following the Domestication, ATSI will
enter into employment agreements with each of Messrs. Smith, Saathoff, Clement
and Waller, pursuant to which Mr. Smith will agree to serve as President and
Chief Executive Officer of the Company, Mr. Saathoff will agree to serve as
Secretary, Treasurer and Chief Financial Officer of the Company, Mr. Clement
will agree to serve as Vice President of the Company and Mr. Waller will
agree to serve as Vice President of the Company, each for a period of three
years (with automatic one-year extensions unless either the executive or Company
gives 120 days prior written notice of their intent not to renew), unless
earlier terminated in accordance with the terms of the respective agreements.
The annual base salary under such agreements for each of Messrs. Smith,
Saathoff, Clement and Waller is reviewed from time to time, but may not be less
than $80,000, $75,000, $90,000 and $82,500, respectively, per annum. In
addition, each of Messrs. Smith, Saathoff, Clement and Waller is eligible to
receive bonus payments in amounts to be determined by the Board of Directors
from time to time. Such bonus payments, however, may not exceed 50% of the
executive's base salary in any fiscal year.
Pursuant to each of Messrs. Smith's, Saathoff's, Clement's and Waller's
employment agreement, in the event of the executive's death during the term of
his agreement, the Company is required to pay to the executive's estate the base
salary at the rate in effect on the date of death for a period of six months.
In the event of the executive's disability, the Company is required to pay the
executive the base salary at the rate then in effect until the earliest of (i)
the conclusion of the then current term of executive's agreement or (ii) for a
period of six months. If the Company terminates the executive's employment
agreement without "cause" (as defined therein), the Company is required to pay
the executive his base salary at the rate then in effect until the third
anniversary of the effective date or until twelve months after the date of
termination, whichever period is longer. If the executive is terminated for
cause, the Company has no further obligations under the agreement. Should the
executive terminate his employment for "good reason" (as defined therein), the
Company is required to continue to pay the executive the base salary then in
effect until the third anniversary of the effective date or, in the event the
agreement has been automatically extended, until the next anniversary of the
effective date.
Each of the employment agreements also provides that the executive will not
interfere with the relationship of the Company and any employee, agent or
representative and the executive will not divert or attempt to divert from the
Company any business which provides telecommunications services from the United
States or Latin America until the third anniversary of the effective date or, in
the event the agreement has been
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automatically extended, until the next anniversary of the effective date, or
until twelve months after the date of termination of executive, whichever period
is longer. Pursuant to the terms of each of the employment agreements, each
executive will also agree that during the term he performs services for the
Company and for a period of 36 months after termination thereof he will not
directly or indirectly own, manage, operate, control, be employed by,
participate in, or be connected in any manner with the ownership, management,
operation, or control of any business or enterprise which provides
telecommunications services in the United States or Latin America.
1996 OPTION PLAN
In June 1996, the Board of Directors unanimously adopted the American
Telesource International Inc. 1996 Stock Option Plan (the "1996 Option Plan")
and directed that the 1996 Option Plan be submitted to the shareholders for
their approval. For a summary of the 1996 Option Plan, see "The 1996 Option
Plan--Summary of the 1996 Option Plan."
EXCULPATORY CHARTER PROVISION
Each ATSI Company has included in its Delaware Certificate of Incorporation
provisions to eliminate the personal liability of its directors for monetary
damages resulting from breaches of their fiduciary duty; provided, however, that
such provisions do not eliminate liability for breaches of the duty of loyalty;
acts or omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, violations under Section 174 of the DGCL concerning
the unlawful payment of dividends or stock redemptions or repurchases or for any
transactions from which the director derived an improper personal benefit.
Additionally, each ATSI Company has included in its Delaware Certificate of
Incorporation provisions to indemnify each director and officer of each such
Company who may be indemnified, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law ("Section 145"), as it may be amended
from time to time, in each and every situation where such ATSI Company is
obligated to make such indemnification pursuant to Section 145. In addition,
each ATSI Company will indemnify each of its directors and officers in each and
every situation where, under Section 145, such ATSI Company is not obligated,
but is permitted or empowered, to make such indemnification. Each ATSI Company
may, in the sole discretion of the Board, indemnify any other person who may be
indemnified pursuant to Section 145 to the extent the Board deems advisable, as
permitted by such section. Each ATSI Company will promptly make or cause to be
made any determination which Section 145 requires. Each ATSI Company believes
that these provisions are necessary to attract and retain qualified persons as
directors and officers.
Each ATSI Company has entered into or intends to enter into indemnification
agreements with each of its directors and its executive officers. The
indemnification agreements provide that the Company shall indemnify these
individuals against certain liabilities (including settlements) and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation (other than actions brought by
or in the right of the Company) to which any of them is, or is threatened to be,
made a party by reason of their status as a director, officer or agent of the
Company, provided that such individual acted in good faith and in a manner he or
she reasonably believed to be in or not opposed to the best interests of the
Company, and with respect to any criminal proceedings, had no reasonable cause
to believe his or her conduct was unlawful. With respect to any action brought
by or in the right of the Company, such individuals may also be indemnified, to
the extent not prohibited by applicable laws or as determined by a court of
competent jurisdiction, against expenses actually and reasonably incurred by
them in connection with such action if they acted in good faith and in a manner
they reasonably believed to be in or not opposed to the best interests of the
Company. The agreements also require indemnification of such individuals for
all reasonable expenses incurred in connection with the successful defense of
any action or claim and provide for partial indemnification in the case of any
partially successful defense.
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CERTAIN TRANSACTIONS
In December 1995 ATSI entered into an agreement with Boles & Company, Inc.
("BCI"), an investment banking firm of which ATSI Merger Corp. director Terry
Colbert is a partner, for the provision of certain investment banking services,
including the location of a potential long-term strategic investment partner.
On April 24, 1996, this agreement was extended for a period of 120 days. As
compensation for providing services, BCI will receive an engagement fee of
$15,000 in Common Shares for each month during the term of the agreement. Upon
completion of an equity financing, BCI will receive a fee equal to 6% of the
first $10,000,000 of each such financing and 4% of all amounts in excess of
$10,000,000. Upon completion of a non-convertible subordinated debt financing,
BCI will receive a fee equal to 4% of the first $10,000,000 of each such
financing and 3.5% of all amounts in excess of $10,000,000. Upon completion of
a senior debt financing, BCI will receive a fee equal to 2% of all amounts of
senior debt and non-subordinated debt financed. In the event that transactions,
business associations or other arrangements are initiated by BCI and concluded
with BCI's active involvement, then BCI and ATSI will negotiate in good faith
the amount of completion fees due BCI. In the event that a financing
transaction is concluded with certain other entities, BCI's success fee will be
30% of the fees set forth above.
Upon the successful closing of each financing transaction, ATSI will issue
to BCI warrants to purchase up to 5% of the amount of Common Shares associated
with each financing (or such amount of Common Shares as is equal to 5% of the
proceeds received in connection with each financing). Such warrants will be
exercisable for a period of 48 months following the closing of the transaction.
All monthly engagement fees will be credited to completion fees due BCI.
It is also anticipated that ATSI will execute a service agreement with
ATSI-Mexico during the current fiscal year to provide, among other things,
engineering, maintenance and network access services. An independent accounting
firm will audit the prices charged by ATSI for the performance of such services
to ensure that such prices will be competitive.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Shares (without taking into effect the one-for-two
reverse stock split to be effected in the First Consolidation) as of May 15,
1996, by (i) each person known by the Company to beneficially own more than 5%
of such shares, (ii) each current and anticipated director of the Company, (iii)
the Named Executive Officer, and (iv) all directors and executive officers as a
group.
<TABLE>
<CAPTION>
Shares
Beneficially
Name Owned(1) Percent of Class
- ---- ----------------- --------------------
<S> <C> <C>
Arthur L. Smith 2,538,767 12.72%
12500 Network Blvd., Suite 407
San Antonio, Texas 78249
Murray R. Nye 215,000 1.1%
John R. Moses(2) - *
Terry Colbert(3) - *
Tomas Revesz(3) - *
All directors and officers as a group (8 persons)(5) 2,930,751 14.68%
</TABLE>
____________________
* Less than 1%
(1) To the knowledge of the Company, each person named in the table has sole
voting and investment power with respect to all Common Shares shown as
beneficially owned by him, subject to applicable community property law
where applicable. Common Shares that are not outstanding but that may be
acquired by a person upon exercise of options or warrants within 60 days of
the date of this information are deemed outstanding for the purpose of
computing the percentage of outstanding shares beneficially owned by such
person. However, such shares are not deemed to be outstanding for the
purpose of computing the percentage of outstanding shares beneficially owned
by any other person.
(2) It is anticipated that Mr. Moses will resign as a director upon completion
of the Domestication.
(3) It is anticipated that such person will be elected as a director upon
completion of the Domestication.
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DESCRIPTION OF THE ATSI MERGER CORP. SECURITIES
The following summary description of the capital stock of ATSI Merger Corp.
does not purport to be complete and is qualified in its entirety by reference to
the ATSI Merger Corp. Certificate and Bylaws, copies of which are attached as
Exhibit H and Exhibit I, respectively. Furthermore, except as noted, the
following discussion describes the capital stock of the Company assuming that
the Domestication and Merger have already been effected. If the Domestication
occurs but the Merger does not, the following description will also apply to the
securities of ATSI as a Delaware corporation. (Currently, the authorized capital
stock of ATSI consists of an unlimited number of Common Shares, no par value per
share.)
GENERAL
The authorized capital stock of ATSI Merger Corp. consists of 55,000,000
shares of Common Stock, $0.001 par value per share, 9,982,656 of which (assuming
a one-for-two share consolidation to be effected in the First Consolidation)
will be issued and outstanding immediately following the Merger, and 5,000,000
shares of Preferred Stock, par value $0.001 per share ("Preferred Stock"), none
of which will be issued and outstanding immediately following the Merger.
COMMON STOCK
Subject to the rights of holders of Preferred Stock then outstanding,
holders of Common Stock are entitled to receive such dividends as may from time
to time be declared by the Board of Directors of ATSI Merger Corp. Holders of
Common Stock are entitled to one vote per share on all matters on which the
holders of Common Stock are entitled to vote. Because holders of Common Stock do
not have cumulative voting rights, the holders of a majority of the shares of
Common Stock represented at a meeting can select all of the directors. In
addition, super majority voting requirements apply in respect of certain
stockholder actions.
Holders of Common Stock have no preemptive rights to subscribe for any
additional securities that ATSI Merger Corp. may issue and there are no
redemption provisions or sinking fund provisions applicable to the Common Stock,
nor is the Common Stock subject to calls or assessments by ATSI Merger Corp. All
shares of Common Stock to be outstanding upon completion of the Domestication
and Merger will be legally issued, fully paid and nonassessable. Upon the
liquidation, dissolution or winding up of ATSI Merger Corp., holders of the
shares of Common Stock are entitled to share equally, share-for-share, in the
assets available for distribution after payment to all creditors of ATSI Merger
Corp., subject to the rights, if any, of the holders of any outstanding shares
of Preferred Stock.
PREFERRED STOCK
Pursuant to the ATSI Merger Corp. Certificate, the Board of Directors of
ATSI Merger Corp. is authorized, subject to any limitations prescribed by law,
to provide for the issuance of shares of Preferred Stock from time to time in
one or more series and to establish the number of shares to be included in each
such series and to fix the designation, powers, preferences and relative,
participating, optional and other special rights of the shares of each such
series and any qualifications, limitations or restrictions thereof. Because the
Board of Directors has such power to establish the powers, preferences and
rights of each series, it may afford the holders of Preferred Stock preferences,
powers and rights (including voting rights) senior to the rights of the holders
of Common Stock. Although ATSI Merger Corp. has no current intention to issue
shares of Preferred Stock, the issuance of such shares, or the issuance of
rights to purchase such shares, could be used to discourage an unsolicited
acquisition proposal.
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<PAGE>
WARRANTS AND CONVERTIBLE SECURITIES
The following table describes the terms of certain warrants ATSI has
outstanding. The number of underlying Common Shares does not give effect to the
Consolidation.
<TABLE>
<CAPTION>
NUMBER OF EXERCISE
UNDERLYING SHARES PRICE($) EXPIRATION DATE
------------------- ------------ -------------------
<S> <C> <C>
180,000 $1.25 November 29, 1996
875,000 $0.50 March 30, 1997
2,359,375 $1.00 June 23, 1997
100,000 $2.00 October 25, 1997
153,088 $0.75 February 28, 1998
250,000 $1.00 November 13, 1998
1,062,500 $1.00 December 15, 1998
30,000 $0.50 December 31, 1999
TOTAL 5,009,963
=========
</TABLE>
ATSI has also agreed to issue warrants to Boles & Company, Inc. ("BCI"), of
which ATSI Merger Corp. director Terry Colbert is a partner, pursuant to the
agreement to provide investment banking services entered into between ATSI and
BCI, to purchase up to 5% of the amount of Common Shares associated with each
financing transaction (or such amount of Common Shares as is equal to 5% of the
proceeds received in connection with each financing), upon the successful
closing of such transaction.
The Company currently has no outstanding options.
The Company has guaranteed a 12% convertible promissory note in the
original principal amount of $100,000.00 made by ATSI-Texas, due on July 1,
1996. Pursuant to the terms of such note, upon maturity the payee has the option
to (i) be repaid the principal amount of the note plus accrued interest thereon,
(ii) exchange the note for Common Shares on the basis of two Common Shares for
each dollar of principal and interest then outstanding on the note, or (iii)
extend the note at 12% interest for consecutive 90-day periods with the same
right of exchange. The note has thus far been extended in this manner five
times.
PROVISIONS HAVING POSSIBLE ANTI-TAKEOVER EFFECTS
The Certificate of Incorporation (the "Certificate") and the Bylaws of ATSI
Merger Corp. contain provisions that could have an anti-takeover effect. These
provisions are intended to enhance the likelihood of continuity and stability in
the composition of the Board of Directors and in the policies formulated by the
Board of Directors and to discourage certain types of transactions which may
involve an actual or threatened change of control of ATSI Merger Corp. The
provisions are designed to reduce the vulnerability of ATSI Merger Corp. to an
unsolicited proposal for a takeover of ATSI Merger Corp. that does not
contemplate the acquisition of all of its outstanding shares or an unsolicited
proposal for the restructuring or sale of all or part of ATSI Merger Corp. The
provisions are also intended to discourage certain tactics that may be used in
proxy contests. Set forth below is a description of such provisions in the
Certificate and the Bylaws. The Board of Directors has no current plant to
formulate or effect additional measures that could have an anti-takeover effect.
Pursuant to the Certificate, directors, other than those, if any, elected
by the holders of Preferred Stock, can be removed from office by the affirmative
vote of the holders of 66% of the voting power of the then outstanding shares
of capital stock entitled to vote thereon ("Voting Stock"). Vacancies on the
Board of Directors may be filled by the remaining directors without stockholder
approval.
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<PAGE>
The Certificate provides for the Board of Directors to be divided into
three classes, with staggered three-year terms. As a result, only one class of
directors will be elected at each annual meeting of stockholders of ATSI Merger
Corp., with the other classes continuing for the remainder of their respective
three-year term. The classification of the Board of Directors makes it more
difficult to replace the Board of Directors as well as for another party to
obtain control of ATSI Merger Corp. by replacing the Board of Directors. Since
the Board of Directors has the power to retain and discharge officers of ATSI
Merger Corp., these provisions could also make it more difficult for existing
stockholders or another party to effect a change in management.
ATSI Merger Corp. is subject to the provisions of Section 203 of the DGCL.
In general, Section 203 prohibits a publicly-held Delaware corporation from
engaging in a "business transaction" with an "interested stockholder" for a
period of three years after the date that the person became an interested
stockholder unless (with certain exceptions) the business combination or the
transaction in which the person became an interested stockholder is approved in
a prescribed manner. A "business combination" generally includes, without
limitation, a merger, assets or stock sale, or a transaction resulting in a
financial benefit to the interested stockholder. An "interested stockholder"
generally is a person who, together with affiliates and associates, owns (or
within three years prior, did own) 15% or more of a corporation's outstanding
voting stock.
The Certificate provides that except as otherwise provided for with respect
to the rights of holders of Preferred Stock, no action that is required or
permitted to be taken by the stockholders of ATSI Merger Corp. at any annual or
special meeting of the stockholders may be effected by written consent of the
stockholders in lieu of a meeting of stockholders, unless the actions to be
effected by written consent of the stockholders and the taking of such action by
such written consent has been expressly approved in advance by the Board of
Directors. This provision makes it difficult for stockholders to initiate or
effect an action by written consent, and thereby effect an action opposed by the
Board of Directors. The Certificate and Bylaws also provide that special
meetings of stockholders may be called only by the Chief Executive Officer or a
majority of the Board of Directors of ATSI Merger Corp. In addition, the Bylaws
set forth an advance notice procedure with regard to business to be brought
before an annual meeting of stockholders of ATSI Merger Corp.
The Certificate further provides that the Board of Directors, by a majority
vote, may adopt, alter, amend or repeal provisions of the Bylaws. However,
stockholders may only adopt, alter, amend or repeal provisions of the Bylaws by
a vote of 66% or more of the combined voting power of the then outstanding
Voting Stock. In addition, the Certificate provides that whenever any vote of
Voting Stock is required by law to amend, alter, repeal or rescind ("Change")
any provision thereof, then, in addition to any affirmative vote required by law
the affirmative vote of 66% or more of the combined voting power of the then
outstanding shares of Voting Stock is required to Change certain provisions of
the Certificate, including the provisions referred to above relating to
interested stockholder transactions, the filling of vacancies on the Board of
Directors, the removal of directors, the limitations on stockholder action by
written consent, the calling of special meetings by stockholders and the
approval of amendments to the ATSI Merger Corp.'s Bylaws.
Pursuant to the Certificate, the Board of Directors is also authorized to
issue shares of "blank check" preferred stock that may have the effect of
discouraging an unsolicited acquisition proposal. See "--Preferred Stock."
CANADIAN DEALING NETWORK
The Company's Common Shares are currently listed on the Canadian Dealing
Network under the symbol ATIL.CDN. ATSI expects that the ATSI Merger Corp.
Common Stock will be listed on the Canadian Dealing Network upon the
effectiveness of the Merger. Furthermore, the Company, or ATSI Merger Corp. in
the event the Merger occurs, may in the future apply for listing on the Nasdaq
National Market, Nasdaq SmallCap Market or another securities market or
exchange, which listing may require the satisfaction of certain conditions,
including without limitation minimum per share price requirements.
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<PAGE>
EXCHANGE AGENT, TRANSFER AGENT AND REGISTRARS
The Exchange Agent for exchange of stock certificates following the Merger
will be The R-M Trust Company, at its principal offices at 393 University
Avenue, Toronto, Ontario, M5G 1E6. The Transfer Agent and Registrar for the
Common Shares is The R-M Trust Company.
DIVIDEND POLICY
The Company has never paid cash dividends on its common equity securities.
The Company's current policy is to retain earnings, if any, to finance the
anticipated growth of its business. Any further determination as to the payment
of dividends will be made at the discretion of the Board of Directors and will
depend upon the Company's operating results, financial condition, capital
requirements, general business conditions and such other factors as the Board of
Directors deems relevant. The Company may procure credit from third parties for
additional capital for expansion and business development activities. It is
likely that any credit facility procured by the Company may limit or restrict
the Company's ability to pay cash dividends on the Common Stock under certain
circumstances.
REGISTRATION RIGHTS
The 30,000 warrants issued to Robert G. Watt contain "piggyback"
registration rights that allow the holders thereof to require the Company to
register the underlying shares of common stock in the event the Company files a
registration statement under the Securities Act. These rights expire in December
31, 1999.
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<PAGE>
CANADIAN AND UNITED STATES INCOME TAX CONSIDERATIONS
The Consolidation, Domestication and Merger will result in certain income
tax consequences in both the United States and Canada, which management believes
will have a positive effect on the Company by reducing, over the long term,
income taxes paid by the Company and giving the Company the flexibility to enter
into certain types of mergers, acquisitions and combination transactions with
United States corporations which could result in adverse tax consequences absent
the Domestication. Certain tax consequences of the Consolidation, Domestication
and Merger are summarized below.
THE FOLLOWING SUMMARY IS OF A GENERAL NATURE ONLY AND IT IS NOT INTENDED TO
BE, NOR SHOULD IT BE CONSTRUED TO BE, LEGAL OR TAX ADVICE TO ANY SHAREHOLDER OR
HOLDER OF WARRANTS OF THE COMPANY. ACCORDINGLY, SHAREHOLDERS AND HOLDERS OF
WARRANTS OF THE COMPANY SHOULD CONSULT THEIR OWN TAX ADVISORS FOR ADVICE WITH
RESPECT TO THE FEDERAL INCOME TAX CONSEQUENCES TO THEM OF THE PROPOSED
CONSOLIDATION, DOMESTICATION, THE EXERCISE OF DISSENT RIGHTS AND THE PROPOSED
MERGER.
UNITED STATES TAX CONSEQUENCES
GENERAL
The following is a summary of the material United States federal income tax
consequences of the Consolidation, Domestication and Merger (collectively, the
"Domestication Transactions") and the material United States federal income and
estate tax consequences to Non-U.S. Holders (as defined below) of holding and
disposing of the Common Stock (as defined below) of ATSI Merger Corp.
The summary is based on current law, which is subject to change (possible
retroactively). The summary does not discuss all aspects of United States
taxation that may be relevant to security holders in light of their personal
investment circumstances or to certain security holders subject to special
treatment under United States tax laws (such as securities dealers, tax-exempt
entities (including qualified retirement plans) and insurance companies) and
does not discuss the tax consequences under state, local, or foreign laws. In
particular, this summary does not discuss the tax consequences to holders of
Warrants who have received their Warrants in connection with services rendered
to the Company. Security holders are urged to consult their own tax advisors
regarding the federal, state, local, and other tax considerations of
participating in the Domestication Transactions and of holding and disposing of
shares of ATSI Merger Corp and Warrants.
The term "U.S. Holder" means a beneficial owner of the stock of the Company
that is for United States federal income tax purposes (i) a citizen or resident
of the United States, (ii) a corporation or partnership created or organized in
the United States or under the laws of the United States or of any State thereof
or (iii) an estate or trust whose income is includable in gross income for
United States federal income tax purposes regardless of its source. The term
"Non-U.S. Holder" means a beneficial owner of the stock of the Company that is
not a U.S. Holder.
CONSEQUENCES TO THE COMPANY
Consolidation. The Consolidation will not constitute a taxable event to
the Company for United States federal income tax purposes.
Domestication and Merger. Although the matter is not free of doubt, the
Company believes that the Domestication and Merger will be treated as a single
transaction for United States federal income tax purposes by which ATSI
transfers its assets to ATSI Merger Corp. and ATSI Merger Corp. issues its
Common Stock in exchange for the Common Shares of ATSI. Further, the Company
believes that the Domestication and
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<PAGE>
Merger will qualify as a reorganization within the meaning of Section
368(a)(1)(F) of the Internal Revenue Code of 1986. Accordingly, the Company will
recognize no gain and will incur no United States federal income tax as a result
of the Domestication and Merger.
CONSEQUENCES OF THE DOMESTICATION TRANSACTIONS TO U.S. HOLDERS
Consolidation. Generally, U.S. Holders exchanging shares in the
Consolidation will not recognize gain or loss on such exchange. However, a U.S.
Holder who has held 10% or more of the total voting power of all classes of
stock of the Company entitled to vote at any time during the five year period
ending on the date of the Consolidation would include in income its pro rata
portion of certain of ATSI's earnings and profits. Management of the Company has
determined that the Company has no earnings and profits for this purpose.
Subsequent to the Consolidation, each U.S. Holder of Common Shares will have an
aggregate adjusted tax basis in its Common Shares equal to such U.S. Holder's
aggregate adjusted tax basis prior to the Consolidation.
Domestication and Merger. U.S. Holders who exchange their Common Shares in
ATSI for Common Stock in ATSI Merger Corp. pursuant to the Domestication and
Merger will recognize no gain or loss for United States federal income tax
purposes. A U.S. Holder who dissents from the Domestication and Merger and
receives cash in exchange for his Common Shares will recognize gain or loss,
measured by the difference between the Holder's basis in his Common Shares and
the amount of cash received.
The total basis of Common Stock received by a shareholder will equal his
total basis in the Common Shares surrendered in the exchange. The holding period
for Common Stock will be the same as such shareholder's holding period for the
Common Shares surrendered, provided that the shares were held as a capital
asset.
Generally, a shareholder's basis in each share of the Common Stock received
would equal such shareholder's total basis in the Common Shares surrendered
divided by the total number of shares of Common Stock received. However, the
basis and holding period of specific shares of Common Stock (including shares of
different classes) may be determined solely by reference to the basis and
holding period of specific Common Shares surrendered if the shareholder can
specifically identify such shares.
Pursuant to Temporary Treasury regulation Section 7.367(b)-7(c), exchanging
U.S. Holders who have held 10% or more of the total voting power of all classes
of stock of the Company entitled to vote at any time during the 5 year period
ending on the effective date of the Domestication and Merger would include in
income (as dividend income) their pro rata portion of ATSI's earnings and
profits attributable to the stock exchanged to the extent that the fair market
value of the stock exchanged exceeds its basis. The basis of the Common Stock
received by certain foreign corporations treated as U.S. Holders pursuant to
Temporary Treasury regulation Section 7.367(b)-2(b) would then be increased by
such amount. However, management has determined that the Company has no earnings
and profits for this purpose.
Each exchanging U.S. Holder must file with his District Director of the
Internal Revenue Service on or before the last day for filing his federal income
tax return (determined by taking into account any extensions of time therefor)
for the year in which the Domestication Transactions are consummated, the notice
required by Temporary Treasury regulation Section 7.367(b)-1(c). Any such U.S.
Holder who fails to file the necessary notice and who fails to establish
reasonable cause for such failure may be denied the benefit of the federal
income tax consequences specified above.
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<PAGE>
CONSEQUENCES OF THE DOMESTICATION AND MERGER TO NON-U.S. HOLDERS
A Non-U.S. Holder who dissents and receives cash in exchange of his Common
Shares will recognize gain or loss in the manner described above for U.S.
Holders. A Non-U.S. Holder will not be subject to United States federal income
tax with respect to capital gains unless (i) such gain is effectively connected
with the conduct of a trade or business within the United States by such holder,
(ii) such holder is an individual who has been present in the United States for
at least 183 days during the taxable year of the disposition, the Common Stock
is a capital asset and either (a) such individual's "tax home" for federal
income tax purposes is in the United States or (b) the gain is attributable to
an office or other fixed place of business maintained in the United States by
such individual, or (iii) the Company is or has been a "United States real
property holding corporation" for federal income tax purposes and the Non-U.S.
Holder owned directly or pursuant to certain attribution rules at any time
during the five-year period ending on the date of disposition more than 5% of
the Company's Common Stock (assuming that Common Stock is regularly traded on an
established securities market). The Company believes that it is not presently a
United States real property holding corporation.
CONSEQUENCES OF THE DOMESTICATION AND MERGER ON HOLDERS OF WARRANTS
Although the matter is not free from doubt, for United States federal
income tax purposes, the Domestication and Merger should not result in the
recognition of gain or loss under Section 1001 of the Code to the holders of
Warrants in ATSI. The IRS or the courts could disagree with this
characterization of the results to Warrant holders and instead treat the
transaction in connection with the Warrants as a taxable exchange. In such
event, each U.S. Holder of Warrants will recognize gain or loss on the exchange
equal to the difference between the fair market value of its Warrants prior to
the Merger and the adjusted tax basis of its Warrants of ATSI (which such gain
or loss will be capital gain or loss if the Warrants are capital assets that
have been held for more than one year). Non-U.S. Holders of Warrants will not be
subject to United States federal income tax with respect to capital gains
(resulting from the Merger) unless (i) such gain is effectively connected with
the conduct of a trade or business within the United States by such holder, (ii)
such holder is an individual who has been present in the United States for at
least 183 days during the taxable year of the disposition, the Warrants are
capital assets and either (a) such individual's "tax home" for federal income
tax purposes is in the United States or (b) the gain is attributable to an
office or other fixed place of business maintained in the United States by such
individual, or (iii) the Company is or has been a "United States real property
holding corporation" for federal income tax purposes and the Non-U.S. Holder of
Warrants is treated as owning directly or indirectly or pursuant to certain
attribution rules at any time during the five-year period ending on the date of
disposition more than 5% of the Company's Common Stock (assuming that the Common
Stock is regularly traded on an established securities market). The Company
believes that it is not presently a United States real property holding
corporation. Each holder of Warrants is urged to consult its own tax advisor
regarding the tax consequences of the Domestication and Merger on its particular
circumstances. See "Risk Factors--Risks Relating to Ownership of Company
Securities and this Offering--Tax Consequences of the Domestication and Merger
on Holders of Warrants."
CONSEQUENCES TO NON-U.S. HOLDERS OF OWNING AND DISPOSING OF ATSI MERGER
CORP. COMMON STOCK
Dividends. Generally, dividends paid to a Non-U.S. Holder of Common Stock
will be subject to United States withholding tax at the rate of 30% of the
amount of the dividend, or at a lower applicable treaty rate. Under the income
tax treaty between the United States and Canada, the withholding tax rate on
dividends paid to most shareholders who are resident in Canada will be 15%. In
the case of Canadian corporations that beneficially own 10% or more of the
voting stock of ATSI Merger Corp., such withholding rate will be 5% (6% if paid
in 1996). Under current Treasury regulations, dividends paid to an address
outside the United States are presumed to be paid to a resident of such country
for purposes of determining the applicability of a treaty rate. Under proposed
Treasury regulations not currently in effect, however, a holder of Common
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<PAGE>
Stock who wished to claim the benefit of an applicable treaty rate would be
required to file certain forms with the Company or its agent. Such Forms would
contain the holder's name and address and other pertinent information certified
by such holder under penalties of perjury.
If, however, the dividend is effectively connected with the conduct of a
trade or business within the United States by a Non-U.S. Holder, the dividend
will be subject to regular United States federal income tax, which is not
collected by withholding, provided the Non-U.S. Holder files an Internal Revenue
Service Form 4224 with the Company or its agent in accordance with current
treasury regulations. Moreover, in the case of a Non-U.S. Holder that is a
corporation, a branch profits tax at the rate of 30% (or a lower applicable
treaty rate) may be imposed on such corporation on its earnings (including
dividends) effectively connected with a United States trade or business to the
extent that such earnings are considered to be repatriated away from the United
States trade or business.
Sale of Common Stock. A Non-U.S. Holder will not be subject to United
States federal income tax on any gain recognized upon the sale (or other
disposition) of Common Stock unless (i) such gain is effectively connected with
the conduct of a trade or business within the United States by such holder, (ii)
such holder is an individual who has been present in the United States for at
least 183 days during the taxable year of the disposition, the Common Stock is a
capital asset and either (a) such individual's "tax home" for federal income tax
purposes is in the United States or (b) the gain is attributable to an office or
other fixed place of business maintained in the United States by such
individual, or (iii) the Company is or has been a "United States real property
holding corporation" for federal income tax purposes and the Non-U.S. Holder
owned directly or pursuant to certain attribution rules at any time during the
five-year period ending on the date of disposition more than 5% of the Company's
Common Stock (assuming that Common Stock is regularly traded on an established
securities market). The Company believes that it is not presently a United
States real property holding corporation.
Estate Tax. Common Stock owned (or treated as owned) by an individual who,
at the time of death, is neither a citizen or a domiciliary of the United States
will be includable in his gross estate for United States federal estate tax
purposes and thus may be subject to United States estate tax, unless an
applicable estate tax treaty provides otherwise.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company must report annually to the Internal Revenue Service and to
each shareholder the amount of cash proceeds paid as a result of the
Domestication Transactions and dividends paid to, and the tax withheld with
respect to, each shareholder. These reporting requirements apply regardless of
whether withholding was reduced by an applicable tax treaty or not required.
Copies of these information returns may also be made available under the
provisions of a specific treaty or agreement with the tax authorities in the
country in which a Non-U.S. Holder resides.
Shareholders may be subject to backup withholding at the rate of 31% with
respect to cash proceeds from the Domestication Transactions, gross proceeds
from the sale of the Common Stock, or dividends paid on the Common Stock, unless
such holder (a) is a corporation or comes within certain other exempt categories
or (b) provides a correct taxpayer identification number, certifies as to no
loss of exemption from backup withholding, and otherwise complies with
applicable requirements of the backup withholding rules. A shareholder who does
not provide the Company with his correct taxpayer identification number may be
subject to penalties imposed by the Internal Revenue Service. United States
backup withholding tax will generally not apply to payments to a payee at an
address outside the United States unless the payor has knowledge that the payee
is a United States person.
Payment to a Non-U.S. Holder of the proceeds of a sale of Common Stock to
or through a United States office of a broker will be subject to information
reporting and backup withholding unless the holder certifies
86
<PAGE>
as to its status as a Non-U.S. Holder under penalties of perjury or otherwise
establishes an exemption. Payment of the proceeds of a sale of Common Stock to
or through a non-U.S. office of a broker generally will not be subject to backup
withholding or information reporting; however, if such holder is (i) a United
States person, (ii) a "controlled foreign corporation," or (iii) a foreign
person that derives 50% or more of its gross income from the conduct of a trade
or business in the United States, such payment will be subject to information
reporting (but currently not backup withholding) unless such broker has
documentary evidence in its records that the holder is a Non-U.S. Holder and
certain other conditions are met or the holder otherwise establishes an
exemption.
Any amounts withheld under the backup withholding rules will be credited
against the shareholder's federal income tax liability, if any, or refunded,
provided the required information is furnished to the Internal Revenue Service.
CANADIAN FEDERAL INCOME TAX CONSEQUENCES
The following is a general summary of the principal Canadian federal income
tax consequences under the Income Tax Act (Canada) (the "Canadian Act") and the
Canada-US Tax Convention (1980) (the "U.S. Treaty") of the Consolidation,
Continuance and Merger and the exercise of dissent rights as described herein to
shareholders and holders of Warrants of the Company.
This summary is based upon and takes into account the current provisions of
the Canadian Act and the current regulations thereunder (the "Regulations"), all
specific proposals to amend the Canadian Act and the Regulations publicly
announced by the Minister of Finance prior to the date hereof (the
"Amendments"), and the Company's understanding of the current administrative
practices published by Revenue Canada ("RCT"). This summary does not otherwise
take into account or anticipate any changes in law, whether by judicial,
governmental or legislative decision or action, nor, except as specifically
noted herein, does it take into account tax laws or considerations of any
province or territory of Canada or any jurisdiction outside Canada. Moreover,
there can be no assurance that the Amendments will be enacted as proposed or
that the Canadian Act, the Regulations thereunder or the administrative
practices of RCT, respectively, will not change, in a manner which will affect
the tax consequences of the transactions to the Company, the shareholders or the
holders of Warrants.
This summary is based on the facts and agreements described herein and is
also based on the assurances of management of the Company that no other
transactions have been undertaken or are contemplated that would affect the
matters dealt with herein.
This summary is restricted to those shareholders and holders of Warrants of
the Company who, for purposes of the Canadian Act, are resident in Canada, deal
at arm's length with the Company and hold their shares or Warrants as capital
property. A share or Warrant will generally be capital property to holders
unless it is held in the course of carrying on a business of trading or dealing
in securities, has been acquired in a transaction or transactions considered to
be an adventure in the nature of trade, or is a mark-to-market property of
certain financial institutions.
This summary is of a general nature only, is not exhaustive of all
potentially relevant Canadian federal income tax considerations and is not
intended to be, nor should it be construed to be, legal or tax advice to any
particular shareholder or holder of Warrants. Therefore, shareholders and
holders of Warrants should consult their own tax advisers with respect to their
particular circumstances.
87
<PAGE>
CONSOLIDATION
The Consolidation will not constitute a taxable event for the Company's
shareholders or holders of Warrants. The Company's shareholders and holders of
Warrants will continue to hold their shares or Warrants at the same aggregate
adjusted cost base as before the Consolidation.
CONTINUANCE
Shareholders Consequences. The Continuance will not constitute a taxable
event for the Company's shareholders or holders of Warrants. Shareholders or
holders of Warrants of the Company will continue to hold their shares or
Warrants at the same adjusted cost base as before the Continuance.
Any dividends paid by the Company to its shareholders on the Common Shares
after the Continuance must be included in computing their income.
After the Continuance, in the case of shareholders who are individuals,
dividends received on Common Shares, as dividends on shares of a foreign
corporation, will not be entitled to the benefit of the gross up and dividend
tax credit rules in the Canadian Act. After the Continuance, in the case of
corporate shareholders of which the Company is not a foreign affiliate for
purposes of the Canadian Act, dividends received on Common Shares are not
deductible in computing taxable income.
Under the U.S. Treaty, the U.S. withholding tax on dividends paid by the
Company after the Continuance will be 15% in most cases, and 5% (6% for
dividends paid in 1996) in the case of a Canadian corporation that owns at least
10% of the voting stock of the Company at the time the dividend is paid.
U.S. withholding taxes imposed on such dividends may either be credited
against Canadian taxes payable by the investor, or deducted by such investor in
computing income for Canadian tax purposes, at the investor's option, subject to
the detailed rules in the Canadian Act in that regard.
Special rules apply to corporate shareholders that receive dividends from a
foreign affiliate and such shareholders are advised to consult their own tax
advisers with respect thereto.
Dissenting Shareholders. The consequences under the Canadian Act to a
shareholder who dissents from the Continuance described herein and who receives
a payment for his or her shares are discussed below.
The receipt by a dissenting shareholder of a cash payment from the Company
equal to the fair value of his or her Common Shares prior to the completion of
the Continuance will generally be treated as a dividend to the holder of such
shares to the extent that such payment exceeds the paid-up capital for purposes
of the Canadian Act of the subject shares. The balance of the fair value paid
(i.e. the amount equal to the paid-up capital of the shares) will generally be
treated as proceeds of disposition of the subject shares for capital gains
purposes. Consequently, such dissenting shareholders would realize a capital
gain (capital loss) to the extent that the proceeds of disposition he or she
receives for the share exceed (are exceeded by) the shareholder's adjusted cost
base thereof. Notwithstanding the foregoing, if the dissenting recipient
shareholder is a corporation resident in Canada, the full amount of the
redemption proceeds received may be treated under the Canadian Act as proceeds
of disposition, with the result that no dividend will be deemed to have been
paid to the shareholder and any gain or loss realized by it upon disposition of
the shares will be determined by reference to the full amount of the redemption
proceeds. Corporate shareholders should consult their own advisor with respect
to the applicability of these provisions.
If the dissenting shareholder receives such cash payment after the
Continuance, the payment will be treated as proceeds of disposition of the
subject shares for capital gains purposes. Accordingly, the dissenting
shareholder will realize a capital gain or loss as described above.
88
<PAGE>
Any capital loss arising on the exercise of dissent rights by a corporate
shareholder of the Company will be reduced by dividends received or deemed to be
received, including any deemed dividend arising from the exercise of dissent
rights, on the subject shares to the extent and under the circumstances
prescribed in the Canadian Act. Similar rules apply where a corporation is a
member of a partnership or a beneficiary of a trust that owns shares of the
Company. Under the Amendments, these rules will be extended to apply where a
trust or partnership is a member of a partnership or a beneficiary of a trust
that owns shares of the Company.
Company Consequences. The "corporate emigration" rules under the Canadian
Act will apply upon Continuance. Accordingly, the Company will be deemed to have
completed a taxation year immediately prior to it being granted articles of
continuance in Delaware. In addition, each property owned by the Company
immediately before the deemed year-end will be deemed to have been disposed by
it for proceeds of disposition equal to that property's fair market value and
immediately reacquired at a cost equal to such proceeds of disposition. Any
gains or losses derived by the Company from such deemed disposition of property
will be taken into account in determining the amount of the Company's taxable
income for the taxation year which ends immediately before the Continuance. The
amount of any taxable income so determined will be subject to tax in accordance
with the provisions of the Canadian Act.
The Company will also be required to pay a special branch tax applicable to
the amount by which the fair market value of the Company's property exceeds the
aggregate of its liabilities, including any liabilities under the Canadian Act
(other than the special branch tax itself), and the paid-up capital of its
issued and outstanding shares at the time of the Continuance. The rate of tax
under the U.S. Treaty is 6%, on the assumption that the Continuance occurs in
1996.
Following completion of the Continuance, the Company will be considered to
be a resident of the United States for Canadian tax purposes. Accordingly, it
would only be required to pay Canadian tax on Canadian-source income rather than
on its worldwide income.
MERGER
Company Consequences. The Company expects that there will be no material
adverse Canadian tax consequences to it from the Merger.
Shareholders Consequences. Unless a shareholder elects otherwise, the
shareholder will not realize a capital gain or a capital loss on the Merger. The
cost of the Common Stock of ATSI Merger Corp. received by a shareholder of ATSI
as a result of the Merger will be equal to the aggregate adjusted cost base of
the Common Shares that are so exchanged. Following the Merger, dividends
received on the ATSI Merger Corp. Common Stock will be treated in the same way
as dividends on the Common Shares received after the Continuance, as described
above.
Consequences to Holders of Warrants. While the matter is not free from
doubt, a holder of Warrants of ATSI will likely be regarded as having disposed
of the Warrants on the Merger for proceeds of disposition equal to the fair
market value of the Warrants, thereby giving rise to a capital gain (capital
loss) equal to the amount by which such proceeds of disposition exceed (are
exceeded by) the holder's adjusted cost base of the Warrants of ATSI.
ELIGIBILITY FOR INVESTMENT UNDER THE CANADIAN ACT
Following the Continuance, the Common Shares or the ATSI Merger Corp.
Common Stock, as the case may be, will not be qualified investments under the
Canadian Act for trusts governed by registered retirement savings plans,
registered retirement income funds and deferred profit sharing plans until the
Common Shares or the ATSI Merger Corp. Common Stock, as the case may be, are
listed on a prescribed stock exchange.
89
<PAGE>
Following the Continuance, the Common Shares or the ATSI Merger Corp. Common
Stock, as the case may be, will be considered foreign property for the purposes
of the foreign property limitations under the Canadian Act subject, however, to
a 24 month grace period that generally applies to shares that had been held, or
were exchanged on the Merger for shares that had been held, prior to the
Continuance. Pursuant to the Amendments, however, if an entity subject to the
foreign property limitations acquired all of its Common Shares after 1995,
otherwise than as a consequence of the exercise of rights acquired before 1996,
its Common Shares will be classified as foreign property from the time of
acquisition and it will not be eligible for such 24 month grace period.
LEGAL OPINIONS
Certain legal matters relating to the Domestication and Merger have been
passed upon for the Company by Akin, Gump, Strauss, Hauer & Feld, L.L.P., San
Antonio, Texas.
OTHER BUSINESS AT SPECIAL MEETING
While there is no business other than that mentioned in the Notice of Meeting
to be presented for action by the shareholders at the Meeting, it is intended
that the proxies for the Meeting solicited hereby will be exercised upon any
other matters and proposals that may properly come before the Meeting in
accordance with the discretion of the person authorized to act thereunder.
APPROVAL OF PROSPECTUS
This Prospectus and the enclosed forms of proxy, and the sending thereof the
shareholders of the Company, have been approved by the Board of Directors of the
Company.
Dated at San Antonio, Texas By Order of the Board of Directors
/s/ H. Douglas Saathoff
-----------------------------------
____________, 1996 Secretary
90
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF AMERICAN TELESOURCE INTERNATIONAL INC.
Report of Independent Public Accountants..................................................... F-2
Consolidated Balance Sheets as of July 31, 1994 and 1995 and January 31, 1996................ F-3
Consolidated Statements of Loss for the Period from December 17, 1993 (Inception)
through July 31, 1994, the Year ended July 31, 1995 and the Six-Month Periods ended
January 31, 1995 and 1996.................................................................... F-4
Consolidated Statements of Stockholders' Equity for the Period from December 17, 1993
(Inception) through July 31, 1994, the Year ended July 31, 1995 and the Six-Month Period
ended January 31, 1996....................................................................... F-5
Consolidated Statements of Cash Flows for the Period from December 17, 1993 (Inception)
through July 31, 1994, the Year ended July 31, 1995 and the Six-Month Periods ended
January 31, 1995 and 1996.................................................................... F-6
Notes to Consolidated Financial Statements................................................... F-7
</TABLE>
F - 1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
American Telesource International Inc.:
We have audited the accompanying consolidated balance sheets of American
Telesource International Inc. (an Ontario corporation) and subsidiaries as of
July 31, 1994 and 1995, and the related consolidated statements of loss,
stockholders' equity and cash flows for the period from December 17, 1993
through July 31, 1994 and the year ended July 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of American Telesource
International Inc. and subsidiaries as of July 31, 1994 and 1995, and the
results of their operations and their cash flows for the period from December
17, 1993 through July 31, 1994 and the year ended July 31, 1995, in conformity
with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 2 to the
financial statements, the Company has suffered recurring losses from operations
since inception, had a working capital deficit at July 31, 1995, and has limited
capital resources available to support further development of its operations.
Unaudited information indicates that such losses are continuing subsequent to
July 31, 1995. These matters raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 2. The financial statements do not include any
adjustments relating to the recoverability and classification of asset carrying
amounts or the amount and classification of liabilities that might result should
the Company be unable to continue as a going concern.
San Antonio, Texas
September 28, 1995
F - 2
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 31, January 31,
-------------- ------------- --------------
1994 1995 1996
-------------- ------------- --------------
(unaudited)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $117,540 $101,980 $691,593
Accounts receivable, net of allowance of $ 13,490, $ 143,546
and $ 262,296, respectively 112,965 430,704 462,272
Stock subscriptions receivable 75,000 350,000 -
Notes receivable, current - 37,251 35,168
Prepaid expenses 38,421 168,140 252,709
-------------- ------------- -------------
Total current assets 343,926 1,088,075 1,441,742
-------------- ------------- -------------
PROPERTY AND EQUIPMENT (At cost): 617,645 1,476,261 1,736,150
Less - Accumulated depreciation (7,984) (122,442) (231,467)
-------------- ------------- -------------
Net property and equipment 609,661 1,353,819 1,504,683
-------------- ------------- -------------
OTHER ASSETS, net:
Notes receivable, long-term - 18,580 -
Organization costs, net 95,252 112,061 120,127
Other, net - 193,172 243,145
-------------- ------------- -------------
Total assets $1,048,839 $2,765,707 $3,309,697
============== ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $97,056 $883,955 $887,992
Accrued liabilities 110,898 452,799 965,731
Notes payable - 132,704 100,000
Current portion of obligations under capital leases - - 24,459
Deferred revenue 22,335 64,987 797,891
-------------- ------------- -------------
Total current liabilities 230,289 1,534,445 2,776,073
-------------- ------------- -------------
LONG-TERM LIABILITIES:
Obligations under capital leases, less current portion - - 125,011
Customer deposits - - 50,065
-------------- ------------- -------------
- - 175,076
-------------- ------------- -------------
COMMITMENTS AND CONTINGENCIES (See Note 14)
STOCKHOLDERS' EQUITY:
Common shares, no par value, unlimited shares authorized,
12,473,675 issued and 12,186,175 outstanding at July 31, 1994;
18,272,447 issued and 18,197,447 outstanding at July 31, 1995;
19,502,118 issued and 19,427,118 outstanding at January 31, 1996
Accumulated deficit 1,216,902 3,633,781 4,181,766
Total stockholders' equity (398,352) (2,402,519) (3,823,218)
-------------- ------------- -------------
818,550 1,231,262 358,548
-------------- ------------- -------------
Total liabilities and stockholders' equity $1,048,839 $2,765,707 $3,309,697
============== ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF LOSS
<TABLE>
<CAPTION>
For the period from
December 17, 1993 (Inception) For the year ended For the six month periods ended
through July 31, 1994 July 31, 1995 January 31, 1995 January 31, 1996
----------------------------- ------------------- ------------------- --------------------
(unaudited)
<S> <C> <C> <C> <C>
OPERATING REVENUES:
Operator services $110,483 $4,469,529 $1,147,447 $4,302,932
Private network services 131,186 318,312 154,006 563,839
----------------------------- ------------------- ------------------- -------------------
Total operating revenues 241,669 4,787,841 1,301,453 4,866,771
----------------------------- ------------------- ------------------- -------------------
OPERATING EXPENSES:
Cost of services 201,258 4,061,091 1,198,517 4,061,275
Selling, general and administrative 373,226 2,588,428 961,637 2,093,718
Depreciation and amortization 10,713 140,798 51,147 122,195
----------------------------- -------------------- ------------------- -------------------
Total operating expenses 585,197 6,790,317 2,211,301 6,277,188
----------------------------- -------------------- ------------------- -------------------
OPERATING LOSS (343,528) (2,002,476) (909,848) (1,410,417)
OTHER INCOME (EXPENSE) - (1,691) 2,443 (10,282)
NET LOSS ($343,528) ($2,004,167) ($907,405) ($1,420,699)
============================= =================== =================== ===================
NET LOSS PER SHARE ($0.04) ($0.14) ($0.07) ($0.07)
============================= ==================== =================== ===================
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES OUTSTANDING 9,146,091 13,922,018 12,546,257 19,094,398
============================= =================== =================== ===================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Total
Common Shares Accumulated Stockholders'
-------------------------
Shares Amount Deficit Equity
------------ ---------- ------------ --------------
<S> <C> <C> <C> <C>
BALANCE, December 17, 1993 (Inception) - $ - $ - $ -
Contribution of capital - founding stockholders 10,490,307 922,835 - 922,835
Amalgamation 1,173,368 - (54,824) (54,824)
Issuances of common stock, net 522,500 294,067 - 294,067
Net loss - - (343,528) (343,528)
----------- ---------- ----------- -------------
BALANCE, July 31, 1994 12,186,175 1,216,902 (398,352) 818,550
Exercise of warrants 1,350,423 675,211 - 675,211
Issuances of common stock, net 4,660,849 1,741,668 - 1,741,668
Net loss - - (2,004,167) (2,004,167)
----------- ---------- ----------- -------------
BALANCE, July 31, 1995 18,197,447 3,633,781 (2,402,519) 1,231,262
Issuances of common stock, net (unaudited) 1,229,671 547,985 - 547,985
Net loss (unaudited) - - (1,420,699) (1,420,699)
----------- --------- ----------- -------------
BALANCE, January 31, 1996 (unaudited) 19,427,118 $ 4,181,766 $ (3,823,218) $ 358,548
=========== ========= =========== =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements
F-5
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
For the period from For the year For the six month periods
December 17, 1993 (Inception) ended July 31, ended January 31,
-----------------------------------
through July 31, 1994 1995 1995 1996
----------------------------- ----------------- --------------- ------------------
(unaudited)
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net loss ($343,528) ($2,004,167) ($907,405) ($1,420,699)
Adjustments to reconcile net loss to net cash used in
operating activities-
Depreciation and amortization 9,729 140,798 51,147 122,195
Deferred compensation - 11,111 - 16,667
Provision for losses on account 13,490 339,829 70,136 186,900
Changes in operating assets and liabilities-
Accounts receivable (126,455) (657,568) (246,515) (218,488)
Other assets - current and long-term (211,498) (281,970) (80,897) (91,523)
Accounts payable 97,056 786,899 505,101 4,038
Accrued liabilities 110,898 341,901 162,612 512,932
Deferred revenue 22,335 42,652 (22,335) 732,904
Other 1,080 - - 50,065
--------------------- ----------------- --------------- ------------------
Net cash used in operating activities (426,893) (1,280,515) (468,156) (104,988)
--------------------- ----------------- --------------- ------------------
Cash flows from investing activities:
Purchase of property and equipment (617,645) (858,616) (262,499) (135,568)
Sales of property and equipment - - - 32,463
Issuance of note receivable - (90,108) (90,108) -
Payment to prior shareholders of Willington (54,824) - - -
Payments received on note receivables - 34,277 14,839 20,663
--------------------- ----------------- --------------- ------------------
Net cash used in investing activities (672,469) (914,447) (337,768) (82,442)
--------------------- ----------------- --------------- ------------------
Cash flows from financing activities:
Proceeds from issuance of debt - 175,000 175,000 -
Payments on debt - (42,296) (11,687) (32,704)
Payments on capital lease obligations - - - (7,314)
Proceeds from issuance of common stock, net 1,216,902 2,046,698 525,614 817,062
--------------------- ----------------- --------------- ------------------
Net cash provided by financing activities: 1,216,902 2,179,402 688,927 777,044
--------------------- ----------------- --------------- ------------------
Net increase (decrease) in cash 117,540 (15,660) (116,997) 589,613
Cash, beginning of period - 117,540 117,540 101,980
--------------------- ----------------- --------------- ------------------
Cash, end of period $117,540 $101,980 $543 $691,593
===================== ================= =============== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JULY 31, 1994 AND 1995 AND JANUARY 31, 1996
(Data with respect to the six-month periods ended January 31, 1995 and 1996 is
unaudited)
The financial information utilized in the following Notes is presented in
U.S. dollars.
1. BUSINESS ACTIVITY
The company was originally incorporated under the laws of the province of
Alberta, Canada on December 17, 1993 (date of inception, or "Inception"), under
the name Latcomm International Inc. (Latcomm). On December 20, 1993, Latcomm
purchased all of the outstanding shares of Latin America Telecomm, Inc., a Texas
Corporation, for cash consideration of $25,000. On April 22, 1994 Latin America
Telecomm, Inc. changed its name to American Telesource International, Inc.
(ATSI-Texas). Effective May 26, 1994 (Effective Date), Latcomm amalgamated under
the Business Corporations Act of Ontario, Canada with Willingdon Resources, Ltd.
(Willingdon), a corporation incorporated under the laws of the Province of
Ontario, Canada. The resulting Ontario Corporation was named American Telesource
International Inc. (ATSI-Canada). In accordance with the amalgamation agreement
between Latcomm and Willingdon, on the Effective Date each four issued and
outstanding shares of Willingdon were converted to one issued and outstanding
share of ATSI-Canada and each issued and outstanding share of Latcomm was
converted to one issued and outstanding share of ATSI-Canada. With the exception
of a $54,824 liability to certain prior shareholders of Willingdon, no assets or
liabilities of Willingdon were assumed by ATSI-Canada. Collectively, ATSI-Texas
and ATSI-Canada are referred to hereafter as "ATSI" or "the Company".
ATSI conducts its primary operations through ATSI-Texas. ATSI-Texas
provides a full range of private network services via satellite to customers
conducting business in Mexico, Central and South America, and the Caribbean
Basin. These services include the purchasing, exporting, installation and
maintenance of equipment as well as providing voice, data, fax and video
telecommunication services via its teleport facility in San Antonio, Texas.
ATSI-Texas also provides long distance operator services to the hospitality
industry and private payphone owners in the U.S. and Mexico.
On June 20, 1995, ATSI-Texas formed a foreign subsidiary based in Mexico
City, Mexico. The subsidiary, American Telesource International de Mexico, S.A.
de C.V. (ATSI-Mexico), will perform customer service and maintenance operations
within Mexico and serve as a sales office for both private network and long
distance services. ATSI-Mexico has applied for and expects to receive several
licenses to conduct business from the Secretaria de Communicaciones y
Transportes, the regulatory authority in Mexico charged with oversight of the
telecommunications industry in Mexico. However, there can be no assurances that
such licenses will be obtained. See Note 12.
2. FUTURE OPERATIONS
The consolidated financial statements of the Company have been prepared on
the basis of accounting principles applicable to a going concern. For the
periods from Inception to July 31, 1995 and January 31, 1996, the Company has
incurred cumulative net losses of $2,347,695 and $3,768,394, respectively.
Further, the Company had working capital deficits of $446,370 and $1,334,331 at
July 31, 1995 and January 31, 1996, respectively, and has limited capital
resources available to support its ongoing developmental operations until such
time as the Company is able to generate positive cash flow from operations.
There is no assurance the Company will be able to achieve future revenue levels
sufficient to support operations or recover its investment in property and
equipment. The Company's future ability to generate revenues is also subject to
uncertainty with regards to certain regulatory matters described in Note 15.
These matters raise substantial
F - 7
<PAGE>
doubt about the Company's ability to continue as a going concern. The ability of
the Company to continue as a going concern is dependent upon the ongoing support
of its stockholders and customers, its ability to obtain capital resources to
support developmental operations, the ultimate outcome of certain regulatory
matters as described in Note 15 and its ability to successfully market its
services.
The Company will require significant additional financial resources in both
the near term and long-term to support its ongoing operations. The Company has
retained various financial advisers to assist it in refining its strategic
growth plan, defining its capital needs and obtaining the funds required to meet
those needs. The plan includes securing funds through equity offerings and
entering into lease or long-term debt financing agreements to raise capital.
There can be no assurances, however, that such equity offerings or other
financing arrangements will actually be consummated or that such funds, if
received, will be sufficient to support existing operations until revenue levels
are achieved sufficient to generate positive cash flow from operations. If the
Company is not successful in completing additional equity offerings or entering
into other financial arrangements, or if the funds raised in such stock
offerings or other financial arrangements are not adequate to support the
Company until a successful level of operations is attained, the Company has
limited additional sources of debt or equity capital and would likely be unable
to continue operating as a going concern.
Effective for the fiscal year beginning August 1, 1996, the Company will
have to adopt Statement of Financial Accounting Standards No. 121, Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of (SFAS121). SFAS121 requires an assessment of the recoverability of the
Company's investment in long-lived assets to be held and used in operations
whenever events or circumstances indicate that their carrying amounts may not be
recoverable. Such assessment requires that the future cash-flows associated with
the long-lived assets be estimated over their remaining useful lives and an
impairment loss be recognized when the future cash flows are less than the
carrying value of such assets. Management presently cannot reasonably estimate
what potential impact, if any, the adoption of this statement may have on the
financial condition or results of operations of the Company.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Basis of Presentation
-----------------------------------------------------
The accompanying consolidated financial statements include the accounts of
ATSI-Canada, ATSI-Texas and ATSI-Mexico. The consolidated financial statements
have been prepared on the accrual basis of accounting under generally accepted
accounting principles of the U.S. All significant intercompany balances and
transactions have been eliminated in consolidation. Certain prior period amounts
have been reclassified for comparative purposes. The consolidated interim
financial statements as of January 31, 1996 and for the six months ended January
31, 1995 and 1996 included herein have been prepared by the Company without
audit, pursuant to the rules and regulations of the Securities and Exchange
Commission. All adjustments have been made to the accompanying consolidated
interim financial statements which are, in the opinion of the Company's
management, necessary for a fair presentation of the Company's operating
results. All adjustments are of a normal recurring nature. Certain information
and footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations.
As mentioned in Note 1, ATSI-Mexico was formed on June 20, 1995. ATSI-
Mexico is 49% owned by ATSI-Texas, and 51% owned by a Mexican citizen. Mexican
law mandates that any company participating in public communications within
Mexico be majority owned by a Mexican entity. However, ATSI-Texas maintains
significant control over the operations of ATSI-Mexico and has limited the
authority of the other shareholder to sell or transfer his shares. As such, 100%
of the operations of ATSI-Mexico have been consolidated in the accompanying
consolidated financial statements.
F - 8
<PAGE>
The accompanying consolidated financial statements reflect the assets,
liabilities and stockholders' equity of Latcomm, which were transferred to ATSI
on the Effective Date in connection with the amalgamation described in Note 1,
at such predecessor's historical cost basis. The $54,824 liability to certain
former stockholders of Willingdon which was also transferred to ATSI in
connection with the amalgamation has been charged to the accumulated deficit as
of the Effective Date on the accompanying statements of stockholders' equity.
Estimates in Financial Statements
---------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results may differ from those estimates.
Revenue Recognition Policies
----------------------------
The Company recognizes revenue from its operator services as such services
are performed, net of estimated unbillable calls. Revenue from private network
service contracts is recognized when service commences for service commencement
fees and monthly thereafter as services are provided. The Company recognizes
revenue from equipment sales when the title for the equipment transfers to the
customer and from equipment installation projects when they are completed.
Accounts Receivable
-------------------
During fiscal 1995, the Company began utilizing the services of a credit
card processing company for the billing of commercial credit card calls and
receiving cash from these calls, net of transaction and billing fees, generally
within seven days from the dates the calls are delivered. All other calls
(calling card, collect, person-to-person and third-party billed) are billed
under an agreement between the Company and a collection clearinghouse. This
agreement allows ATSI to submit call detail records to the clearinghouse, who in
turn forwards these records to the local telephone company to be billed. The
clearinghouse collects the funds from the local telephone company and then
remits the funds, net of charges, to ATSI. Because this collection process can
take up to 75 days to complete, ATSI participates in an advance funding program
offered by the clearinghouse whereby 100% of the call records are purchased for
75% of their value within five days of presentment. The remaining 25% value of
the call records are remitted to ATSI, net of interest and billing charges and
an estimate for uncollectible calls, as the clearinghouse collects the funds
from the local telephone companies. The allowance for doubtful accounts reflects
the Company's estimate of uncollectible calls at July 31, 1994 and 1995 and
January 31, 1996. ATSI currently pays a funding charge of prime plus 4 percent
per annum on the 75% of the calls which are advanced to ATSI. Receivables sold
with recourse during fiscal year 1995 and the six-month period ended January 31,
1996, were $3,620,056 and $3,045,949, respectively. At July 31, 1995 and January
31, 1996, $396,993 and $357,760 of such receivables remained uncollected,
respectively.
Earnings Per Share
------------------
Earnings per share were calculated using the weighted average number of
common shares outstanding for the period from Inception to July 31, 1994, the
year ended July 31, 1995, and the six month period ended January 31, 1996, which
equated to 9,146,091 shares, 13,922,018 shares and 19,094,398 shares,
respectively. Common stock equivalents, which consist of the stock purchase
warrants and options described in Note 9, were excluded from the computation of
the weighted average number of common shares outstanding because their effect
was antidilutive.
F - 9
<PAGE>
Property and Equipment
----------------------
Property and equipment are stated at cost. Depreciation is computed on a
straight-line basis over the estimated useful lives of the related assets, which
ranges from five to fifteen years. Expenditures for maintenance and repairs are
charged to expense as incurred. Direct installation costs and major improvements
are capitalized.
Other Assets
------------
Other assets includes organization costs as of July 31, 1994 and 1995 and
January 31, 1996, of $98,077, $141,226, and $162,462, respectively, net of
accumulated amortization of $2,825, $29,165 and $42,335, respectively.
Income Taxes
------------
In February 1992, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Under
SFAS No. 109, deferred tax liabilities and assets are recorded based on enacted
income tax rates that are expected to be in effect in the period in which the
deferred tax liability or asset is expected to be settled or realized. A change
in the tax laws or rates results in adjustments to the deferred tax liabilities
or assets. The effects of such adjustments shall be included in income in the
period in which the tax laws or rates are changed.
The Company has incurred losses since Inception for both book and tax
purposes as of January 31, 1996. Accordingly, no income taxes have been provided
for in the accompanying consolidated financial statements for the period from
Inception to July 31, 1994, the year ended July 31, 1995 and the six-month
period ended January 31, 1996.
Statements of Cash Flows
------------------------
Cash payments and non-cash activities during the periods indicated were as
follows:
<TABLE>
<CAPTION>
For the period
from Inception For the year For the six month
through ended period ended
July 31, 1994 July 31, 1995 January 31, 1996
--------------- -------------- -----------------
<S> <C> <C> <C>
Cash payments for interest $ - $ 12,791 $ 17,984
Non-cash investing and financing activities:
Common stock issued for services received or to $ - $ 84,070 $ 63,413
be received
Capital lease obligations incurred $ - $ - $156,784
</TABLE>
For purposes of determining cash flows, the Company considers all temporary
cash investments with an original maturity of three months or less to be cash
equivalents.
F - 10
<PAGE>
4. CURRENT NOTES PAYABLE
Notes payable are comprised of the following:
<TABLE>
<CAPTION>
July 31, 1994 July 31, 1995 January 31, 1996
------------- ------------- ----------------
<S> <C> <C> <C>
A note payable to a shareholder, interest
at 12%, interest accrued monthly with
principal due at maturity on July 1,
1996. Secured by certain
telecommunication equipment and
guaranteed by the Company. Convertible
upon maturity at the option of the
shareholder on the basis of two common
shares for each dollar of principal and
interest then outstanding on such note. $ - $ 100,000 $100,000
A note payable to a company, interest at
16%, principal and interest payable
monthly ranging from $ 2,000 to $ 6,805.
Maturity in January 1996. Note is
unsecured. - 32,704 -
------------- ---------- ----------
$ - $ 132,704 $100,000
============= ========== ========
</TABLE>
5. PROPERTY AND EQUIPMENT, NET
Following is a summary of property and equipment at July 31, 1994 and 1995
and January 31, 1996:
<TABLE>
<CAPTION>
July 31, 1994 July 31, 1995 January 31, 1996
------------- --------------- ----------------
<S> <C> <C> <C>
Telecommunications equipment $482,722 $1,255,337 $1,277,503
Furniture and fixtures 56,782 111,473 116,673
Equipment under capital leases - - 156,784
Leasehold improvements 70,239 71,696 71,696
Other 7,902 37,755 113,494
-------- ---------- ----------
617,645 1,476,261 1,736,150
Less: Accumulated depreciation and
amortization 7,984 122,442 231,467
-------- ---------- ----------
Total - property and equipment, net $609,661 $1,353,819 $1,504,683
======== ========== ==========
</TABLE>
6. LEASES
The Company leases office space, furniture and minor equipment under
noncancelable operating leases and certain month-to-month leases. Rental expense
under these leases for the period from Inception through July 31, 1994, the year
ended July 31, 1995 and the six-month periods ended January 31, 1995 and 1996
were $3,530, $111,397, $41,072, and $79,286, respectively. Future minimum lease
payments under the noncancelable operating leases at July 31, 1995, are as
follows:
F - 11
<PAGE>
<TABLE>
<S> <C>
Twelve months ending July 31 -
1996 $ 56,953
1997 53,436
1998 45,986
1999 45,936
Thereafter -
-------
Total minimum lease payments $ 202,311
=========
</TABLE>
7. SHARE CAPITAL
During the year ended July 31, 1995, the Company issued 5,798,772 shares of
common stock. Of this total, 1,350,423 shares of common stock were issued for
approximately $675,000 in cash through the exercise of 1,350,423 warrants,
4,110,625 shares were issued for approximately $1,646,000 net cash proceeds and
337,724 shares were issued for services rendered to the Company. During the six
month period ended January 31, 1996, 1,229,671 shares of common stock were
issued. Of this total, 975,000 shares were issued for approximately $493,000 in
cash, and 254,671 shares were issued for services rendered to the Company. At
July 31, 1994 and July 31, 1995, stock subscription receivables of $75,000 and
$350,000 respectively, were outstanding related to sales of common stock which
were received in cash by the Company subsequent to the related fiscal year-ends.
No dividends were paid on the Company's stock during the period from Inception
to July 31, 1994, the year ended July 31, 1995 and the six month period ended
January 31, 1996,
8. DEFERRED REVENUE
The Company records deferred revenue related to the private network
services it provides. Customers may be required to advance cash to the Company
prior to service commencement to partially cover the cost of equipment and
related installation costs. Any cash received prior to the actual commencement
of services is recorded as deferred revenue until services are provided by the
Company, at which time the Company recognizes service commencement revenue. Such
deferred amounts were $22,335 and $64,987 at July 31, 1994 and 1995,
respectively. At January 31, 1996, the deferred amount of $797,891 consisted
primarily of a cash payment received in December 1995 in connection with a
contract which calls for the Company to sell and install private network
equipment in Mexico for approximately $1.4 million. No revenue related to this
contract has been recognized as of January 31, 1996.
9. STOCK PURCHASE WARRANTS AND STOCK OPTIONS
Certain shareholders of the Company were issued warrants to purchase shares
of common stock for $ .50 to $ 1.25 per share. Following is a summary of warrant
activity from July 31, 1994 through July 31, 1995:
<TABLE>
<S> <C>
Warrants outstanding, July 31, 1994 2,930,000
Warrants issued 4,254,508
Warrants expired (20,000)
Warrants exercised (1,350,423)
-----------
Common stock warrants outstanding, July 31, 1995 5,814,085
==========
</TABLE>
F - 12
<PAGE>
Warrants outstanding at July 31, 1995 expire as follows:
<TABLE>
<CAPTION>
Number of Warrants Exercise Price Expiration Date
------------------ -------------- ---------------
<S> <C> <C>
262,500 $0.65 October 2, 1995
1,615,000 $1.00 April 17, 1996
180,000 $0.70 May 31, 1996
180,000 $1.25 November 29, 1996
875,000 $0.50 March 30, 1997
2,359,375 $1.00 June 23, 1997
</TABLE>
Warrants issued subsequent to July 31, 1995:
<TABLE>
<CAPTION>
Number of Warrants Exercise Price Expiration Date
------------------ -------------- ---------------
<S> <C> <C>
100,000 $2.00 October 25, 1997
153,088 $0.75 February 28, 1998
250,000 $1.00 November 13, 1998
1,062,500 $1.00 December 15, 1998
30,000 $0.50 December 31, 1999
</TABLE>
In 1994, the Company issued options to certain individuals to purchase 210,000
shares of common stock. All the options were exercised in fiscal 1994 for a
total of $ 138,127 and the exercise price for the options ranged from $ .50 to
$ .72 per share. The exercise price on all the options issued equaled the fair
market value of the Company's common stock on the date of the grant.
10. POST EMPLOYMENT BENEFITS
In December 1991, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 106 (SFAS No. 106), "Employers' Accounting
for Postretirement Benefits Other Than Pensions." In November 1992, the
Financial Accounting Standards Board issued Statement of Financial Accounting
Standards No. 112 (SFAS No. 112), "Employers' Accounting for Postemployment
Benefits." The Company does not provide Postretirement nor Postemployment
benefits to its employees. Thus, SFAS Nos. 106 and 112 does not affect the
Company's results of operations or financial position.
11. INCOME TAXES
As of July 1995, the Company had net operating loss carryforwards of
approximately $2,250,000 for U.S. federal income tax purposes which are
available to reduce future taxable income of which $ 320,000 will expire in
2009, $ 1,930,000 will expire in 2010. The tax effects of significant temporary
differences representing deferred income tax assets and liabilities are as
follows as of July 31, 1994 and 1995:
<TABLE>
<CAPTION>
July 31, 1994 July 31, 1995
-------------- --------------
<S> <C> <C>
Net operating loss carryforward $110,000 $765,000
Other tax differences, net 15,000 8,300
Valuation allowance (125,000) (773,300)
--------- ---------
Total deferred income tax assets $ - $ -
============= ==========
</TABLE>
The valuation allowance as of July 31, 1994 and 1995 represents tax
benefits of certain future net operating loss carryforwards amounts which were
not realizable at that date.
F - 13
<PAGE>
The Company's income tax benefit at the statutory federal income tax rate
for the year ended July 31, 1994 and the period from inception to July 31, 1995
differs from the actual income tax benefit of $0 for those periods ended, as the
Company has provided a valuation reserve equal to the income tax benefit amount
computed at the statutory federal tax rate.
12. INTERNATIONAL OPERATIONS
The Company focuses on providing international satellite-based private
networks and international call services between the United States, Mexico,
Central and South America, and the Caribbean Basin. From its Inception through
January 31, 1996, all of the Company's revenues have been generated under
contracts calling for payments to be made to the Company in U.S. dollars, even
though some of the contracts have been signed with foreign entities. The
Company's contracts are U.S. dollar denominated in order to reduce risks of
transacting business in foreign currencies, particularly with regard to Mexican
pesos.
International networks effectively establish a communications "pipe"
through which voice, date, fax messages and video signals may be sent both to
and from a customer's desired locations in the United States, Mexico, Central
and South America, and the Caribbean Basis. At the customer's discretion, the
Company may contract with either the domestic (U.S.-based) or the foreign entity
in order to provide such services. As of January 31, 1996, the Company had
several contracts with foreign entities to provide international private network
services, the majority of which were with entities in Mexico. If the contract is
signed with a foreign entity, the Company considers the private network-
associated revenues to be generated in the country where the foreign entity is
domiciled. All entities under contract for private network services, whether
considered to be foreign or domestic, are pre-billed on a monthly basis for
services to be performed.
The Company also provides operator services for many hotels, resorts and
other properties in other countries, primarily Mexico. Although these services
pertain to calls originating in Mexico, they are limited to telephone calls
charged to billing addresses primarily within the United States, or calls billed
to U.S. dollar denominated credit cards. Because the calls are billed and
collected on behalf of the Company within the United States, the Company
considers the associated revenues to be generated within the United States.
However, a portion of the expenses associated with processing these calls is
incurred within Mexico and, as such, is paid to Mexican entities. Because calls
originating from Mexico and the United States are terminated over shared lines
within the United States, the Company has no exact method of segregating all
costs related solely to calls originating in Mexico as of January 31, 1996.
The following table presents approximate revenues generated from calls
originating within the United States and within Mexico and other countries, in
addition to private network revenues generated within the United States and
within Mexico and other countries, for the periods indicated. Also presented are
identifiable assets owned by the Company in the United States and in Mexico and
other countries.
<TABLE>
<CAPTION>
Inception to Year Ended Six-Month Periods Ended
------------------------------------
July 31, 1994 July 31, 1995 January 31, 1995 January 31, 1996
------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Operating Revenues from
unaffiliated customers:
United States $ - $1,524,325 $ 616,982 $1,435,522
Mexico and other 241,669 3,263,496 684,471 3,431,249
-------- ---------- ---------- ----------
Total Operating Revenues $241,669 $4,787,841 $1,301,453 $4,866,771
======== ========== ========== ==========
</TABLE>
F - 14
<PAGE>
<TABLE>
<CAPTION>
July 31, 1994 July 31, 1995 January 31, 1995 January 31, 1996
------------- ------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Identifiable Assets
United States $953,587 $2,653,646 $1,392,987 $2,595,746
Mexico and other - - - $ 593,824
-------- ---------- ---------- ----------
Total Identifiable Assets $953,587 $2,653,646 $1,392,987 $3,189,570
======== ========== ========== ==========
</TABLE>
13. EMPLOYEE BENEFITS
The Company has authorized and issued 300,000 shares of common stock to be
used in the future for employee benefits. These shares are held in a trust and
are not considered outstanding until they are issued to various individuals.
The shares held in trust vest over the length of the employee contracts, which
is three years. As of July 31, 1994 and 1995 and January 31, 1996, 12,500,
212,500, and 225,000 of these shares had been granted for services provided,
respectively, resulting in compensation expense totaling $27,778. At July 31,
1995 and January 31, 1996, the Company had deferred compensation expense of
$11,111 and $72,222, respectively.
14. COMMITMENTS AND CONTINGENCIES
In January 1995, the Company was named as a defendant in a lawsuit filed in
the 45th Judicial District Court in Bexar County, Texas (Teleplus, Inc. and
Capital Network System, Inc. v. American Telesource International, Inc., et al.,
case no. 95-CI-01168). The complaint, filed by a competitor of the Company,
alleged, among other things, that the Company conspired with former agents of
the plaintiffs to persuade customers of the plaintiffs' to breach their
contracts so that the Company could provide operator services to such customers.
The Company subsequently filed a counterclaim against the plaintiffs claiming
that they engaged in anticompetitive conduct.
In April 1996, all parties agreed to dismiss all claims, counterclaims and
cross-claims that had been brought or could have been brought related to the
litigation. The agreement, among other things, established current customer
lists for the parties within Mexico as of April 1996, and sets forth how both
the plaintiffs and defendants may market their services against each other in
the future. The agreement does not prevent the Company from growing its
customer base within Mexico.
15. REGULATORY MATTERS
Operator Services in Mexico
- ---------------------------
On June 7, 1995, the Secretaria de Communicaciones y Transportes, the
entity which is responsible for governing telecommunications services in Mexico,
wrote into law the method by which companies could apply for concessions and
licenses to establish and operate telecommunications services businesses within
Mexico. This was, effectively, the first step in the deregulation of the
telephone industry within Mexico. It also formalized the methods by which
companies such as ATSI may compete against Telefonos de Mexico (Telmex), the
privately owned telecommunications monopoly in Mexico. The Company, through its
subsidiary ATSI-Mexico, has applied for several licenses, and plans to apply for
additional licenses, to provide various telecommunications services within
Mexico. The Company anticipates receiving various of such licenses during
calendar year 1996 which would facilitate the expansion of services currently
being provided in Mexico, although there is no assurance that such licenses will
be received.
F - 15
<PAGE>
Operator Services in the U.S.
- -----------------------------
The Company began providing operator services in the U.S. in August 1994.
The Federal Communications Commission (FCC) requires the filing of informational
tariffs concerning such services and requires both written and verbal
identification of the operator service provider on each call processed. The
Company believes it is in full compliance with all applicable regulations set
forth by the FCC.
Many state regulatory bodies have imposed similar or identical regulations
upon operator services for intrastate telecommunication. The Company is
currently in the process of making the appropriate filings for these
informational tariffs in order to maintain compliance with these jurisdictional
requirements.
For the past six years, the FCC has been considering the implementation of
a system whereby a caller could make a long distance call from any publicly
available telephone and have the call automatically routed over the long
distance telephone network of the caller's choice. The concept, called Billed
Party Preference (BPP), would necessitate that each local telephone company have
access to a data base which could match every U.S. calling card and telephone
number to a preferred long distance company and be able to route each long
distance call accordingly. The FCC first proposed adopting BPP in 1992, but
quickly received comments from local and long distance companies, as well as
other industry representatives, suggesting that the implementation and
maintenance of BPP would be extremely difficult from a technological standpoint
and would not be cost-effective. The FCC responded in June 1994 by releasing a
"Further Notice of Proposed Rulemaking" in which it expressed continued interest
in BPP and requested suggestions from the telecommunications industry for a more
cost-efficient alternative to BPP which would meet the desired results of BPP-
easy access to the caller's preferred long distance provider, increased
competition and resultant lower rates to callers.
Implementation of BPP or a similar system could potentially have a major
impact on U.S. operator services companies such as ATSI who depend on telephones
being presubscribed, or routed, directly into their network. BPP would take the
authority to route long distance traffic away from the telephone owner and place
it in the hands of the caller. Both AT&T and the Regional Bell Operating
Companies have formally questioned the feasibility of BPP, and records indicate
that BPP would take from two to four years to implement should it be adopted by
the FCC. Although the FCC continues to consider the adoption of BPP, it is not
likely to be operational in the near term. Responses, which were due to the FCC
on August 1, 1994, were again heavily weighted against the adoption of BPP.
The FCC again requested comment from the industry in March of 1995 on two
proposals that it had received related to BPP. The first proposal was from the
National Association of Attorney's General, which suggested that operator
service providers modify the branding that is required at the beginning of a
call to include more specific information for obtaining access to alternative
carriers. The second proposal was from a group of industry members including a
majority of the Regional Bell Operating Companies and the American Public
Communications Counsel (APCC). The Company is a member of the APCC. This
proposal suggested that reasonable rate limits be established for interstate
operator assisted services and that any operator service providers wanting to
charge rates in excess of these limits must first be required to justify its
rates to the FCC based upon its underlying costs.
Either suggestion, if adopted, would have a negative effect on the revenues
recognized by the Company for processing domestic interstate operator assisted
long distance calls. However, less than 33% of the Company's revenues were
generated from such calls during the year ended July 31, 1995, and this
percentage is expected to decrease in the future as the volume of international
calls continues to increase. The Company cannot predict when and if any final
ruling will be issued by the FCC related to BPP, but the Company does not expect
any ruling on BPP to be implemented in the near term.
F - 16
<PAGE>
Changes in certain regulations may potentially preclude or impair the
Company's ability to provide operator services within certain jurisdictions.
The Company does not foresee any such changes, however, it cannot predict
whether such changes may occur. Therefore, the Company cannot estimate the
impact of such changes upon its operator services in the event of any such
change.
F - 17
<PAGE>
APPENDIX A
AMERICAN TELESOURCE INTERNATIONAL INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to promote the interest of American
-------
Telesource International Inc. (the "Company") and its shareholders by providing
an effective means to attract, retain and increase the commitment of certain
individuals and to provide such individuals with additional incentive to
contribute to the success of the Company.
2. ELIGIBILITY. Options may be granted under the Plan to directors and
-----------
employees of, and advisors and consultants to, the Company, or of any parent or
subsidiary of the Company (if any) provided, however, in the case of consultants
or advisors, that such grant be in consideration of bona fide services rendered
by such consultant or advisor and such services not be in connection with the
offer or sale of securities in a capital-raising transaction. The Committee
(defined below) shall select from such eligible class the individuals to whom
Options shall be granted from time to time.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a Committee
--------------------------
consisting of at least two outside directors (the "Committee"). No member of
the Committee shall have been, during the one-year period prior to service as an
administrator of the Plan, nor shall be, during service as an administrator,
granted or awarded options, rights, or equity securities under the Plan or under
any other plan of the Company or its affiliates except as permitted in Section
-------
5(F) of the Plan or Rule 16b-3 ("Rule 16b-3") under the Securities Exchange Act
- ----
of 1934, as amended (the "Exchange Act"). A quorum of such Committee shall
consist of a majority of the members of such Committee, or as may be otherwise
provided in the Company's bylaws. The Committee shall hold meetings at such
times and places and conduct its business at such meetings as it may determine,
subject to any express provisions of the Company's bylaws. Acts of a majority
of the Committee members attending at a meeting at which a quorum is present, or
such acts as are reduced to or approved in writing by the majority of the
members of the Committee, shall be the valid acts of the Committee. The
Committee shall from time to time in its discretion determine which individuals
shall be granted Options, the amount of shares covered by such Options, and
certain other specific terms and conditions of such Options subject to the terms
and conditions contained herein, including outside director Options as set forth
in Section 5(F).
------------
The Committee shall have the sole authority and power, subject to the
express provisions and conditions hereof, to construe this Plan and the Options
granted hereunder, and to adopt, prescribe, amend, and rescind rules and
regulations relating to this Plan, and to make all determinations necessary or
advisable for administering this Plan. The Committee shall also have the
authority and power to modify any provision of this Plan to render the Plan
consistent with any amendments to Rule 16b-3 or Form S-8 of the Securities Act
of 1933, as amended (the "Securities Act"), including amendments which permit
the grant of Options on terms which are less restrictive than the terms set
forth herein. The interpretation by the Committee of any provision of this Plan
with respect to any incentive stock option granted hereunder shall be in
accordance with section 422 of the Internal Revenue Code of 1986 and the
regulations issued thereunder, as amended from time to time (the "Internal
Revenue Code"), in order that the incentive stock options granted hereunder
("Incentive Stock Options") shall constitute "incentive stock options" within
the meaning of section 422 of the Internal Revenue Code. Options granted under
the Plan which are not intended to be Incentive Stock Options are referred to
herein as "Nonqualified Stock Options." The term "Options" as used herein shall
refer to Incentive Stock Options and Nonqualified Stock Options, either
collectively or without distinction. The interpretation and construction by the
Committee, if any, of any provisions of the Plan or of any Option
Appendix A - 1
<PAGE>
granted hereunder shall be final and conclusive. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted hereunder.
4. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 6, the
-------------------------- ---------
number of shares subject to Options granted hereunder shall not exceed 4,000,000
shares of the Company's authorized but unissued or reacquired Common Stock (the
"Common Stock"). Such number of shares shall be subject to adjustment as
provided in Section 6 (e.g., such number shall be adjusted to 2,000,000 shares
---------
in the event the proposed one-for-two reverse stock split of the Company's
Common Stock approved by the Board of Directors in June 1996 is effected).
Shares that by reason of the expiration, termination, cancellation or
surrender of an Option are no longer subject to purchase pursuant to an Option
granted under the Plan (other than by reason of exercise of such Option) may be
reoptioned hereunder.
5. TERMS AND CONDITIONS.
--------------------
(A) OPTION PRICE. Each Option shall state the number of shares that may be
------------
purchased thereunder, shall expressly designate such Option as an Incentive
Stock Option or a Nonqualified Stock Option, and shall state the option price
per share (the "Option Price") which shall be paid in the manner specified in
this Section 5(A) in order to exercise such Option. The Option Price shall not
------------
be less than 100% of the fair market value of the shares on the day the Option
is granted with respect to any Incentive Stock Option granted hereunder, and not
less than 100% of the fair market value of the shares on the date the Option is
granted with respect to any Nonqualified Stock Option.
For purposes of the Plan, the fair market value per share of the Common
Stock on any date shall be deemed to be the closing price of the Common Stock on
the principal national securities exchange on which the Common Stock is then
listed or admitted to trading, if the Common Stock is then listed or admitted to
trading on any national securities exchange. The closing price shall be the
last reported sale price regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices regular way, as
reported by said exchange. If the Common Stock is not then so listed on a
national securities exchange, the fair market value per share of the Common
Stock on any date shall be deemed to be the closing price (the last reported
sale price regular way) in the over-the-counter market as reported by the Nasdaq
National Market System, if the Common Stock closing price is then reported on
the Nasdaq National Market System, or, if the Common Stock closing price of the
Common Stock is not then reported by the Nasdaq National Market System, shall be
deemed to be the mean of the highest closing bid and lowest closing asked price
of the Common Stock in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") or, if
the Common Stock is not then quoted by Nasdaq, as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If no member of the National Association of
Securities Dealers, Inc. furnishes quotes with respect to the Common Stock of
the Company, such fair market value shall be determined by resolution of the
Committee. Notwithstanding the foregoing provisions of this Section 5(A), if
------------
the Committee shall at any time determine that it is impracticable to apply the
foregoing methods of determining fair market value, the Committee is empowered
to adopt other reasonable methods for such purpose. The Committee may, if it
deems it appropriate, engage the services of an independent qualified expert or
experts to appraise the value of the Common Stock.
Options under the Plan may be exercised by payment of the Option Price
in cash or, if the Common Stock is then registered under the Exchange Act and is
then traded on Nasdaq or one or more securities exchanges, by delivery of the
equivalent fair market value of Common Stock or by a "cashless exercise"
procedure in which an Optionee is permitted to exercise an Option by arranging
with the Company and his or her broker to deliver the appropriate Option Price
from the concurrent market sale of the acquired shares, or a combination of the
foregoing (subject to the discretion of the Committee). An employee's
Appendix A - 2
<PAGE>
withholding tax due upon exercise of a Nonqualified Stock Option may be
satisfied either by a cash payment or the retention from the exercise of a
number of shares of Common Stock with a fair market value equal to the required
withholding tax, as the Committee may permit. For Optionees who are subject to
the reporting and other provisions of Section 16 under the Exchange Act (except
as may otherwise be permitted by the Committee, subject to compliance with Rule
16b-3), the election of a partial cash settlement of an Option in order to
satisfy the tax withholding requirement upon exercise of a Nonqualified Stock
Option may be made only during a ten-day "window" period each fiscal quarter
beginning on the third business day following the date of release of the
Company's financial data for the quarter and ending on the twelfth business day
following such date, and shall be subject to the approval of the Committee.
In addition, with respect to the exercise of any Nonqualified Stock
Option, the Committee (or an authorized representative) shall advise the
Optionee, upon receipt of notice of intent to exercise such Option, of the
income tax withholding consequences to such Optionee of such exercise, the
amount of the appropriate withholding tax and any other payments due by reason
thereof. Such Optionee must satisfy all of the preceding payment requirements
in order to receive stock upon exercise of such Option.
(B) OPTION PERIOD. Any Options granted pursuant to this Plan must be
-------------
granted within ten years from the date the Plan was adopted by the Board of
Directors of the Company (____________, 1996).
Each Option shall state the date upon which it is granted. Each Option
shall be exercisable during such period as is provided under the terms of the
Option, but in no event shall an Option be exercisable after the expiration of
ten years from the date of grant. Except in the case of death or disability,
Incentive Stock Options may be exercised within three months (or for such
shorter period as may be specified in the particular Option) after termination
of employment to the extent such Options were exercisable at the date of
termination, and Nonqualified Stock Options may be exercised after termination
of employment or other service to the Company for such period as may be
specified in the particular Option. In the event of the disability of an
Optionee, Incentive Stock Options may be exercised for up to one year after
disability of the Optionee, to the extent exercisable prior to the date of
disability. Nonqualified Stock Options may be exercised following the
Optionee's death or disability and Incentive Stock Options may be exercised
following the Optionee's death by such Optionee or by his or her estate, heirs,
or devisees, as the case may be, for such period thereafter as may be specified
in the particular Option.
(C) ASSIGNABILITY. An Option granted pursuant to this Plan shall be
-------------
exercisable during the Optionee's lifetime only by the Optionee and shall not be
assignable or transferable by the Optionee (except with the Committee's prior
written approval, and only in any such additional circumstances as shall not
affect the Plan's qualification with the requirements of the incentive stock
option provisions of the Internal Revenue Code, the requirements of Rule 16b-3
under the Exchange Act, or the plan eligibility requirements for the use of Form
S-8 of the Securities Act), and shall not be subject to levy, attachment or
similar process. Upon any other attempt to transfer, assign, pledge or
otherwise dispose of Options granted under this Plan, such Options shall
immediately terminate and become null and void.
(D) LIMIT ON 10% SHAREHOLDERS. No Incentive Stock Option may be granted
-------------------------
under this Plan to any individual who would, immediately after the grant of such
Incentive Stock Option directly or indirectly own more than 10% of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary corporation unless (i) such Incentive Stock Option is granted at an
Option Price not less than 110% of the fair market value of the shares on the
date the Incentive Stock Option is granted, and (ii) such Incentive Stock Option
expires on a date not later than five years from the date the Incentive Stock
Option is granted.
Appendix A - 3
<PAGE>
(E) LIMITS ON OPTIONS. An individual may be granted one or more Options,
-----------------
provided that the aggregate fair market value (determined as of the time the
Option is granted) of Common Stock for which an individual may be granted
Incentive Stock Options that are first exercisable in any calendar year (under
all stock option plans of the Company and any parent or subsidiary corporations,
if any) may not exceed $100,000.
(F) OUTSIDE DIRECTORS OPTIONS. Each outside director of the Company (that
-------------------------
is, each director who is not also an employee of the Company) shall be
automatically granted Nonqualified Options for 7,500 shares (3,750 shares as
adjusted for a one-for-two reverse stock split) on an annual basis on the fifth
business day following the first public announcement, filing or release of the
Company's net income for the Company's preceding fiscal year. Such annually
awarded Options shall become exercisable in whole or in part from time to time
upon the first anniversary following the date of grant. In addition to such
automatic annual awards, each outside director who is a member of the Company's
Board of Directors immediately following the domestication of the Company from a
corporation existing under the laws of the Province of Ontario, Canada to a
corporation existing under the laws of the State of Delaware, United States of
America, and each director who joins the Company's Board of Directors thereafter
shall receive upon such election or appointment an automatic award of
Nonqualified Options for 75,000 shares (37,500 shares as adjusted for a one-for-
two reverse stock split) of Common Stock, which shall become exercisable in four
equal annual installments (9,375 shares each as adjusted for a one-for-two
reverse stock split) on the first, second, third and fourth anniversaries of the
date of grant. All of the foregoing Options, once granted and to the extent they
have become exercisable, shall remain exercisable throughout their term,
regardless of whether the holder continues to serve as a director, and such term
shall expire on the tenth anniversary following the date of grant. To the
extent any such Option is not yet exercisable upon termination of service, such
Option shall be terminated. The Option Price for all such automatic awards
shall be equal to 100% of the fair market value of the covered shares of Common
Stock at the time of grant. The provisions of this Plan regarding formula
awards to outside directors shall not be amended more than once every six months
thereafter, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.
(G) RIGHTS AS SHAREHOLDER. An Optionee, or a transferee by will or
---------------------
inheritance of an Option, shall have no rights with respect to any shares
covered by an Option until the date of the issuance of a stock certificate for
such shares and the recording of such issuance upon the Company's stock ledger
by its duly appointed, regular transfer agent. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
such date, except as provided in Section 6 hereof.
---------
(H) ADDITIONAL PROVISIONS. The Options authorized under this Plan shall
---------------------
contain such other provisions as the Board or Committee shall deem advisable,
including, without limitation, further restrictions upon the exercise of the
Option. Any Incentive Stock Option shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
the Option shall be an "incentive stock option" as defined in section 422 of the
Internal Revenue Code.
(I) COMPLIANCE WITH SECURITIES LAWS. At the time of exercise of any
-------------------------------
Option, the Company may require the Optionee to execute any documents or take
any action which may then be necessary to comply with the Securities Act and the
rules and regulations adopted thereunder, or any other applicable federal or
state laws regulating the sale and issuance of securities, and the Company may,
if it deems necessary, include provisions in the Options to assure such
compliance. The Company may from time to time change its requirements with
respect to enforcing compliance with federal and state securities laws,
including the request for, or insistence upon, letters of investment intent,
such requirements to be determined by the Company in its judgment as necessary
to assure compliance with said securities laws. Such changes may be made with
respect to any particular Option or to any stock issued upon exercise thereof.
Appendix A - 4
<PAGE>
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any change in
------------------------------------------
the number of issued and outstanding shares of Common Stock which results from a
stock split, reverse stock split, the payment of a stock dividend or any other
change in the capital structure of the Company, such as a merger, consolidation,
reorganization or recapitalization, the Committee shall appropriately adjust (a)
the maximum number of shares which may be issued under this Plan, (b) the number
of shares subject to each outstanding Option, and (c) the Option Price per share
thereof, so that upon exercise of the Option the Optionee shall receive the same
number of shares the Optionee would have received had the Optionee been the
holder of all shares subject to such outstanding Options immediately before the
effective date of such change in the number of issued shares of the Common Stock
of the Company. Any such adjustment shall not result in or entitle the Optionee
to the issuance of fractional shares. Instead, appropriate adjustments to any
such Option and, in the aggregate, all other options of the Company of the same
class (that is, Incentive Stock Options or Nonqualified Options) held by each
Optionee shall be made so that such Option and other options of the same class,
if any, held by any such Optionee cover the greatest whole number of shares of
the Common Stock which does not exceed the number of shares which would be
covered applying such adjustments in the absence of any restriction on the
issuance of fractional shares. Any excess fractional share shall be redeemed in
cash at the then-current fair market value of the Common Stock (determined as
provided in Section 5(A) hereof) multiplied by the appropriate fraction of a
------------
share.
7. TERMINATION OR AMENDMENT OF THE PLAN. The Board of Directors may at any
------------------------------------
time suspend, amend, or terminate this Plan, provided that, except as set forth
in Section 6 hereof, no amendment may be adopted that will change the
---------
requirement that the Option Price be at least a specified percentage of the fair
market value of the Common Stock or change the provisions required for
compliance with section 422 of the Internal Revenue Code, except to conform to a
change in the requirements of such law or regulations thereof. Except as
otherwise specifically provided herein, the Board shall not, without the
approval of the shareholders of the Company, amend this Plan so as to materially
increase the benefits accruing to Optionees under the Plan, increase the
aggregate number of shares that may be issued under this Plan or materially
modify the requirements for eligibility for participation in the Plan. No
amendment or termination of the Plan shall, without the consent of the Optionee,
alter or impair any rights or obligations under any Option previously granted
under the Plan.
Appendix A - 5
<PAGE>
EXHIBIT A-1
SPECIAL RESOLUTIONS - FIRST CONSOLIDATION
Set forth below is the text of the resolution to be submitted with respect to
the First Consolidation to the Shareholders at the Meeting.
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. Subject to receipt of requisite regulatory approval, the Company be and is
hereby authorized to file Articles of Amendment consolidating its issued and
outstanding Common Shares on the basis of one post-consolidation common share
for every two pre-consolidation common shares in its capital.
2. The Articles of Amendment filed by the Company shall provide that all
fractions of Common Shares will be rounded to the next highest whole number.
3. Any director or officer of ATSI be and he is hereby authorized and directed
on behalf of the Company to deliver Articles of Amendment in duplicate to the
Ministry of Consumer and Commercial Relations and to sign and execute all
documents and to do all such things necessary or advisable in connection with
the foregoing.
4. Notwithstanding the foregoing, the directors of the Company may revoke the
special resolution authorizing the filing of Articles of Amendment to effect the
First Consolidation without further approval of the shareholders at any time
prior to the endorsement by the Director of a Certificate of Amendment of
Articles in respect of the amendment authorized by this special resolution.
Exhibit A-1 - 1
<PAGE>
EXHIBIT A-2
SPECIAL RESOLUTIONS - SECOND CONSOLIDATION
Set forth below is the text of the resolution to be submitted with respect to
the Second Consolidation to the Shareholders at the Meeting.
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. Subject to receipt of requisite regulatory approval, the Company be and is
hereby authorized to file in the future one additional charter amendment
(without further action of shareholders) further consolidating, on a one-for-two
basis, the issued and outstanding Common Shares, or shares of ATSI Merger Corp.
Common Stock in the event the Merger occurs, if the Board of Directors in its
sole discretion deems such further consolidation necessary to satisfy the
minimum per share price requirements for listing on the Nasdaq National Market,
Nasdaq SmallCap Market or other market or exchange.
2. The additional charter amendment filed by the Company or ATSI Merger Corp.,
as the case may be, shall provide that all fractions of Common Shares or shares
of Common Stock will be rounded to the next highest whole number.
3. Any director or officer of ATSI or ATSI Merger Corp., as the case may be,
be and he is hereby authorized and directed on behalf of the Company or ATSI
Merger Corp. to deliver a charter amendment in duplicate to the Ministry of
Consumer and Commercial Relations or the Secretary of State of Delaware, as the
case may be, and to sign and execute all documents and to do all such things
necessary or advisable in connection with the foregoing.
4. Notwithstanding the foregoing, the directors of the Company may revoke the
special resolution authorizing the filing of the additional charter amendment to
effect the Second Consolidation without further approval of the shareholders at
any time prior to the endorsement by the Director or the Secretary of State of a
certificate evidencing the additional charter amendment authorized by this
special resolution.
Exhibit A-2 - 1
<PAGE>
EXHIBIT B
SPECIAL RESOLUTIONS - DOMESTICATION
Set forth below is the text of the resolution to be submitted with respect to
the Domestication to the Shareholders at the Meeting.
NOW THEREFORE BE IT RESOLVED AS A SPECIAL RESOLUTION THAT:
1. The Company be and it is hereby authorized and directed to make application
to the Director under the Business Corporation Act (Ontario) for
Authorization to Continue in another jurisdiction.
2. The Company be and it is hereby authorized and directed to become
domesticated as a corporation incorporated under the laws of the State of
Delaware pursuant to the Delaware General Corporation Law (the "DGCL").
3. The Company be and it is hereby authorized and directed to adopt a new
Certificate of Incorporation, a copy of which is attached hereto, to be
effective upon the domestication of the Company as a Delaware corporation.
4. Any director or officer of the Company be and he is hereby authorized and
directed, for and in the name of and on behalf of the Company, to execute
all such documents under the corporate seal or otherwise and to do all such
other acts and things including without limitation, the execution of a
Certificate of Domestication in the prescribed form and the delivery
thereof to the Secretary of State of Delaware under the DGCL and the
execution as an incorporator of the Certificate of Incorporation attached
hereto and the delivery of the Certificate of Incorporation to the
Secretary of State of Delaware, as he may determine in his sole and
absolute discretion to be necessary or advisable to give effect to the
foregoing provisions of this resolution, the execution of any such document
or the doing of any such act or thing being conclusive evidence of such
determination, provided that the directors of the Company may, in their
sole discretion revoke this special resolution without further approval of
the shareholders at any time prior to the filing of the Certificate of
Domestication with the Secretary of State of Delaware.
Exhibit B - 1
<PAGE>
EXHIBIT C
RESOLUTIONS - 1996 OPTION PLAN
Set forth below is the text of the resolution to be submitted with respect to
the 1996 Option Plan to the Shareholders at the Meeting.
NOW THEREFORE BE IT RESOLVED AS A RESOLUTION THAT:
1. In order to promote the interests of the Company and its shareholders by
providing an effective means to attract, retain and increase the commitment
of directors and employees of, and advisors and consultants to, the
Company, and to provide such individuals with additional incentive to
contribute to the success of the Company, the shareholders hereby approve
and adopt the stock option plan which has been submitted to and reviewed by
them pursuant to which the Company may grant to employees incentive stock
options and to all such individuals nonqualified stock options for up to an
aggregate of 4,000,000 Common Shares (adjusted to 2,000,000 shares in the
event the First Consolidation is approved by the shareholders at the
Meeting).
2. The proper officers of the Company are hereby authorized and directed to
take or cause to be taken all such further action, and to sign, execute,
acknowledge, certify, deliver, accept, record and file all such further
instruments in the name and on behalf of the Company as in their judgment
shall be necessary, desirable or advisable in order to carry out the intent
of and to accomplish the purposes of the foregoing resolution.
Exhibit C - 1
<PAGE>
EXHIBIT D
CERTIFICATE OF DOMESTICATION
OF
AMERICAN TELESOURCE INTERNATIONAL INC.
AMERICAN TELESOURCE INTERNATIONAL INC. (the "Corporation"), a corporation
presently organized and existing under the laws of the Province of Ontario,
Canada, and which is domesticating to the State of Delaware pursuant to section
388 of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: the Corporation was first incorporated on December 17, 1993, under the
laws of the Province of Alberta, Canada.
SECOND: the name of the Corporation immediately prior to the filing of this
Certificate of Domestication was American Telesource International Inc.
THIRD: the name of the Corporation as set forth in its Certificate of
Incorporation filed in accordance with section 388(b) of the General Corporation
Law of the State of Delaware is American Telesource International Inc.
FOURTH: the principal place of business of the Corporation immediately prior
to the filing of this Certificate of Domestication was located in the State of
Texas.
FIFTH: a Certificate of Incorporation of American Telesource International,
Inc. is being filed contemporaneously with the filing of this Certificate of
Domestication.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Domestication to be signed by _______, its _______, who is authorized to sign
this Certificate of Domestication on behalf of the Corporation, on _______,
1996.
AMERICAN TELESOURCE INTERNATIONAL INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Exhibit D - 1
<PAGE>
EXHIBIT E
CERTIFICATE OF INCORPORATION OF ATSI
(ONTARIO CORPORATION)
-----------
[ILLEGIBLE]
1082734
----------
For Ministry Use Only
a Passage excused du Ministere
[LOGO APPEARS HERE] Ministry of Ministere de
Consumer and
Commercial la Consommation
???? et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie qun los presents
articles are effective on status entrent on vigueur le
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
??? ??? ??? ??? ??? ???
- - - - - -
MAY 26 MAI, 1994 [ A ] [ D ] [ O ] [ A ] [ 3 ] [ 5 ]
--------------------------- - - - - - -
18 20 28 28 55 31-
???? ????
- -------------------- -
[ N ] [ONTARIO ] [ A ]
-------------------- -
32 33 37 37
[SIGNATURE ILLEGIBLE]
Director/Directeur
Business Corporations ACI/Lot de sur los compagnies
- --------------------------------------------------------------------------------------------------------------------
ARTICLES OF AMALGAMATION
STATUS DE FUSION
1. The name of the amalgamted corporation is: Denamination sociale os la compagnie issue de la
Form fusion
Business
Corporations ----------------------------------------------------------------------------------------------------
Act A M E R I C A N T E L E S O U R C E
----------------------------------------------------------------------------------------------------
Formule I N T E R N A T I O N A L I N C .
Numero 4 ----------------------------------------------------------------------------------------------------
Los ----------------------------------------------------------------------------------------------------
sur les ----------------------------------------------------------------------------------------------------
compagnies 2. The address of the registered office is: Adresse au siege sociale:
c/o JOHN F. O' DONNELL, 95 WELLINGTON STREET WEST, SUITE 906
------------------------------------------------------------------------------------------------------------
(Street & Number ???? ???? ???? ???? ???? ??? ??? ??? ?? ??? ??? ???.)
Rue et ???? ???? ??? ????. ???? ???? ??? ??? ??? ??? ??? ??? ???? ???? ?????
---------------------
TORONTO, ONTARIO M 5 J 2 N 7
-----------------------------------------------------------------------------------------------------------
???? ???? ??? ???? ??? ??? (???? ???
???? ??? ??? ??? ??? ??? ??? ??? ???? ??? ??? ???)
MUNCIPALITY OF
CITY OF TORONTO in METROPOLITAN TORONTO
---------------------------------------------- ---------------------------------------
(???? ???? ??? ??? ???) (???? ??? ??? ??? ???)
(???? ???? ???? ???? ???? ????) ???? ????/???? (???? ???? ???? ????)
3. Number for minimum and maximum number?? of Nombre (ou nombres minimal el maxima)
directors ??: d'administrateurs:
minimum: three
maximum: ten
4. The director(s) is/are Administrateur(s): Resident
Canadian
Residence address, giving Street & No. or R.R. No., State
First name, initials and last name Municipality and Postal Code Yes or No
Prenom, initales et nom de familie Adresse personnelle y compria la rue et ie numero, le Canadian
postal Out/Non
------------------------------------------------------------------------------------------------------------
MURRAY R. NYE 280 McLEAN STREET YES
WINNIPEG, MANITOBA R3R 0V7
JOHN R. MOSES R.R. # 1, YES
PORT CARLING, ONTARIO POB 1JO
ARTHUR L. SMITH 7710 CROOKED BROOK NO
SAN ANTONIO, TEXAS 78250
</TABLE>
Exhibit E - 1
<PAGE>
5. A) The amalgamation agreement has been A) Les actionnaires de chaque
duly adopted by the shareholders compagnie qui fusions ont
of each of the amalgamating dument adopte la convention
corporations as required by de fusion conformement au
subsection 176 (a) of the Business [X] paragrahe 176 (a) de la Loi
Corporations Act on the date set sur les compagnies e la date
out below. mentionnee ci-dessous.
------------------
Check Cocher
A or B A ou B
------------------
B) The amalgamation has been approved B) Les administrateurs de chaque
by the directors of each compagnie qui fusionne ont
amalgamating corporation by a [_] approuve la fusion par voie
resolution as required by section de resolution conformement a
177 of the Business Corporations l'article 177 de la Loi sur
Act on the date set out below. les compagnies a la date
The articles of amalgamation in mentionnee ci-dessous. Les
substance contain the provisions status de fusion reprennent
of the articles of incorporation of essentiellement les
dispositions des status
????? de
- --------------------------------------------------------------------------------
and are more particularly set out - et sont enonces
in these articles. textuellement aux presents
status.
<TABLE>
<CAPTION>
Names of amalgamating Ontario Corporation Number Date of Adoption/Approval
corporations Numero de la compagnie en Date d'adoption ou d'approbation
Denomination socials des Ontario
compagnies qui fusionnent
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
WILLINGDON RESOURCES 293491 April 19, 1994
LIMITED
LATCOM INTERNATIONAL 1082560 April 19, 1994
INC.
</TABLE>
Exhibit E - 2
<PAGE>
5. Restrictions, if any, on business Limites s'il y a lieu, imposees aux
the corporation may carry on or on activities commerciales on aux pouvoirs
powers the corporation exercise. de la compagnie.
None.
7. The classes and any maximum number Categories et nombre maximal, s'il y
of shares that the corporation is a lieu, d'actions que la compagnie est
authorized to issue: autionees a amettre:
The Corporation is authorized to issue an unlimited number of Common shares.
Exhibit E - 3
<PAGE>
8. Rights, privileges, restrictions and Droits, privileges, restrictions et
conditions (if any) attaching to each conditions, s'il y s lieu rattaches a
class of shares and directors a chaque categorie o'actions et
authority with respect to any class pouvoirs des administrateurs ??? a
of shares which may be issued in chaque categorie d'actions qui peut
series: etra ????? en series:
NOT APPLICABLE.
Exhibit E - 4
<PAGE>
9. The issue, transfer or ownership L'emission, le transfort ou la propriete
of shares is/is not restricted d'actions est/n'est pas restreinte. Les
and the restrictions (if any are restrictions, s'il y a lieu, sont les
as follows: suivantes:
Not applicable.
10. Other provisions (if any): Autres dispositions, s'il y a lieu:
Not applicable.
11. The statements required by Les declarations exigees aux termes du
subsection 178(2) of the Business paragraphe 178(2) de le Loi sur les
Corporations Act are attached as compagnies constituent l'annexe "A".
Schedule "A".
12. A copy of the amalgamation Une copie de le convention de fusion ou
agreement or directors les resolutions des administrateurs
resolutions (as the case may be) (selon le cas) constitute(nt l'annexe
is/are attached as Schedule "B". "B".
Exhibit E - 5
<PAGE>
These article are signed in duplicate. Les presents statuts sont signee en
double exampisire.
Names of the amalgamating corporations Denomination sociale des compagnies qui
and signatures and descriptions of fusionnent, signature et fonction de
office of their proper officers leurs dirigeants regulierement designee.
WILLINGDON RESOURCES LIMITED LATCOMM INTERNATIONAL INC.
By:/s/ JOHN R. MOSES By:/s/ MURRAY R. NYE
--------------------- ----------------------
JOHN R. MOSES MURRAY R. NYE
President President
Exhibit E - 6
<PAGE>
EXHIBIT F
BYLAWS OF ATSI
(ONTARIO CORPORATION)
BY-LAW 1
--------
ARTICLE ONE
INTERPRETATION
1.01 Definitions: In this by-law and all other by-laws of the Corporation,
-----------
unless the context otherwise requires:
(a) "Act" means the Business Corporations Act, 1982 (Ontario) or any
successor statute, as amended from time to time, and the regulations
thereunder;
(b) "Corporation" means American Telesource International Inc;
(c) "holiday" means Sunday and any other day that is a holiday as defined
in the Interpretation Act (Ontario) or any successor statute, as
amended from time to time;
(d) "person" includes individuals, bodies corporate, sole proprietorships,
partnerships, syndicates, unincorporated associations and
organizations, joint ventures, trusts, employee benefit plans,
governments or agencies or political subdivisions thereof, and a
natural person acting as trustee, executor, administrator or other
legal representative;
(e) "recorded address" means, with respect to a single shareholder, his
latest address as recorded in the securities register of the
Corporation; with respect to joint shareholders, the first address
appearing in the securities register in respect of their joint
holding; and with respect to any other person, but subject to the Act,
his latest address as recorded in the records of the Corporation or
otherwise known to the secretary;
(f) subject to the foregoing, words and expressions that are defined in
the Act have the same meanings when used in the by-laws; and
(g) words importing the singular include the plural and vice-versa, words
importing any gender include the masculine, feminine and neuter
genders, and headings are for convenience of reference only and shall
not, affect the interpretation of the by-laws.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
2.01 Annual Meeting: The annual meeting (of the shareholders shall be held
--------------
on such day and such time as the)
Exhibit F - 1
<PAGE>
Act, determine from time to time, for the purpose of receiving the annual
financial statements of the Corporation and the auditor's report thereon,
electing directors, appointing the auditor and authorizing the board to fix his
remuneration, and transacting such other business as may properly be brought
before the meeting.
2.02. Special Meeting: From time to time the board may call a special
---------------
meeting of the shareholders to be held on such day and at such time as the board
may determine. The holders of not less than 5% of the issued shares of the
Corporation carrying the right to vote at the meeting sought to be held may
requisition a special meeting of shareholders. Any special meeting of
shareholders may be combined with an annual meeting.
2.03. Place of Meetinqs: Meetings of shareholders shall be held at the
-----------------
registered office of the Corporation or at such other place within Canada as the
board may determine from time to time.
2.04. Record Date: The board may fix in advance a record date, preceding
-----------
the date of any meeting of shareholders by not more than 50 clear days nor less
than 21 clear days, for the determination of the shareholders entitled to notice
of the meeting, and where no such record date for notice is fixed by the board,
the record date for notice shall be the close of business on the day immediately
preceding the day on which notice is given, or if no notice is given, shall be
the day on which the meeting is held. Notice of any such record date fixed by
the board shall be given in the manner required by the Act.
2.05. Shareholder List: For each meeting of shareholders the secretary
----------------
shall prepare an alphabetical list of shareholders entitled to receive notice of
the meeting showing the number of shares entitled to be voted at the meeting and
held by each such shareholder. The list shall be prepared (i) if a record date
for such notice is fixed by the board, not later than 10 clear days thereafter,
or (ii) if no such record date is fixed by the board, at the close of business
on the day immediately preceding the day on which notice of the meeting is
given.
2.06. Notice: Notice in writing of the time, place and purpose for holding
------
each meeting of shareholders shall be sent not less than 21 clear days nor more
than 50 clear days before the date on which the meeting is to be held, to each
director, the auditor of the Corporation and each person who on the record date
for notice appears in the securities register of the Corporation as the holder
of one or more shares carrying the right to vote at the meeting or as the holder
of one or more shares the holders of which are otherwise entitled to receive
notice of the meeting. Notice of a meeting of shareholders shall state or be
accompanied by the text of any special resolution or by-law to be submitted to
the meeting and a statement in accordance with the Act of the nature of all
special business to be transacted at the meeting. Reference is made to sections
6.07 to 6.11.
- ---- ----
2.07. Proxy and Management Information Circular: The secretary shall,
-----------------------------------------
concurrently with sending notice of a meeting of shareholders, (i) send a form
of proxy and management information circular in accordance
Exhibit F - 2
<PAGE>
with the Act to each shareholder who is entitled to receive notice of and
appears entitled to vote at the meeting,(ii) send such management information
circular to any other shareholder who is entitled to receive notice of the
meeting, to any director who is not a shareholder entitled thereto and to the
auditor, and (iii) file with the Ontario Securities Commission and any other
agencies entitled thereto a copy of all documents sent in connection with the
meeting.
2.08 Financial Statements: Not less than 21 clear days before each annual
--------------------
meeting of shareholders the secretary shall send to each shareholder a copy of
the annual financial statements of the Corporation and the auditor's report
thereon.
2.09 Persons Entitled to be Present: The only persons entitled to attend a
------------------------------
meeting of shareholders shall be those persons entitled to notice thereof and
others who although not entitled to notice are entitled or required under any
provision of the Act or the by-laws to be present at the meeting. Any other
person may be admitted only on the invitation of the chairman of the meeting or
with the consent of the meeting.
2.10 Chairman, Secretary, and Scrutineer: The chairman of the board or in
-----------------------------------
his absence a person designated by the board shall be chairman of any meeting of
shareholders. If no such person is present within 15 minutes after the time
appointed for the holding of the meeting, the persons present and entitled to
vote shall choose one of their number to be chairman. If the secretary is
absent, the chairman shall appoint some person, who need not be a shareholder,
to act as secretary of the meeting. One or more scrutineers, who need not be
shareholders, may be appointed by the chairman or by a resolution of the
shareholders.
2.11 Ouorum: The quorum for the transaction of business at any meeting of
------
shareholders shall be two (2) persons present at the opening of the meeting each
being a shareholder entitled to vote at the meeting or a duly appointed
proxyholder or representative for a shareholder so entitled. If a quorum is
present at the opening of any meeting of shareholders, the shareholders present
or represented may proceed with the business of the meeting even though a quorum
is not present throughout the meeting.
2.12 Persons Entitled to Vote: Without prejudice to any other right to
------------------------
vote, every shareholder recorded on the shareholder list prepared in accordance
with section 2.05 is entitled, at the meeting to which the list relates, to vote
----
the shares shown thereon opposite his name, except to the extent that the
shareholder transfers ownership of any such shares after the record date for
notice of the meeting and the transferee establishes that he owns the shares and
requests not later than 48 hours (excluding Saturdays and holidays) before the
meeting that his name be included in the list, in which case the transferee is
entitled to vote such shares at the meeting. However, where two or more persons
hold the same shares jointly, any one of them may in the absence of the others
vote in respect of such shares but if more than one of such persons are
Exhibit F - 3
<PAGE>
present or represented and vote, they shall vote together as one on the shares
Jointly held by them or not at all.
2.13. Proxies: Every shareholder, including a shareholder that is a body
-------
corporate, entitled to vote at a meeting of shareholders may by means of a proxy
appoint a proxyholder or alternate proxyholders, who need not be shareholders,
as his nominee to attend and act at the meeting in the manner, to the extent and
with the authority conferred by the proxy. The board may specify in the notice
calling a meeting of shareholders a time, not exceeding 48 hours (excluding
Saturdays and holidays) preceding the meeting or any adjournment thereof, before
which proxies must be deposited with the Corporation or its agent. A proxy shall
be acted upon only if, prior to the time so specified, it shall have been
deposited with the Corporation or an agent thereof specified in such notice or,
where no such time is specified in such notice, if it has been received by the
secretary of the Corporation or the chairman of the meeting or any adjournment
thereof before the time of voting.
2.14. Voting: At each meeting of shareholders every question proposed for
------
consideration by the shareholders shall be decided by a majority of the votes
duly cast thereon, unless otherwise required by the articles or by-laws of the
Corporation or by law. In case of an equality of votes the chairman of the
meeting shall be entitled to a casting vote.
2.15 Show of Hands: At each meeting of shareholders voting shall be by
-------------
show of hands unless a ballot is required or demanded as hereinafter provided.
Upon a show of hands every person present and entitled to vote on the show of
hands shall have one vote. Whenever a vote by show of hands has been taken upon
a question, unless a ballot thereon be so required or demanded and such
requirement or demand is not withdrawn, a declaration by the chairman of the
meeting that the vote upon the question was carried or carried by a particular
majority or carried, and an entry to that effect in the minutes of the meeting,
shall be prima facie evidence of the result of the vote without proof of the
number or proportion of votes cast for or against.
2.16 Ballots: On any question proposed for consideration at a meeting of
-------
shareholders a ballot may be required by the chairman or demanded by any person
present and entitled to vote, either before or after any vote by show of hands.
If a ballot is so required or demanded and such requirement or demand is not
withdrawn, a poll upon the question shall be taken in such manner as the
chairman of the meeting shall direct. Subject to the articles, upon a ballot
each person present shall be entitled to one vote in respect of each share which
he is entitled to vote at the meeting on the question.
Exhibit F - 4
<PAGE>
ARTICLE THREE
DIRECTORS
3.01. Powers of the Board of Directors: The board of directors shall manage
--------------------------------
or supervise the management of the business and affairs of the Corporation.
3.02. Qualifications: A majority of the directors shall be resident
--------------
Canadians, at least one-third of the directors shall not be officers or
employees of the Corporation or of any affiliate of the Corporation, and no
person may be a director who is disqualified under the Act.
3.03. Number and Quorum of Directors: The shareholders shall by
------------------------------
special resolution determine from time to time or authorize the board to so
determine the number of directors, including the number to be elected at the
annual meeting, within the minimum and maximum number of directors from time to
time provided for in the articles. The number of directors required from time to
time to constitute a quorum for the transaction of business at a meeting of the
board shall be 51% of the number of directors so determined at that time (or, if
that is a fraction,the next larger whole number of directors). However, in no
case shall the quorum be less than 40% of the minimum number of directors then
provided for in the articles, or two directors, whichever is greater. Reference
is made to section 3.10.
----
3.04. Election and Term: The directors shall be elected to hold office for
-----------------
a term expiring not later than the close of the third annual meeting of
shareholders following their election or when their successors are duly
elected.
3.05. Vacancies: Notwithstanding vacancies, the remaining directors
---------
may exercise all the powers of the board as long as a quorum of the
board remains in office. Vacancies in the board may be filled in accordance
with the Act.
3.06. Calling Meetings: Meetings of the board shall be held from time to
----------------
time at such places within or outside Ontario on such days and at such times as
any two directors or the chief executive officer or any other officer
designated by the board may determine. In any financial year of the Corporation
a majority of the meetings of the board may be held within or outside Canada.
3.07. Notice: Notice of the time and place of every meeting of the board
------
shall be sent to each director not less than 48 hours (excluding Saturdays and
holidays) if the meeting is held in Ontario, or 96 hours (excluding Saturdays
and holidays) otherwise, before the time of the meeting. Reference is made to
sections 6.07 to 6.11.
---- ----
3.08. First Meeting of New Board: Each newly constituted board may hold its
--------------------------
first meeting without notice on the same day as the meeting of shareholders at
which such board is elected.
Exhibit F - 5
<PAGE>
3.09 Regular Meetings: The board may appoint a day or days in any months
----------------
for regular meetings of the board at a place and hour to be named. A copy of any
resolution of the board fixing the place and time of such regular meetings shall
be sent to each director forthwith after being passed and to each director
elected or appointed thereafter, but no other notice shall be required for any
such regular meeting.
3.10. Canadian Majority: No business other than the filling of a vacancy on
-----------------
the board shall be transacted at a meeting of the board unless a majority of the
directors present are resident Canadians, except where a resident Canadian
director who is unable to be present approves in writing or by telephone or
other communication facilities the business transacted at the meeting and a
majority of resident Canadian directors would have been present had that
director been present at the meeting.
3.11. Meetinqs by Telephone: If all the directors present at or
---------------------
participating in the meeting consent (which consent may be given at any time) a
meeting of the board may be held by means of such telephone, electronic or other
communication facilities as permit all persons participating in the meeting to
communicate with each other simultaneously and instantaneously, and each
director participating in such a meeting by such means shall be deemed to be
present at the meeting.
3.12 Chairman: The chairman of the board or in his absence a director
--------
designated by the board or in his absence a director designated by the meeting
shall be chairman of any meeting of the board.
3.13. Voting: At all meetings of the board every question shall be decided
------
by a majority of the votes cast on the question. In case of an equality of votes
the chairman of the meeting shall be entitled to a casting vote.
3.14. Signed Resolutions: When there is a quorum of directors in office, a
-------------------
resolution in writing signed by all the directors entitled to vote thereon at a
meeting of the board or any committee thereof is as valid as if passed at such
meeting. Any such resolution may be signed in counterparts and if signed as of
any date shall be deemed to have been passed on such date.
3.15. Remuneration: Directors may be paid such remuneration for acting as
-------------
directors and such sums in respect of their out-of-pocket expenses incurred in
performing their duties as the board may determine from time to time. Any
remuneration or expenses so payable shall be in addition to any other amount
payable to any director acting in another capacity.
3.16. Committees: The board shall appoint an audit committee and from time
----------
to time may appoint other committees of directors. The composition of each
committee shall meet the requirements of the Act. Each committee shall have
those powers and duties lawfully delegated to it by the board or provided by the
Act. Unless otherwise determined by the board, each committee may fix its
quorum, elect its chairman and
Exhibit F - 6
<PAGE>
adopt rules to regulate its procedure. Subject to the foregoing, the procedure
of each committee shall be governed by the provisions of this by-law, which
govern proceedings of the board so far as the same can, apply except that a
meeting of a committee may be called by any member thereof (or by any member or
the auditor, in the case of the audit committee)notice of any such meeting shall
be given to each member of the committee (or each member and the auditor, in the
case of the audit committee) and the meeting shall be chaired by the chairman of
the committee or, in his absence, some other member of the committee. Each
committee shall keep records of its proceedings and transactions and shall
report all such proceedings and transactions to the board in a timely manner.
ARTICLE FOUR
OFFICERS AND EMPLOYEES
4.01. Appointment of Officers: The board may from time to time appoint a
-----------------------
chairman of the board, a vice-chairman of the board, a president, one or more
senior vice-presidents and vice-presidents, a treasurer, a secretary, a
controller and such other officers as the board may determine, including one or
more assistants to any of the officers so appointed. One person may hold more
than one office. Except for the chairman of the board and the vice-chairman of
the board, the officers so appointed need not be directors.
4.02. Appointment of Non-Officers: The board may also appoint+ other
---------------------------
persons to serve the Corporation in such other positions and with such titles,
powers and duties as the board may determine from time to time.
4.03. Terms of Employment: The board may settle from time to time the
-------------------
terms of employment of the officers and other persons appointed by it and may
remove at its pleasure any such person without prejudice to his rights under any
employment contract.
4.04. Powers and Duties of Officers: The board may from time to time
-----------------------------
specify the duties of each officer, delegate to him powers to manage the
business and affairs of the Corporation (including the power to sub-delegate)
and change such duties and powers, all insofar as not prohibited by the Act. To
the extent not otherwise so specified or delegated, and subject to the Act, the
duties and powers of the officers of the Corporation shall be those usually
pertaining to their respective offices.
4.05. Incentive Plans: For the purposes of enabling key officers and
---------------
employees of the Corporation and its affiliates to participate in the growth of
the Corporation and of providing effective incentives to such officers and
employees, the board may establish such plans (including stock option plans and
stock purchase plans) and make such rules and regulations with respect thereto,
and such changes in such plans, rules
Exhibit F - 7
<PAGE>
and regulations, as the board may deem advisable from time to time. From time
to time the board may designate the key officers and employees entitled to
participate in any such plan. For the purposes of any such plan the Corporation
may provide such financial assistance by means of loan, guarantee or otherwise
to key officers and employees as is Permitted by the Act.
ARTICLE FIVE
CONDUCT OF DIRECTORS AND OFFICERS AND INDEMNITY
5.01. Standard of Care: Every director and officer of the Corporation in
----------------
exercising his powers and discharging his duties shall act honestly and in good
faith with a view to the best interests of the Corporation and shall exercise
the care, diligence and skill that a reasonable prudent person would exercise in
comparable circumstances.
5.02. Disclosure of Interest: A director or officer who now or in future is
----------------------
a party to, or is a director or officer of or has a material interest in another
person who is a party to, any existing or proposed material contract or
transaction with the Corporation shall in accordance with the Act disclose in
writing to the Corporation or request to have entered in the minutes of meetings
of the board the nature and extent of his interest. Except as permitted by the
Act a director so interested shall not vote on any resolution to approve such
contract or transaction. A general notice to the board by a director or officer
that he is a director or officer of or has a material interest in a person and
is to be regarded as interested in any contract made or transaction entered into
with that person is a sufficient disclosure of interest in relation to any
contract or transaction so made or entered into.
5.03. Indemnity: Every person who at any time is or has been a director or
---------
officer of the Corporation or who at any time acts or has acted at the
Corporation's request as a director or officer of a body corporate of which the
Corporation is or was a shareholder or creditor, and the heirs and legal
representatives of every such person, shall at all times be indemnified by the
Corporation in every circumstance where the Act so permits or requires. In
addition and without prejudice to the foregoing and subject to the limitations
in the Act regarding indemnities in respect of derivative actions, every person
who at any time is or has been a director, officer or employee of the
Corporation or properly incurs or has properly incurred any liability on behalf
of the Corporation or who at any time acts or has acted at the Corporation's
request (in respect of the Corporation or any other person), and his heirs and
legal representatives, shall at all times be indemnified by the Corporation
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a fine or judgment, reasonably incurred by him in respect of
or in connection with any civil, criminal or administrative action, proceeding
or investigation (apprehended, threatened, pending, under way or completed) to
which he is or may be made a party or in which he is or may become otherwise
involved by
Exhibit F - 8
<PAGE>
reason of being or having been such a director, officer or employee or by
reason of so incurring or having so incurred such liability or by reason of so
acting or having so acted (or by reason of anything alleged to have been done,
omitted or acquiesced in by him in any such capacity or otherwise in respect of
any of the foregoing), and all appeals therefrom, if:
(a) he acted honestly and in good faith with a view to the best interests
of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing his conduct was lawful.
Nothing in this section shall affect any other right to indemnity to which any
person may be or become entitled by contract or otherwise, and no settlement or
plea of guilty in any action or proceeding shall alone constitute evidence that
a person did not meet a condition set out in clause (a) or (b) of this section
or any corresponding condition in the Act.
5.04. Limitation of Liability: So long as he acts honestly and in good
-----------------------
faith with a view to the best interests of the Corporation, no person referred
to in the preceding section shall be liable for any damage, loss, cost or
liability sustained or incurred by the Corporation. However, nothing in this
section shall relieve any director or officer of the Corporation from the duty
to act in accordance with the Act and the regulations thereunder or from
liability for any breach of such duty.
5.05. Insurance: Subject to the Act, the Corporation may purchase insurance
---------
or the benefit of any person referred to in section 5.03 against such
----
liabilities and in such amounts as the board may determine from time to time.
ARTICLE SIX
MISCELLANEOUS
6.01. Execution of Documents: Any contracts and documents to be executed by
----------------------
the Corporation may be signed by any two of the chairman of the board, the vice-
chairman of the board, the president, a senior vice-president, a vice-president,
the secretary, the treasurer or the controller or by any one of the foregoing
persons and a director, an assistant secretary, an assistant treasurer or an
assistant controller. In addition, the board may from time to time indicate who
may or shall sign any particular contract or document or class of contracts or
documents. Any officer of the Corporation may affix the corporate seal to any
contract or document and may certify a copy of any resolution or of any by-law
or contract or document of the Corporation to be a true copy thereof. Subject to
the Act, and if authorized by the board, the corporate seal of the Corporation
and the signature of any signing
Exhibit F - 9
<PAGE>
officer may be mechanically or electronically reproduced upon any contracts or
documents of the Corporation. Any such facsimile signature shall bind the
Corporation notwithstanding that any signing officer whose signature is so
reproduced may have ceased to hold office at the date of delivery or issue of
such contracts or documents.
6.02. Share Certificates: Every shareholder is entitled at his option to a
------------------
share certificate stating the number, class and series designation, if any, of
shares held by him as appears on the records of the Corporation, or a non-
transferable written acknowledgement of his right to obtain such a share
certificate. However, the Corporation is not bound to issue more than one share
certificate or acknowledgement in respect of shares held jointly by several
persons, and delivery of such certificate or acknowledgment to one of such
persons is sufficient delivery to all of them. Share certificates and
acknowledgements shall be in such forms as the board shall approve from time to
time and, unless otherwise ordered by the board, shall be signed in accordance
with section 6.01 and need not be under corporate seal. However, certificates
----
representing shares in respect of which a transfer agent has been appointed
shall be signed manually by or on behalf of such transfer agent and other share
certificates and acknowledgements shall be signed manually by at least one
signing officer.
6.03. Replacement of Share Certificates: The board may prescribe either
---------------------------------
generally or in a particular case the conditions, in addition to those provided
in the Act, upon which a new share certificate may be issued in place of any
share certificate which is claimed to have been lost, destroyed or wrongfully
taken, or which has become defaced.
6.04. Registration of Transfer: No transfer of shares need be recorded in
------------------------
tie register of transfers except upon presentation of the certificate
representing such shares endorsed by the appropriate person under the Act,
together with reasonable assurance that the endorsement is genuine and
effective, and upon compliance with all other conditions set out in the Act.
6.05. Dividends: Subject to the Act and the articles the board may from
---------
time to time declare dividends payable to the shareholders according to their
respective rights and interests in the Corporation. A dividend payable to any
shareholder in money may be paid by cheque payable to the order of the
shareholder and shall be mailed to the shareholder by prepaid mail addressed to
him at his recorded address unless he @irects otherwise. In the case of joint
holders the cheque shall be made payable to the order of all of them, unless
such joint holders direct otherwise in writing. The mailing of a cheque as
aforesaid, unless it is not paid on due presentation, shall discharge the
Corporation's liability for the dividend to the extent of the amount of the
cheque plus the amount of any tax thereon which the Corporation has properly
withheld. If any dividend cheque sent is not received by the payee, the
Corporation shall issue to such person a replacement cheque for a like amount on
such reasonable terms as to indemnity, reimbursement of expenses and evidence of
non-receipt and of title as the board or any person designated by it may
require.
Exhibit F - 10
<PAGE>
6.06. Dealings with Registered Shareholder: Subject to the Act, the
------------------------------------
Corporation may treat the registered owner of a share as the person exclusively
entitled to vote, to receive notices, to receive any dividend or other payment
in respect of the share and otherwise to exercise all the rights and powers of a
holder of the share. The Corporation may, however, treat as the registered
shareholder any executor, administrator, heir, legal representative, guardian,
committee, trustee, curator, tutor, liquidator or trustee in bankruptcy who
furnishes appropriate evidence to the Corporation establishing his authority to
exercise the rights relating to a share of the Corporation.
6.07. Method of Giving Notice: Any notice or document required or permitted
-----------------------
to be sent by the Corporation to any person, may be mailed by prepaid Canadian
mail in' a sealed envelope addressed to, or may be delivered personally to, such
person at his recorded address, or may be sent by any other means permitted
under the Act. If so mailed, the notice or document shall be deemed to have been
received by the addressee on the fifth clear day after mailing. The secretary
may change the recorded address of any person in accordance with any information
the secretary believes to be reliable.
6.08. Undelivered Notices: If notices or documents mailed to a shareholder
-------------------
pursuant to section 6.07 are returned on three consecutive occasions because he
----
cannot be found, the Corporation need not send any further notices or documents
to such shareholder until he informs the Corporation in writing of his new
address.
6.09. Computation of Days: In computing any period of days or clear days
-----------
under the articles or by-laws or the Act, the period shall be deemed to commence
on the day following the event that begins the period and shall be deemed to end
at midnight on the last day of the period except that if the last day of the
period falls on a holiday, the period shall and at midnight of the day next
following that is not a holiday.
6.10. Omissions and Errors: The accidental omission to give any notice to
--------------------
any person, or the non-receipt of any notice by any person or any immaterial
error in any notice shall not invalidate any action taken at any meeting held
pursuant to such notice or otherwise founded thereon.
6.11. Waiver of Notice: Any person entitled to attend a meeting of
----------------
shareholders or directors or a committee thereof may in any manner and at any
time waive notice thereof, and attendance of any shareholder or his proxyholder
or authorized representative or of any other person at any meeting is a waiver
of notice thereof by such shareholder or other person except where the
attendance is for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called. In addition,
where any notice or document is required to be given under the articles or by-
laws or the Act, the notice may be waived or the time for sending the notice or
document may be waived or abridged at any time with the consent in writing of
the person entitled thereto. Any meeting may be held without
Exhibit F - 11
<PAGE>
notice or on shorter notice than that provided for in the by-laws if all persons
not receiving the notice to which they are entitled waive notice of or accept
short notice of the holding of such meeting.
ARTICLE SEVEN
TRANSITIONAL
7.01. Repeal of By-laws: By-law Nos. 1-6 are repealed without affecting
-----------------
their operation to date or the validity of any act done. Contract made, right or
privilege acquired or liability or obligation incurred thereunder and without
prejudice to any authority exercisable by the board of directors hereafter. All
directors, officers and other persons holding office or appointment under such
repealed by-laws immediately prior to the coming into force of this by-law shall
continue to act as if appointed under this by-law by the board or any committee
thereof or by the shareholders or the holders of any class or series of shares
and having continuing effect immediately prior to the coming into force of this
by-law shall continue in effect except to the extent inconsistent with this by-
law and until amended or repealed.
7.02. Effective Date: This by-law shall come into force as soon as
--------------
the articles of amendment removing the private company restrictions are obtained
by the Corporation.
Exhibit F - 12
<PAGE>
EXHIBIT G
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
AMERICAN TELESOURCE INTERNATIONAL INC.
INTO
ATSI MERGER CORP.
(pursuant to Section 253 of the General Corporation
Law of the State of Delaware)
AMERICAN TELESOURCE INTERNATIONAL INC., a Delaware corporation (ATSI), does
hereby certify:
FIRST: That ATSI Merger Corp. (the Merger Company) is incorporated pursuant
to the General Corporation Law of the State of Delaware (the DGCL).
SECOND: That ATSI owns all of the outstanding shares of capital stock of the
Merger Company.
THIRD: That ATSI, by the following resolutions of its Board of Directors,
duly adopted by unanimous written consent effective __________, 1996, determined
to, and effective upon the filing of this Certificate of Ownership and Merger
with the Office of the Secretary of State of Delaware does, merge ATSI into the
Merger Company.
WHEREAS, the Board of Directors deems it in ATSI's best interest to
merge ATSI into the Merger Company in accordance with the provisions of
Section 253 of the DGCL.
NOW THEREFORE BE IT RESOLVED, that ATSI is to be merged into the
Merger Company.
FURTHER RESOLVED, that the name of ATSI Merger Corp. shall be changed
to American Telesource International, Inc.
FURTHER RESOLVED, that each issued share of capital stock of ATSI
shall, by virtue of the merger and without any action on the part of the
holder thereof, be converted into the identical number of shares of
capital stock of the Merger Company, as the corporation surviving the
merger.
FURTHER RESOLVED, that, until surrendered, certificates formerly
representing shares of capital stock of ATSI shall, from and after the
effective time of the merger, represent the number of shares of capital
stock of the surviving corporation into which such shares were converted
in the merger.
FURTHER RESOLVED, that each issued and outstanding share of capital
stock of Merger Company, by virtue of the merger and without any action
on the part of the holder thereof, be cancelled and no consideration
shall be issued in respect thereof.
FURTHER RESOLVED, that the Chief Executive Officer, the President, and
any Vice President of ATSI be and each of them hereby is authorized and
empowered to execute a Certificate of Ownership and Merger, and to cause
the filing of same in the Office of the Secretary of State of the State
of Delaware and a certified copy of same in the Office of Recorder of
Deeds of the appropriate county in Delaware.
Exhibit G - 1
<PAGE>
FURTHER RESOLVED, the officers of ATSI be, and each of them
individually hereby is, authorized and empowered, in the name and on
behalf of ATSI, to do or cause to be done any and all such further acts
and things and to make, execute, acknowledge, verify, deliver, record
and/or file, any and all such further certificates, notices, statements,
consents, instruments, documents and papers, and to incur and pay all
such fees and expenses of ATSI, as any such officer may deem necessary or
desirable to consummate the transactions approved in the foregoing
resolutions, the necessity and desirability of each such certificate,
notice, statement, consent, document, paper, or other instrument, payment
of money or other act or thing to be conclusively evidenced by the
execution and delivery thereof by any such officer or by his taking such
action, and each such officer is hereby authorized and empowered, in the
name and on behalf of ATSI, to attest or join in the execution of any or
all such certificates, notices, consents, documents, papers or other
instruments which shall be so signed on behalf of ATSI by any such
officer, to join in the acknowledgment or verification of such
certificates, notices, statements, consents, documents, papers or other
instruments to deliver or join in delivering the same, and to execute and
deliver any certificates or statements which may be necessary, desirable
or appropriate in connection therewith.
FOURTH: That the merger provided for herein has been approved by a majority
of the outstanding stock of ATSI entitled to vote thereon pursuant to and in
accordance with Sections 253 and 228 of the General Corporation Law of the State
of Delaware, and, pursuant to Section 228(d) of the General Corporation Law of
the State of Delaware, written notice has been given to the stockholders of ATSI
who have not so consented.
IN WITNESS WHEREOF, ATSI has caused this Certificate to be signed by its duly
authorized officer on _________________, 1996.
AMERICAN TELESOURCE INTERNATIONAL INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Exhibit G - 2
<PAGE>
EXHIBIT H
CERTIFICATE OF INCORPORATION OF ATSI MERGER CORP.
ATSI MERGER CORP.
CERTIFICATE OF INCORPORATION
THE UNDERSIGNED, acting as the incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware, hereby
adopts the following Certificate of Incorporation for such corporation:
ARTICLE I.
NAME
The name of this company (the "Company") is ATSI Merger Corp.
ARTICLE II.
BUSINESS
The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the Delaware General Corporation Law.
ARTICLE III.
AUTHORIZED CAPITAL STOCK
A. Authorization of Shares
-----------------------
The total number of shares of capital stock which the Company shall have
the authority to issue is 55,000,000 shares, consisting of 50,000,000 shares of
common stock, par value $0.001 per share ("Common Stock"), and 5,000,000 shares
of preferred stock, par value $0.001 per share ("Preferred Stock").
B. Common Stock
------------
(1) Dividends. The holders of shares of Common Stock shall be entitled to
---------
receive such dividends as from time to time may be declared by the Board of
Directors of the Company, subject to any preferential payments to which the
holders of shares of any series of Preferred Stock shall be entitled as may be
stated and expressed pursuant to the resolution establishing any such series
of Preferred Stock.
(2) Liquidation. In the event of any liquidation, dissolution or winding
-----------
up of the Company, whether voluntary or involuntary, after payment shall have
been made to any holders of shares of any series of Preferred Stock then
outstanding of the full amounts of preferential payments to which they shall
respectively be entitled as may be stated and expressed pursuant to the
resolution establishing any such series of Preferred Stock, the holders of
shares of Common Stock then outstanding shall be entitled to
Exhibit H - 1
<PAGE>
share ratably based upon the number of shares of Common Stock held by them in
all remaining assets of the Company available for distribution to its
shareholders.
(3) Voting Rights. All shares of Common Stock shall be identical with each
-------------
other in every respect. The shares of Common Stock shall entitle the holders
thereof to one vote for each share upon all matters upon which shareholders
have the right to vote.
C. Preferred Stock
---------------
The Board of Directors is authorized to establish, from time to time, one
or more series of any class of shares, to increase or decrease the number within
each series, and to fix the designations, powers, preferences and relative,
participating, optional or other rights of such series and any qualifications,
limitations or restrictions thereof.
ARTICLE IV.
REGISTERED OFFICE
The street address of the Company's registered office in the State of Delaware
is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805, and the name
of its registered agent at such address is Corporation Service Company.
ARTICLE V.
ELECTION OF DIRECTORS
A. The business and affairs of the Company shall be conducted and managed by,
or under the direction of, the Company's Board of Directors (the "Board"). The
total number of directors constituting the entire Board shall be fixed and may
be altered from time to time by or pursuant to a resolution passed by the Board.
B. The Board shall be divided into three classes, Class A, Class B and Class
C. Such classes shall be as nearly equal in number of directors as possible.
Each director shall serve for a term expiring at the third annual meeting
following the annual meeting at which such director was elected; provided,
however, that the directors first elected to Class A shall serve for an initial
term expiring at the annual meeting following the end of the Company's 1996
fiscal year, the directors first elected to Class B shall serve for an initial
term expiring at the second annual meeting next following the end of the
Company's 1996 fiscal year, and the directors first elected to Class C shall
serve for an initial term expiring at the third annual meeting next following
the end of the Company's 1996 fiscal year. The foregoing notwithstanding,
except as otherwise provided in this Certificate or any resolution or
resolutions of the Board designating a series of Preferred Stock, directors who
are elected at an annual meeting of stockholders, and directors elected in the
interim to fill vacancies and newly created directorships, shall hold office for
the term for which elected and until their successors are elected and qualified
or until their earlier death, resignation or removal. Whenever the holders of
any class or classes of stock or any series thereof shall be entitled to elect
one or more directors pursuant to any resolution or resolutions of the Board
designating a series of Preferred Stock, and except as otherwise provided herein
or therein, vacancies and newly created directorships of such class or classes
or series thereof may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, by a sole remaining director
so elected or by the unanimous written consent or the affirmative vote of a
majority of the outstanding shares of such class or classes or series entitled
to elect such director or directors.
C. Except as otherwise provided for herein, newly created directorships
resulting from any increase in the authorized number of directors, and any
vacancies on the Board resulting from death, resignation, disqualification,
removal or other cause, may be filled only by the affirmative vote of a majority
of the
Exhibit H - 2
<PAGE>
remaining directors then in office, even though less than a quorum of the Board.
Any director elected in accordance with the preceding sentence shall hold office
for the remainder of the full term of the newly created directorship or for the
directorship in which the vacancy occurred, and until such director's successor
shall have been duly elected and qualified, subject to his earlier death,
disqualification, resignation or removal. Subject to the provisions of this
Certificate, no decrease in the number of directors constituting the Board shall
shorten the term of any incumbent director.
D. Except as otherwise provided in any resolution or resolutions of the Board
designating a series of Preferred Stock, any director may be removed from office
only by the affirmative vote of the holders of 66 2/3% or more of the combined
voting power of the then-outstanding shares of capital stock of the Company
entitled to vote at a meeting of stockholders called for that purpose, voting
together as a single class.
ARTICLE VI.
MEETINGS OF STOCKHOLDERS
A. Meetings of stockholders of the Company ("Stockholder Meetings") may be
held within or without the State of Delaware, as the Bylaws may provide. Except
as otherwise provided in any resolution or resolutions of the Board designating
a series of Preferred Stock, special Stockholder Meetings may be called only by
(i) the President of the Company or (ii) the Board pursuant to a resolution
adopted by a majority of the then-authorized number of directors of the Company.
Special Stockholder Meetings may not be called by any other person or persons or
in any other manner. Elections of directors need not be by written ballot
unless the Bylaws of the Company (the "Bylaws") shall so provide.
B. In addition to the powers conferred on the Board by this Certificate and by
the Delaware General Corporation Law, and without limiting the generality
thereof, the Board is specifically authorized from time to time, by resolution
of the Board without additional authorization by the stockholders of the
Company, to adopt, amend or repeal the Bylaws, in such form and with such terms
as the Board may determine, including, without limiting the generality of the
foregoing, Bylaws relating to (i) regulation of the procedure for submission by
stockholders of nominations of persons to be elected to the Board, (ii)
regulation of the attendance at annual or special Stockholder Meetings by
persons other than holders of record or their proxies, and (iii) regulation of
the business that may properly be brought by a stockholder of the Company before
an annual or special meeting of stockholders of the Company.
ARTICLE VII.
STOCKHOLDER CONSENT
Except as otherwise provided in any resolution or resolutions of the Board
designating a series of Preferred Stock, no action that is required or permitted
to be taken by the stockholders of the Company at any annual or special meeting
of stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
ARTICLE VIII.
LIMITATION OF LIABILITY
A director of the Company shall not be personally liable to the Company or its
stockholders for monetary damages for breach of fiduciary duty as a director;
provided, however, that this Article shall not eliminate or limit the liability
of a director: (i) for any breach of the director's duty of loyalty to the
Company or stockholders, (ii) for acts or omissions not in good faith or which
involve intentional misconduct or a knowing
Exhibit H - 3
<PAGE>
violation of law, (iii) under section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit.
If the Delaware General Corporation Law is amended after the date of filing of
this Certificate to authorize corporate action further limiting or eliminating
the personal liability of a director, then the liability of the directors of the
Company shall be limited or eliminated to the fullest extent permitted by the
Delaware General Corporation Law, as so amended. Any repeal or modification of
this Article by the stockholders of the Company or otherwise shall not adversely
affect any right or protection of a director of the Company existing at the time
of such repeal or modification.
ARTICLE IX.
SECTION 203
The Company shall be governed by Section 203 of the Delaware General
Corporation Law.
ARTICLE X.
INDEMNIFICATION
The Company shall indemnify each director and officer of the Company who may
be indemnified, to the fullest extent permitted by Section 145 of the Delaware
General Corporation Law ("Section 145"), as it may be amended from time to time,
in each and every situation where the Company is obligated to make such
indemnification pursuant to Section 145. In addition, the Company shall
indemnify each of the Company's directors and officers in each and every
situation where, under Section 145, the Company is not obligated, but is
permitted or empowered, to make such indemnification. The Company may, in the
sole discretion of the Board, indemnify any other person who may be indemnified
pursuant to Section 145 to the extent the Board deems advisable, as permitted by
such section. The Company shall promptly make or cause to be made any
determination which Section 145 requires.
ARTICLE XI.
AMENDMENT OF CORPORATE DOCUMENTS
A. Certificate. Whenever any vote of the holders of voting shares of capital
-----------
stock of the Company is required by law to amend, alter, repeal or rescind any
provision of this Certificate, then in addition to any affirmative vote required
by applicable law and in addition to any vote of the holders of any series of
Preferred Stock, as provided in any resolution or resolutions of the Board
designating a series of Preferred Stock, such alteration, amendment, repeal or
rescission (a "Change") of any provision of this Certificate must be approved by
at least a majority of the then-authorized number of directors and by the
affirmative vote of the holders of at least a majority of the combined voting
power of the then-outstanding voting shares of capital stock of the Company,
voting together as a single class; provided, however, that if any such Change
relates to Articles III, V, VI, VII, VIII, IX, X or to this Article XI, such
Change must also be approved by the affirmative vote of the holders of at least
66% of the combined voting power of the then-outstanding voting shares of
capital stock of the Company, voting together as a single class; provided
further, however, that the vote(s) required by the immediately preceding clause
shall not be required if such Change has been first approved by at least two-
thirds of the then-authorized number of directors.
Subject to the provisions hereof, the Company reserves the right at any
time, and from time to time, to amend, alter, repeal or rescind any provision
contained in this Certificate in the manner now or hereafter prescribed by law,
and other provisions authorized by the laws of the State of Delaware at the time
in force may be added or inserted, in the manner now or hereafter prescribed by
law; and all rights, preferences and
Exhibit H - 4
<PAGE>
privileges of whatsoever nature conferred upon stockholders, directors or any
other persons whomsoever by and pursuant to this Certificate in its present form
or as hereafter amended are granted subject to the rights reserved in this
article.
B. Bylaws. In addition to any affirmative vote required by law, any Change of
------
the Bylaws may be adopted either (i) by the Board by the affirmative vote of at
least a majority of the then-authorized number of directors, or (ii) by the
stockholders by the affirmative vote of the holders of at least 66 2/3% of the
combined voting power of the then-outstanding voting shares of capital stock of
the Company, voting together as a single class.
ARTICLE XII.
EXISTENCE
The Company is to have perpetual existence.
ARTICLE XIII.
RELATED PARTIES
A. No contract or transaction between the Company and one or more of its
directors or officers, or between the Company and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers, are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract or
transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum; or
(2) The material facts as to his relationship or interest and as to the
contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by a vote of the stockholders; or
(3) The contract or transaction is fair as to the Company as of the time it
is authorized, approved or ratified, by the Board, a committee or the
stockholders.
B. Common or interested directors may be counted in determining the presence
of a quorum at a meeting of the Board or of a committee which authorizes the
contract or transaction.
ARTICLE XIV.
INCORPORATOR
The name and mailing address of the incorporator of the Company is:
Exhibit H - 5
<PAGE>
Matthew R. Bair, Esq.
Akin, Gump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Convent Street
San Antonio, Texas 78205
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed under
the seal of the Company on June 7, 1996.
/s/ MATT BAIR
_____________________________________
Matt Bair
Exhibit H - 6
<PAGE>
EXHIBIT I
BYLAWS OF ATSI MERGER CORP.
BYLAWS
OF
ATSI MERGER CORP.
EXHIBIT I - 1
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
ARTICLE I. OFFICES ............................................................. 1
Section 1.1. Registered Office ................................................... 1
-----------------
Section 1.2. Additional Offices .................................................. 1
------------------
ARTICLE II. STOCKHOLDERS MEETINGS ............................................... 1
Section 2.1. Annual Meetings ..................................................... 1
---------------
Section 2.2. Special Meetings .................................................... 1
----------------
Section 2.3. Notices ............................................................. 1
-------
Section 2.4. Quorum .............................................................. 1
------
Section 2.5. Organization and Conduct of Meetings ................................ 2
------------------------------------
Section 2.6. Notification of Stockholder Business ................................ 2
------------------------------------
Section 2.7. Voting of Shares .................................................... 3
----------------
2.7.1. Voting Lists ............................................... 3
------------
2.7.2. Votes Per Share ............................................ 3
---------------
2.7.3. Proxies .................................................... 4
-------
2.7.4. Required Vote .............................................. 4
-------------
2.7.5. Consents in Lieu of Meeting ................................ 4
---------------------------
Section 2.8. Inspectors of Election .............................................. 4
----------------------
ARTICLE III. DIRECTORS ........................................................... 5
Section 3.1. Purpose ............................................................. 5
-------
Section 3.2. Number and Class .................................................... 5
----------------
Section 3.3. Election ............................................................ 5
--------
Section 3.4. Notification of Nominations ......................................... 5
---------------------------
Section 3.5. Vacancies and Newly Created Directorships ........................... 6
-----------------------------------------
3.5.1. Vacancies .................................................. 6
---------
3.5.2. Newly Created Directorships ................................ 6
---------------------------
Section 3.6. Removal ............................................................. 7
-------
Section 3.7. Compensation ........................................................ 7
------------
ARTICLE IV. BOARD MEETINGS ...................................................... 7
Section 4.1. Regular Meetings .................................................... 7
----------------
Section 4.2. Special Meetings .................................................... 7
----------------
Section 4.3. Organization, Conduct of Meetings ................................... 7
---------------------------------
Section 4.4. Quorum, Required Vote ............................................... 7
---------------------
Section 4.5. Consent In Lieu of Meeting .......................................... 8
--------------------------
ARTICLE V. COMMITTEES OF DIRECTORS ............................................. 8
Section 5.1. Establishment; Standing Committees .................................. 8
----------------------------------
5.1.1. Executive Committee ........................................ 8
-------------------
5.1.2. Finance Committee .......................................... 8
-----------------
5.1.3. Conflicts and Audit Committee .............................. 8
-----------------------------
</TABLE>
Exhibit I-i
<PAGE>
<TABLE>
<S> <C> <C>
5.1.4. Compensation Committee ..................................... 9
----------------------
Section 5.2. Available Powers .................................................... 9
----------------
Section 5.3. Unavailable Powers .................................................. 9
------------------
Section 5.4. Alternate Members ................................................... 10
-----------------
Section 5.5. Procedures .......................................................... 10
----------
ARTICLE VI. OFFICERS ............................................................ 10
Section 6.1. Executive Officers; Term of Office .................................. 10
----------------------------------
Section 6.2. Powers and Duties ................................................... 11
-----------------
6.2.1. President .................................................. 11
---------
6.2.2. Vice Presidents ............................................ 11
---------------
6.2.3. Secretary .................................................. 11
---------
6.2.4. Treasurer .................................................. 11
---------
6.2.5. Assistant Secretary ........................................ 11
-------------------
6.2.6. Assistant Treasurer ........................................ 12
-------------------
Section 6.3. Resignations and Removal ............................................ 12
------------------------
Section 6.4. Vacancies ........................................................... 12
---------
Section 6.5. Compensation, Vacancies ............................................. 12
-----------------------
Section 6.6. Additional Powers and Duties ........................................ 12
----------------------------
Section 6.7. Voting Upon Stocks .................................................. 12
------------------
ARTICLE VII. SHARE CERTIFICATES................................................... 13
Section 7.1. Entitlement to Certificates ......................................... 13
---------------------------
Section 7.2. Multiple Classes of Stock ........................................... 13
-------------------------
Section 7.3. Signatures .......................................................... 13
----------
Section 7.4. Issuance and Payment ................................................ 13
--------------------
Section 7.5. Lost, Stolen or Destroyed Certificates .............................. 13
--------------------------------------
Section 7.6. Transfer of Stock ................................................... 14
-----------------
Section 7.7. Registered Stockholders ............................................. 14
-----------------------
ARTICLE VIII. INDEMNIFICATION ..................................................... 14
Section 8.1. General ............................................................. 14
-------
Section 8.2. Actions by or in the Right of the Company ........................... 14
-----------------------------------------
Section 8.3. Board Determinations ................................................ 15
--------------------
Section 8.4. Advancement of Expenses ............................................. 15
-----------------------
Section 8.5. Nonexclusive ........................................................ 15
------------
Section 8.6 Indemnification of Employees and Agents of the Company .............. 15
------------------------------------------------------
Section 8.7. Insurance ........................................................... 16
---------
Section 8.8. Certain Definitions ................................................. 16
-------------------
Section 8.9. Change in Governing Law ............................................. 16
-----------------------
ARTICLE IX. INTERESTED DIRECTORS, OFFICERS AND
STOCKHOLDERS ........................................................ 16
Section 9.1. Validity ............................................................ 16
--------
Section 9.2. Disclosure, Approval ................................................ 17
--------------------
Section 9.3. Nonexclusive ........................................................ 17
------------
</TABLE>
Exhibit I-ii
<PAGE>
<TABLE>
<S> <C> <C>
ARTICLE X. MISCELLANEOUS 17
Section 10.1 Place of Meetings ................................................... 17
-----------------
Section 10.2. Fixing Record Dates ................................................. 17
-------------------
Section 10.3. Means of Giving Notice .............................................. 18
----------------------
Section 10.4. Waiver of Notice .................................................... 18
----------------
Section 10.5. Attendance via Communications Equipment ............................. 18
---------------------------------------
Section 10.6. Dividends ........................................................... 18
---------
Section 10.7. Reserves ............................................................ 18
--------
Section 10.8. Reports to Stockholders ............................................. 18
-----------------------
Section 10.9. Checks, Notes and Contracts ......................................... 18
---------------------------
Section 10.10. Loans ............................................................... 19
-----
Section 10.11. Fiscal Year ......................................................... 19
----------
Section 10.12. Seal ................................................................ 19
----
Section 10.13. Books and Records ................................................... 19
-----------------
Section 10.14. Resignation ......................................................... 19
-----------
Section 10.15. Surety Bonds ........................................................ 19
------------
Section 10.16. Amendments .......................................................... 20
---------
</TABLE>
Exhibit I-iii
<PAGE>
BYLAWS
OF
ATSI MERGER CORP.
ARTICLE I.
OFFICES
Section 1.1. Registered Office. The registered office of the Company
-----------------
within the State of Delaware shall be located at the principal place of business
in said state of such Company or individual acting as the Company's registered
agent in Delaware.
Section 1.2. Additional Offices. The Company may, in addition to its
------------------
registered office in the State of Delaware, have such other offices and places
of business, both within and without the State of Delaware, as the Board of
Directors of the Company (the Board) may from time to time determine or as the
business and affairs of the Company may require.
ARTICLE II.
STOCKHOLDERS MEETINGS
Section 2.1. Annual Meetings. Annual meetings of stockholders shall be
---------------
held at a place and time on any weekday which is not a holiday as shall be
designated by the Board and stated in the notice of the meeting, at which
meeting the stockholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the stockholders, for
----------------
any purpose or purposes, shall be called in the manner prescribed by Article VI
of the Certificate of Incorporation (the Certificate).
Section 2.3. Notices. Written notices of each stockholders meeting
-------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote thereat at the address of such stockholder as
reflected in the records of the Company. Such notice shall be given by or at the
direction of the party calling such meeting not less than 10 nor more than 60
days before the date of the meeting. If said notice is for a stockholders
meeting other than an annual meeting, it shall in addition state the purpose or
purposes for which said meeting is being called, and the business transacted at
such meeting shall be limited to the matters so stated in said notice and any
matters reasonably related thereto.
Section 2.4. Quorum. At any stockholders meeting, the holders present in
------
person or by proxy of a majority of the voting power of the shares of capital
stock of the Company entitled to vote thereat shall constitute a quorum of the
stockholders for all purposes (unless the representation of a larger number of
shares shall be required by law or by the Certificate, in which case the
representation of the number of shares so required shall constitute a quorum).
Exhibit I - 1
<PAGE>
The holders of a majority of the voting power of the Shares of capital
stock of the Company entitled to vote which are present in person or by proxy at
any meeting (whether or not constituting a quorum of the outstanding shares) may
adjourn the meeting from time to time without notice other than by announcement
thereat; and at any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally called, but only those stockholders entitled to vote at the meeting
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. However, if the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 2.5. Organization and Conduct of Meetings. Such person as the
------------------------------------
Board of Directors may have designated or, in the absence of such a person, the
President of the Corporation or, in his absence, such person as may be chosen by
the holders of shares representing a majority of the votes which could be cast
by those present, in person or by proxy and entitled to vote, shall call to
order any meeting of the stockholders and act as chairman of the meeting.
The Secretary shall act as secretary of all stockholders meetings; but, in
the absence of the Secretary, the Chairman may appoint any person to act as
secretary of the meeting.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting by the chairman of the meeting. The Board may, to the extent not
prohibited by law, adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as adopted by the Board,
the chairman of any meeting of stockholders shall have the right and authority
to prescribe such rules, regulations and procedures and to do all such acts as,
in the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may to the extent not prohibited by
law include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and for the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Company, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitation on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
Proceedings at every stockholders meeting shall, at the election of the
chairman, comply with Robert's Rules of Order (latest published edition).
Section 2.6. Notification of Stockholder Business. All business properly
------------------------------------
brought before an annual meeting shall be transacted at such meeting. Subject to
the right of stockholders to elect a chairman of the meeting, as set forth in
Section 2.5, business shall be deemed properly brought only if it is (i)
specified in the notice of meeting (or any supplement thereto) given by
Exhibit I - 2
<PAGE>
or at the direction of the Board, (ii) otherwise properly brought before the
meeting by or at the direction of the Board or (iii) brought before the meeting
by a stockholder of record entitled to vote at such meeting if written notice of
such stockholder's intent to bring such business before such meeting is
delivered to, or mailed, postage prepaid, and received by, the Secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the date on which the Company first makes public
disclosure of the date of the annual meeting; provided, however, that if the
annual meeting is adjourned, and the Company is required by Delaware law to give
notice to stockholders of the adjourned meeting date, written notice of such
stockholder's intent to bring such business before the meeting must be delivered
to or received by the Secretary no later than the close of business on the fifth
day following the earlier of (1) the date the Company makes public, disclosure
of the date of the adjourned meeting or (2) the date on which notice of such
adjourned meeting is first given to stockholders. Each notice given by such
stockholder shall set forth: (A) a brief description of the business desired to
be brought before the meeting and the reasons for conducting such business at
the meeting; (B) the name and address of the stockholder who intends to propose
such business; (C) a representation that the stockholder is a holder of record
of stock of the Company entitled to vote at such meeting (or if the record date
for such meeting is subsequent to the date required for such stockholder notice,
a representation that the stockholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such meeting)
and intends to appear in person or by proxy at such meeting to propose such
business; and (D) any material interest of the stockholder, if any, in such
business. The chairman of the meeting may refuse to transact any business at any
meeting made without compliance with the foregoing procedure. For this Section
2.6, public disclosure shall be deemed to first be given to stockholders when
disclosure of such date of the meeting of stockholders is first made in a press
release reported by the Dow Jones News Services, Associated Press or comparable
national news service, or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended.
Section 2.7. Voting of Shares.
----------------
Section 2.7.1. Voting Lists. The officer or agent who has charge of
------------
the stock ledger of the Company shall prepare, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
thereat arranged in alphabetical order and showing the address and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The original
stock transfer books shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at any
meeting of stockholders. Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at said meeting.
Section 2.7.2. Votes Per Share. Each outstanding share of capital
---------------
stock shall be entitled to vote in accordance with the provisions for voting
included in the Certificate. In determining the number of shares of stock
required by law, by the Certificate or by the Bylaws
Exhibit I - 3
<PAGE>
to be represented for any purpose, or to determine the outcome of any matter
submitted to stockholders for approval or consent, the number of shares
represented or voted shall be weighted in accordance with the provisions of the
Certificate regarding voting powers of each class of stock. Any reference in
these Bylaws to a majority or a particular percentage of the voting stock or a
majority or a particular percentage of the capital stock shall be deemed to
refer to a majority or a particular percentage, respectively, of the voting
power of such stock. Issues shall be determined by a class vote only when a
class vote is required by law or the Certificate.
Section 2.7.3. Proxies. Every Stockholder entitled to vote at a
-------
meeting or to express consent or dissent without a meeting or a stockholder's
duly authorized attorney-in-fact may authorize another person or persons to act
for him by proxy. Each proxy shall be in writing, executed by the stockholder
giving the proxy or by his duly authorized attorney. No proxy shall be voted on
or after three years from its date, unless the proxy provides for a longer
period. Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it, or his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
Section 2.7.4. Required Vote. When a quorum is present at any
-------------
meeting, the vote of the holders, present in person or represented by proxy, of
capital stock of the Company representing a majority of the votes of all capital
stock of the Company entitled to vote thereat shall decide any question brought
before such meeting, unless the question is one upon which, by express provision
of law or the Certificate or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 2.7.5. Consents in Lieu of Meeting. Pursuant to Article VII
---------------------------
of the Company's Certificate, no action that is required or permitted to be
taken by the stockholders of the Company at any annual or special meeting of
stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless, subject to certain exceptions contained in the
Certificate, the action to be effected by written consent of stockholders and
the taking of such action by such written consent have expressly been approved
in advance by the Board.
Section 2.8. Inspectors of Election. The Company shall, in advance of any
----------------------
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Company, to act at the meeting or any adjournment thereof and
to make a written report thereof. The Company may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector so appointed or designated is able to act at a meeting of
stockholders, the chairman or the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability.
The inspector or inspectors so appointed or designated shall: (a) ascertain
the number of shares of capital stock of the Company outstanding and the voting
power of each such share; (b) determine the shares of capital stock of the
Company represented at the meeting and the validity of proxies and ballots; (c)
count all votes and ballots; (d) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors;
Exhibit I - 4
<PAGE>
and (e) certify their determination of the number of shares of capital stock of
the Company represented at the meeting and such inspectors' count of all votes
and ballots. Such certification and report shall specify such other information
as may be required by law. In determining the validity and counting of proxies
and ballots cast at any meeting of stockholders of the Company, the inspectors
may consider such information as is permitted by applicable law. No person who
is a candidate for an office at an election may serve as an inspector at such
election.
ARTICLE III.
DIRECTORS
Section 3.1. Purpose. The business and affairs of the Company shall be
-------
managed by or under the direction of the Board acting by not less than a
majority of the directors then in office. The Board shall exercise all such
powers of the Company and do all such lawful acts and things as are not by law,
the Certificate or these Bylaws directed or required to be exercised or done by
the stockholders. Directors need not be stockholders or residents of the State
of Delaware.
Section 3.2. Number and Class. The number of directors constituting the
----------------
Board shall never be less than one (1), and shall be determined by resolution of
the Board. At each election held after the initial elections, directors elected
to succeed such directors whose terms expire shall be elected for a term of
office which shall expire at the third succeeding annual meeting of stockholders
after their election. The foregoing notwithstanding, except as otherwise
provided in the Certificate or any resolution or resolutions of the Board
designating a series of preferred stock of the Company, directors who are
elected at an annual meeting of stockholders, and directors elected in the
interim to fill vacancies and newly created directorships, shall hold office for
the term for which elected and until their successors are elected and qualified
or until their earlier death, resignation or removal. Whenever the holders of
any class or classes of stock or any series thereof shall be entitled to elect
one or more directors pursuant to the provisions of the Certificate or any
resolution or resolutions of the Board designating a series of preferred stock
of the Company, and except as otherwise provided herein or therein, vacancies
and newly created directorships of such class or classes or series thereof may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, by a sole remaining director so elected or by the
unanimous written consent or the affirmative vote of a majority of the
outstanding shares of such class or classes or series entitled to elect such
director or directors. Except as otherwise provided in the Certificate,
directors need not be stockholders.
Section 3.3. Election. Directors shall be elected by the stockholders by
--------
plurality vote at a stockholders meeting as provided in the Certificate and
these Bylaws, and each director shall hold office until his successor has been
duly elected and qualified or until the earlier of his death, resignation or
removal from office.
Section 3.4. Notification of Nominations. Subject to the rights of the
---------------------------
holders of any one or more series of Preferred Stock then outstanding,
nominations for the election of directors may be made by the Board or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at an annual meeting or a special
Exhibit I - 5
<PAGE>
meeting called for the purpose of electing directors may nominate persons for
election as directors at such meeting only if written notice of such
stockholder's intent to make such nomination is delivered to, or mailed, postage
prepaid, and received by, the Secretary at the principal executive offices of
the Company not later than the close of business on the tenth day following the
date on which the Company first makes public disclosure of the date of the
meeting; provided, however,that if the meeting is adjourned, and the Company is
required by Delaware law to give notice to stockholders of the adjourned meeting
date, written notice of such stockholder's intent to make such nomination at
such adjourned meeting must be delivered to or received by the Secretary no
later than the close of business on the fifth day following the earlier of (1)
the date the Company makes public disclosure of the date of the adjourned
meeting or (2) the date on which notice of such adjourned meeting is first given
to stockholders. Each notice given by such stockholder shall set forth: (A) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (B) a representation that the stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
(or if the record date for such meeting is subsequent to the date required for
such stockholder notice, a representation that the stockholder is a holder of
record at the time of such notice and intends to be a holder of record on the
record date for such meeting) and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (C) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (D) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board; and (E)
the written consent of each nominee to serve as a director of the Company if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person made without compliance with the foregoing procedure. For this
Section 3.4, public disclosure shall be deemed to be first given to stockholders
when disclosure of such date of the meeting of stockholders is first made in a
press release reported by the Dow Jones News Services, Associated Press or
comparable national news service, or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d)
of the Securities Exchange Act of 1934, as amended.
Section 3.5. Vacancies and Newly Created Directorships.
-----------------------------------------
Section 3.5.1. Vacancies. Any vacancy occurring in the Board shall
---------
be filled in accordance with Article V of the Certificate. A director elected to
fill a vacancy shall hold office until his successor has been duly elected and
qualified or until his earlier death, resignation or removal from office.
Section 3.5.2. Newly Created Directorships. A directorship to be
---------------------------
filled because an increase in the number of directors shall be filled in
accordance with Article V of the Certificate. A director elected to fill a
newly-created directorship shall hold office until his successor has been duly
elected and qualified or until his earlier death, resignation or removal from
office.
Exhibit I - 6
<PAGE>
Section 3.6. Removal. Any director or the entire Board may be removed in
-------
accordance with the procedures set forth in Article V of the Certificate.
Section 3.7. Compensation. Unless otherwise restricted by law, the
------------
Certificate or these Bylaws, the Board shall have the authority to fix
compensation of directors. The directors may be reimbursed for their expenses,
if any, of attendance at each meeting of the Board and may be paid either a
fixed sum for attendance at each meeting of the Board and/or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of committees
of the Board may be allowed like compensation.
ARTICLE IV.
BOARD MEETINGS
Section 4.1. Regular Meetings. Regular meetings of the Board shall be
----------------
held at such times and places as the Board shall determine. No notice shall be
required for any regular meeting of the Board; but a notice of the fixing or
changing of the time or place of regular meetings shall be mailed to every
director at least five days before the first meeting held pursuant to the
notice.
Section 4.2. Special Meetings. Special meetings of the Board (i) may be
----------------
called by the President and (ii) shall be called by the President or Secretary
on the written request of two or more directors. Notice of each special meeting
of the Board shall be given to each director at least 24 hours before the
meeting if such notice is delivered personally or by means of telephone,
telegram, telex or facsimile transmission and delivery; two days before the
meeting if such notice is delivered by a recognized express delivery service;
and three days before the meeting if such notice is delivered through the United
States mail. Any and all business may be transacted at a special meeting which
may be transacted at a regular meeting of the Board. Except as may be otherwise
expressly provided by law, the Certificate or these Bylaws, neither the business
to be transacted at, nor the purpose of, any special meeting need be specified
in the notice or waiver of notice of such meeting.
Section 4.3. Organization, Conduct of Meetings. The Board of Directors
---------------------------------
may, if it chooses, elect a Chairman of the Board and a Vice Chairman of the
Board from its members. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board, if any, or in his absence the Vice Chairman
of the Board, if any, or in his absence by the President, or in their absence by
a chairman chosen at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of the meeting; but in his absence the secretary of the
meeting shall be such person as the chairman of the meeting appoints.
Section 4.4. Quorum, Required Vote. A majority of the directors shall
---------------------
constitute a quorum for the transaction of business at any meeting of the Board,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board, except as may be otherwise
specifically provided by law, the Certificate or these Bylaws. If a quorum shall
not be present at any meeting, a majority of the directors present may adjourn
the
Exhibit I - 7
<PAGE>
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
Section 4.5. Consent In Lieu of Meeting. Unless otherwise restricted by
--------------------------
the Certificate or these Bylaws, any action required or permitted to be taken at
any meeting of the Board or any committee thereof may be taken by written
consent in lieu of a meeting in accordance with applicable provisions of law.
ARTICLE V.
COMMITTEES OF DIRECTORS
Section 5.1. Establishment; Standing Committees. The Board may by
----------------------------------
resolution establish, name or dissolve one or more committees, each committee to
consist of one or more of the directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required. Such
committees may include the following standing committees, which committees, if
established, shall have and may exercise the following powers and authority.
Section 5.1.1. Executive Committee. The Executive Committee shall
-------------------
have and may exercise all the powers of the Board delegable, by law in the
management of the business and affairs of the Company, unless the resolution
creating such committee or further defining its powers provides otherwise, in
which case the Executive Committee shall have and exercise the powers so
provided in such resolution or resolutions. The Executive Committee shall be
comprised of the Chairman of the Board and such other director or directors as
the Board by resolution shall appoint thereto. In addition to the foregoing, the
Executive Committee shall have such other powers and duties as shall be
specified by the Board in a resolution or resolutions.
Section 5.1.2. Finance Committee. The Finance Committee shall, from
-----------------
time to time, meet to review the Company's consolidated operating and financial
affairs, both with respect to the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Finance Committee shall not be empowered to approve any corporate action, of
whatever kind or nature, and the recommendations of the Finance Committee shall
not be binding on the Board, except when, pursuant to Section 5.2, such power
and authority have been specifically delegated to such committee by the Board by
resolution. In addition to the foregoing, the specific duties of the Finance
Committee shall be determined by the Board by resolution.
Section 5.1.3. Conflicts and Audit Committee. The Conflicts and
-----------------------------
Audit Committee shall, from time to time, but no less than two times per year,
meet to review and monitor the financial and cost accounting practices and
procedures of the Company and its subsidiaries, if any, and to report its
findings and recommendations to the Board for final action. In addition, the
Conflicts and Audit Committee shall recommend an independent public accountant
to audit the Company's financial statements and perform other accounting
services for the Company to the Board for submission to the stockholders for
approval. Furthermore, the Conflicts and Audit Committee will, at the request of
the Board by resolution, review specific matters as to which the Board believes
there may be a conflict of interest between the Company
Exhibit I - 8
<PAGE>
and an affiliate, officer and/or director of the Company to determine if the
resolution of such conflict proposed by the Board or management of the Company,
as the case may be, is fair and reasonable. The composition of the Conflicts and
Audit Committee shall meet the requirements of any national securities exchange
or national market system on which the Company lists any of its capital stock.
The Conflicts and Audit Committee shall not be empowered to approve any
corporate action, of whatever kind or nature, and the recommendations of the
Conflicts and Audit Committee shall not be binding on the Board, except when,
pursuant to Section 5.2, such power and authority have been specifically
delegated to such committee by the Board by resolution. In addition to the
foregoing, the specific duties of the Conflicts and Audit Committee shall be
determined by the Board by resolution. In addition to the foregoing, the
specific duties of the Conflicts and Audit Committee shall be determined by the
Board by resolution. For this Section, "affiliate" shall include (i) any entity
that is an "affiliate" within the meaning set forth in Section 12b-2 of
Regulation 12B promulgated under the Securities Exchange Act of 1934, as
amended, and (ii) any officer or director of an "affiliate" as defined therein.
Section 5.1.4. Compensation Committee. The Compensation Committee
----------------------
shall, from time to time, meet to review the various compensation plans,
policies and practices of the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Compensation Committee shall not be empowered to approve any corporate action,
of whatever kind or nature, and the recommendations of the Compensation
Committee shall not be binding on the Board, except when, pursuant to Section
5.2, such power and authority have been specifically delegated to such committee
by the Board by resolution. In addition to the foregoing, the specific duties of
the Compensation Committee shall be determined by the Board by resolution.
Section 5.2. Available Powers. Any committee established pursuant to
----------------
Section 5.1, including the Executive Committee, the Finance Committee, the
Conflicts and Audit Committee and the Compensation Committee, but only to the
extent provided in the resolution of the Board establishing such committee or
otherwise delegating specific power and authority to such committee, and as
limited by law, the Certificate, and these Bylaws, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Company, and may authorize the seal of the Company to be affixed
to all papers which may require it. Without limiting the foregoing, such
committee may, but only to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
as provided in Section 151(a) of the General Corporation Law of Delaware (the
DGCL), fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the company.
Section 5.3. Unavailable Powers. No committee of the Board shall have the
------------------
power or authority to amend the Certificate (except in connection with the
issuance of capital stock as provided in the previous Section); adopt an
agreement of merger or consolidation; recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's property gad
assets, a dissolution of the Company or a revocation of such a dissolution;
amend the Bylaws of the Company; or, unless the resolution establishing such
committee or the
Exhibit I - 9
<PAGE>
Certificate expressly so provides, declare a dividend, authorize the issuance of
stock or adopt a certificate of ownership and merger.
Section 5.4. Alternate Members. In the absence or disqualification of a
-----------------
member of a committee, (i) the Board may designate one or more directors as
alternate members of any such committee or (ii) the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member; provided, however, that any person or persons appointed pursuant to
subparagraph (i) or (ii) are qualified to serve on such committee in accordance
with these Bylaws and/or the resolutions establishing the same.
Section 5.5. Procedures. Time, place and notice, if any, of meetings of a
----------
committee shall be determined by such committee. At meetings of a committee, a
majority of the number of members designated by the Board to serve on such
committee shall constitute a quorum for the transaction of business. The act of
a majority of the members present at any meeting at which a quorum is present
shall be the act of the committee, except as otherwise specifically provided by
law, the Certificate, these Bylaws or the resolution or resolutions establishing
such committee. If a quorum is not present at a meeting of a committee, the
members present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present. Any member of
any committee established pursuant to Section 5.1 shall serve until his
successor is duly elected by the Board and qualified or until the earlier of his
death or his resignation or removal from such committee or the Board. The Board
by resolution shall have at any time and from time to time the power to change
the membership of, fill any vacancies in, or dissolve any, committee established
pursuant to Section 5.1; provided, however, that in no event shall the Audit and
Conflicts Committee be dissolved once it is established nor shall the membership
of any committee, including, without limitations the Audit and Conflicts
Committee and the Executive Committee, be altered in any way if such alteration
would cause such committee to fail to meet its membership standards as set forth
in the resolutions or resolutions of the Board creating such committee.
ARTICLE VI.
OFFICERS
Section 6.1. Executive Officers; Term of Office. The Board shall elect a
----------------------------------
President, Secretary and Treasurer. The Board may elect one or more Vice
Presidents (with such descriptive titles, if any, as the Board shall deem
appropriate), one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as the Board may determine. Vice Presidents,
Assistant Secretaries and Assistant Treasurers may also be appointed by the
President as provided in Section 6.2.1. Each officer shall hold office until his
-------------
successor is elected and qualified or until his earlier death, resignation or
removal in the manner provided in these Bylaws. Any number of offices may be
held by the same person. The Board may require any officer to give bond or other
security for the faithful performance of his duties, in such amount and with
such sureties as the Board may determine.
Exhibit I - 10
<PAGE>
Section 6.2. Powers and Duties. The officers of the Company shall have
-----------------
such powers and duties in the management of the Company as may be provided by
applicable laws, the Certificate and these Bylaws, and as may be prescribed by
the Board and, to the extent not so provided, as generally pertain and are
incident to their respective offices, subject to the control of the Board.
Without limiting the generality of the foregoing, the following officers shall
have the respective duties and powers enumerated below:
Section 6.2.1. President. The President shall be the chief executive
---------
officer of the Company. He shall have the responsibility for the general
management and control of the business and affairs of the Company and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive. The President may sign and execute, in the name of the
Company, stock certificates, deeds, mortgages, bonds, contracts or other
instruments authorized by the Board, except when signing and execution thereof
shall be expressly and exclusively delegated by the Board or the Bylaws to some
other person, or shall be required by law to be signed otherwise. The President
shall also have the power to appoint Vice Presidents, Assistant Secretaries and
Assistant Treasurers as he deems necessary from time to time. The President may
remove such appointed officers at any time for or without cause. The President
shall have general supervision and direction of all other officers, employees
and agents of the Company.
Section 6.2.2. Vice Presidents. The Vice President, or if there be
---------------
more than one, the Vice Presidents in the order determined by the Board (or if
there be no such determination, then in the order of their election or
appointment) shall, in the absence of the President or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
President or the Board may from time to time prescribe. The Vice President may
sign certificates evidencing shares of stock of the Company.
Section 6.2.3. Secretary. The Secretary shall issue all authorized
---------
notices for, and shall keep minutes of, all meetings of stockholders and the
Board. He may sign certificates evidencing shares of stock of the Company. He
shall have custody of the corporate seal and shall have authority to affix the
seal to any instrument requiring it, and when so affixed, it may be attested by
his signature or by the signature of an Assistant Secretary. The Secretary shall
keep and account for all books, documents, papers and records of the Company
except those for which some other officer or agent is properly accountable.
Section 6.2.4. Treasurer. The Treasurer shall be the chief
---------
accounting and financial officer of the Company. He shall have the custody of
the corporate funds and securities, and shall disburse the funds of the Company
as are authorized. He shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company, and, when requested by the
President or Board, shall render from time to time an accounting of all such
transactions and of the financial condition of the Company. The Treasurer may
sign certificates evidencing shares of stock of the Company.
Section 6.2.5. Assistant Secretary. The Assistant Secretary, or if
-------------------
there be more than one, the Assistant Secretaries in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the
Exhibit I - 11
<PAGE>
Secretary or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the President, Secretary or Board may from time to
time prescribe.
Section 6.2.6. Assistant Treasurer. The Assistant Treasurer, or if
-------------------
there be more than one, the Assistant Treasurers in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
President, Treasurer or Board may from time to time prescribe.
Section 6.3. Resignations and Removal. Any officer may resign at any time
------------------------
by giving written notice to the Board or, if the President is not resigning, to
the President of the Company. Such resignation shall take effect at the time
therein specified, or if no time is specified, upon receipt. Unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. All officers serve at the pleasure of the Board; any elected or
appointed officer may be removed at any time for or without cause by the Board.
Officers appointed by the President may also be removed at any time for or
without cause by the President.
Section 6.4. Vacancies. Any vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled for
the unexpired term in the manner prescribed in these Bylaws for the regular
election or appointment to such office.
Section 6.5. Compensation, Vacancies. The Board shall have the power to
-----------------------
establish the compensation of officers of the Company or authorize the Company
to enter into an agreement with an affiliate whereby the services of such
officers, along with certain other services specified therein, are provided to
the Company for a fee. To the extent not governed by such an agreement, the
Board shall fill any vacancy in an office. Any of the powers granted in this
Section may be delegated to a committee established pursuant to Section 5.1. No
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that he is also a director. For this Section, "affiliate"
shall include (i) any entity that is an "affiliate" within the meaning set forth
in Section 12b-2 of Regulation 12B promulgated under the Securities Exchange Act
of 1934, as amended, and (ii) any officer or director of an "affiliate" as
defined therein.
Section 6.6. Additional Powers and Duties. In addition to the foregoing
----------------------------
especially enumerated powers and duties, the several officers of the Company
shall perform such other duties and exercise such further powers as may be
provided by law, the Certificate or these Bylaws or as the Board may from time
to time determine or as may be assigned to them by any competent committee or
superior officer.
Section 6.7. Voting Upon Stocks. Unless otherwise ordered by the Board,
------------------
the President or any other officer of the Company designated by the President
shall have full power and authority on behalf of the Company to attend and to
act and to vote in person or by proxy at any meeting of the holders of
securities of any corporation or entity in which the Company may own or hold
stock or other securities, and at any such meeting shall possess and may
exercise in person or by proxy any and all rights, powers and privileges
incident to the ownership of such stock or other securities which the Company,
as the owner or holder thereof, might have
Exhibit I - 12
<PAGE>
possessed and exercised if present. The President or any other officer of the
Company designated by the President may also execute and deliver on behalf of
the Company powers of attorney, proxies, waivers of notice and other instruments
relating to the stocks or securities owned or held by the Company. The Board
may, from time to time, by resolution confer like powers upon any other person
or persons.
ARTICLE VII.
SHARE CERTIFICATES
Section 7.1. Entitlement to Certificates. Every holder of the capital
---------------------------
stock of the Company, unless and to the extent the Board by resolution provides
that any or all classes or series of stock shall be uncertificated, shall be
entitled to have a certificate, in such form as is approved by the Board and
conforms with applicable law, certifying the number of shares owned by him.
Section 7.2. Multiple Classes of Stock. If the Company shall be
-------------------------
authorized to issue more than one class of capital stock or more than one series
of any class, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall, unless the Board shall by resolution provide that such
class or series of stock shall be uncertificated, be set forth in full or
summarized on the face or back of the certificate which the Company shall issue
to represent such class or series of stock; provided that, to the extent allowed
by law, in lieu of such statement, the face or back of such certificate may
state that the Company will furnish a copy of such statement without charge to
each requesting stockholder.
Section 7.3. Signatures. Each certificate representing capital stock of
----------
the Company shall be signed by or in the name of, the Company by (1) the
President or a Vice President; and (2) the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary. The signatures of the officers of the
Company may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to hold such
office before such certificate is issued, it may be issued by the Company with
the same effect as if he held such office on the date of issue.
Section 7.4. Issuance and Payment. Subject to any provision of applicable
--------------------
law, the Certificate or these Bylaws, shares of capital stock of the Company may
be issued for such consideration and to such persons as the Board may determine
from time to time. Shares may not be issued until the full amount of the
consideration has been paid, unless upon the face or back of each certificate
issued to represent any partly paid shares of capital stock there shall have
been set forth the total amount of the consideration to be paid.
Section 7.5. Lost, Stolen or Destroyed Certificates. The Board may direct
--------------------------------------
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When
Exhibit I - 13
<PAGE>
authorizing such issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Company a bond in such sum as it may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.6. Transfer of Stock. Upon surrender to the Company or its
-----------------
transfer agent, if any, of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer and of
the payment of all taxes applicable to the transfer of said shares, the Company
shall be obligated to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books; provided,
however, that the Company shall not be so obligated unless such transfer was
made in compliance with applicable state and federal securities laws.
Section 7.7. Registered Stockholders. The Company shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. General. The Company shall indemnify any person who was or
-------
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company), because
he is or was a director or officer of the Company, or, while a director or
officer of the Company, is or was serving at the written request of the Company
as a director, officer, trustee, employee or agent of or in any other capacity
with another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys, fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, have reasonable
cause to believe that his conduct was unlawful.
Section 8.2. Actions by or in the Right of the Company. The Company shall
-----------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor
Exhibit I - 14
<PAGE>
because he is or was a director or officer of the Company, or, while a director
or officer of the Company, is or was serving at the written request of the
Company as a director, officer, trustee, employee or agent of or in any other
capacity with another corporation, partnership, joint venture or trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 8.3. Board Determinations. Any indemnification under Sections 8.1
--------------------
and 8.2 (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 8.1 and 8.2.
Such determination shall be made (1) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel (which may be
counsel ordinarily used by, the Company) in a written opinion, or (3) by the
holders of a majority of the outstanding shares of capital stock of the Company
entitled to vote thereon.
Section 8.4. Advancement of Expenses. Expenses incurred by a director or
-----------------------
officer of the Company in defending a civil or criminal action, suit or
proceeding shall (in the case of any action, suit or proceeding against a
director of the Company) or may (in the case of any pending threatened action,
suit or proceeding against an officer) be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company as authorized by law or in this Article VIII.
Section 8.5. Nonexclusive. The indemnification and advancement of
------------
expenses provided by, or granted pursuant to, this Article VIII shall not be
deemed exclusive of any other rights to which any director, officer, employee or
agent of the Company seeking indemnification or advancement of expenses may be
entitled under any other provision of there Bylaws or by the Certificate, an
agreement, a vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8.6 Indemnification of Employees and Agents of the Company. The
------------------------------------------------------
Company may, to the extent authorized from time to time by the Board, grant
rights to indemnification and to the advancement of expenses, to any employee or
agent of the Company to the fullest extent of the provisions of this section
with respect to the indemnification and advancement of expenses of directors and
officers of the Company.
Exhibit I - 15
<PAGE>
Section 8.7. Insurance. The Company may purchase and maintain insurance
---------
on behalf of any person who is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under provisions of applicable law, the Certificate or this Article
VIII.
Section 8.8. Certain Definitions. For this Article VIII, (a) references
-------------------
to the "Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger, which, if its separate existence had continued, would
have the power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee, or agent
of such constituent corporation, or is serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this Article VIII with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued; (b) references to "other
enterprises" shall include employee benefit plans; (c) references to "fines"
shall include any excise taxes assessed on a person with, respect to an employee
benefit plan; and (d) references to "serving at the request of the Company"
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Article VIII.
Section 8.9. Change in Governing Law. Upon any amendment or addition to
-----------------------
Section 145 of the DGCL or the addition of any other section to such law which
shall limit indemnification rights thereunder, the Company shall, to the extent
permitted by the DGCL, indemnify to the fullest extent authorized or permitted
hereunder, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of the Company) because he is or was a director or officer of the
Company or, while a director or officer of the Company, is or was serving at the
request of the Company as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
ARTICLE IX.
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 9.1. Validity. Any contract or other transaction between the
--------
Company and any of its directors, officers or stockholders (or any corporation
or firm in which any of them are
Exhibit I - 16
<PAGE>
directly or indirectly interested) shall be valid for all purposes
notwithstanding the presence of such director, officer, or stockholder at the
meeting authorizing such contract or transaction, or his participation or vote
in such meeting or authorization.
Section 9.2. Disclosure, Approval. The foregoing shall, however, apply
--------------------
only if the material facts of the relationship or the interest of each such
director, officer or stockholder is known or disclosed:
(1) to the Board and it nevertheless in good faith authorizes or
ratifies the contract or transaction by a majority of the directors
present, each such interested director to be counted in determining whether
a quorum is present but not in calculating the majority to carry the vote;
or
(2) to the stockholders and they nevertheless in good faith authorize
or ratify the contract or transaction by a majority of the shares present,
each such interested stockholder to be counted for quorum and voting
purposes.
Section 9.3. Nonexclusive. This provision shall not be construed to
------------
invalidate any contract or transaction which would be valid in the absence of
this provision.
ARTICLE X.
MISCELLANEOUS
Section 10.1 Place of Meetings. All stockholders, directors and committee
-----------------
meetings shall be held at such place or places, within or without the State of
Delaware, as shall be designated from time to time by the Board or such
committee and stated in the notices thereof. If no such place is so designated,
said meetings shall be held at the principal business office of the Company.
Section 10.2. Fixing Record Dates. So that the Company may determine the
-------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, to receive payment of any dividend or other
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, or to make a determination of stockholders for any other proper purpose,
the Board may fix, in advance, a record date for any such determination of
stockholders, which shall not be more than 60 nor less than 10 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. In the absence of any action by the Board, the date on which a
notice of meeting is given, or the date the Board adopts the resolution
declaring a dividend or other distribution or allotment or approving any change,
conversion or exchange, as the case may be, shall be the record date. A record
date validly fixed for any meeting of stockholders and the determination of
stockholders entitled to vote at such meeting shall be valid for any adjournment
of said meeting except where such determination has been made through the
closing of stock transfer books and the stated period of closing has expired.
Exhibit I - 17
<PAGE>
Section 10.3. Means of Giving Notice. Except as expressly provided
----------------------
elsewhere herein, whenever under law, the Certificate or these Bylaws, notice is
required to be given to any director or stockholder, such notice may be given in
writing and delivered personally, through the United States mail, by a
recognized express delivery service (such as Federal Express) or by means of
telegraph, telex, or facsimile transmission, addressed to such director or
stockholder at his address, telex or facsimile transmission number, as the case
may be, appearing on the records of the Company, with postage and fees thereon
prepaid. Such notice shall be deemed to be given at the time when the same shall
be deposited in the United States mail or with an express delivery service or
when transmitted, as the case may be.
Section 10.4. Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of law or of the Certificate or of these Bylaws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting of stockholders or of directors or of a committee shall
constitute waiver of notice of such meeting, except where otherwise provided by
law.
Section 10.5. Attendance via Communications Equipment. Unless otherwise
---------------------------------------
restricted by law, the Certificate or these Bylaws, members of the Board or any
committee thereof or the stockholders may hold a meeting by means of conference
telephone or other communications equipment by means of which all persons
participating in the meeting can effectively communicate with each other. Such
participation in a meeting shall constitute presence in person at the meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
Section 10.6. Dividends. Dividends on the capital stock of the Company,
---------
paid in cash, property, or securities of the Company and as may be limited by
applicable law and applicable provisions of the Certificate (if any), may be
declared by the Board at any regular or special meeting.
Section 10.7. Reserves. Before payment of any dividends, there may be set
--------
aside out of any funds of the Company available for dividends such sum or sums
as the Board from time to time, in its absolute discretion, think proper as a
reserve or reserves to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the Company to be distributed to
stockholders, or for such other purpose as the Board shall determine to be in
the best interest of the Company; and the Board may modify or abolish any such
reserve in the manner in which it was created.
Section 10.8. Reports to Stockholders. The Board shall present at each
-----------------------
annual meeting of stockholders, and at any special meeting of stockholders when
called for by vote of the stockholders, a statement of the business and
condition of the Company.
Section 10.9. Checks, Notes and Contracts. Checks and other orders for
---------------------------
the payment of money shall be signed by such person or persons as the Board
shall from time to time by resolution determine. Contracts and other instruments
or documents may be signed in the name of the Company by the President or by any
other officer authorized to sign such contract,
Exhibit I - 18
<PAGE>
instrument or document by the Board, and such authority may be general or
confined to specific instances.
Checks and other orders for the payment of money made payable to the
Company may be endorsed for deposit to the credit of the Company, with a
depositary authorized by resolution of the Board, by the President or Treasurer
or such other persons as the Board may from time to time by resolution
determine.
Section 10.10. Loans. No loans and no renewals of any loans shall be
-----
contracted on behalf of the Company except as authorized by the Board. When
authorized so to do by the Board, any officer or agent of the Company may effect
loans and advances for the Company from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Company. When authorized so to do by the Board,
any officer or agent of the Company may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Company, any and all stocks, securities and other personal
property at any time held by the Company, and to that end may endorse, assign
and deliver the same. Such authority may be general or confined to specific
instances.
Section 10.11. Fiscal Year. The fiscal year of the Company shall begin on
-----------
the first day of August in each year and terminate on the final day of July in
the succeeding calendar year.
Section 10.12. Seal. The seal of the Company shall be in such form as
----
shall from time to time be adopted by the Board. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 10.13. Books and Records. The Company shall keep correct and
-----------------
complete books and records of account and shall keep minutes of the proceedings
of its stockholders, Board and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 10.14. Resignation. Any director, committee member, officer or
-----------
agent may resign by giving written notice to the President or the Secretary. The
resignation shall take effect at the time specified therein, or immediately if
no time is specified. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 10.15. Surety Bonds. Such officers and agents of the Company (if
------------
any) as the President or the Board may direct, from time to time, shall be
bonded for the faithful performance of their duties and for the restoration to
the Company, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Company, in such amounts and by such surety companies as the President or the
Board may determine. The premiums on such bonds shall be paid by the Company and
the bonds so furnished shall be in the custody of the Secretary.
Exhibit I - 19
<PAGE>
Section 10.16. Amendments. These Bylaws may from time to time be altered,
----------
amended or repealed and new Bylaws may be adopted, as provided in the
Certificate.
[NEXT PAGE IS ADOPTION PAGE]
Exhibit I - 20
<PAGE>
EXHIBIT J
TEXT OF ONTARIO BUSINESS CORPORATION ACT SECTION 185
(1) RIGHTS OF DISSENTING SHAREHOLDERS. Subject to subsection (3) and to
sections 186 and 248, if a corporation resolves to,
(a) amend its articles under section 168 to add, remove or change
restrictions on the issue, transfer or ownership of shares of a
class or series of the shares of the corporation;
(b) amend its articles under section 168 to add, remove or change any
restriction upon the business or businesses that the corporation
may carry on or upon the powers that the corporation may
exercise;
(c) amalgamate with another corporation under sections 175 and 176;
(d) be continued under the laws of another jurisdiction under section
181; or
(e) sell, lease or exchange all or substantially all its property
under subsection 184(3),
a holder of shares of any class or series entitled to vote on the resolution may
dissent.
(2) IDEM. If a corporation resolves to amend its articles in a manner
referred to in subsection 170(1), a holder of shares of any class or series
entitled to vote on the amendment under section 168 or 170 may dissent, except
in respect of an amendment referred to in,
(a) clause 170(1)(a), (b) or (e) where the articles provide that the
holders of shares of such class or series are not entitled to
dissent; or
(b) subsection 170(5) or (6).
(3) EXCEPTION. A shareholder of a corporation incorporated before the
29th day of July, 1983 is not entitled to dissent under this section in respect
of an amendment of the articles of the corporation to the extent that the
amendment,
(a) amends the express terms of any provision of the articles of the
corporation to conform to the terms of the provision as deemed to
be amended by section 277; or
(b) deletes from the articles of the corporation all of the objects
of the corporation set out in its articles, provided that the
deletion is made by the 29th day of July, 1986.
(4) SHAREHOLDER'S RIGHT TO BE PAID FAIR VALUE. In addition to any other
right the shareholder may have, but subject to subsection (30), a shareholder
who complies with this section is entitled, when the action approved by the
resolution from which the shareholder dissents becomes effective, to be paid by
the corporation the fair value of the shares held by the shareholder in respect
of which the shareholder dissents, determined as of the close of business on the
day before the resolution was adopted.
(5) NO PARTIAL DISSENT. A dissenting shareholder may only claim under
this section with respect to all the shares of a class held by the dissenting
shareholder on behalf of any one beneficial owner and registered in the name of
the dissenting shareholder.
Exhibit J - 1
<PAGE>
(6) OBJECTION. A dissenting shareholder shall send to the corporation, at
or before any meeting of shareholders at which a resolution referred to in
subsection (1) or (2) is to be voted on, a written objection to the resolution,
unless the corporation did not give notice to the shareholder of the purpose of
the meeting or of the shareholder's right to dissent.
(7) IDEM. The execution or exercise of a proxy does not constitute a
written objection for purposes of subsection (6).
(8) NOTICE OF ADOPTION OR RESOLUTION. The corporation shall, within ten
days after the shareholders adopt the resolution, send to each shareholder who
has filed the objection referred to in subsection (6) notice that the resolution
has been adopted, but such notice is not required to be sent to any shareholder
who voted for the resolution or who has withdrawn the objection.
(9) IDEM. A notice sent under subsection (8) shall set out the rights of
the dissenting shareholder and the procedures to be followed to exercise those
rights.
(10) DEMAND FOR PAYMENT OF FAIR VALUE. A dissenting shareholder entitled
to receive notice under subsection (8) shall, within twenty days after receiving
such notice, or, if the shareholder does not receive such notice, within twenty
days after learning that the resolution has been adopted, send to the
corporation a written notice containing,
(a) the shareholder's name and address;
(b) the number and class of shares in respect of which the
shareholder dissents; and
(c) a demand for payment of the fair value of such shares.
(11) CERTIFICATES TO BE SENT IN. Not later than the thirtieth day after
the sending of a notice under subsection (10), a dissenting shareholder shall
send the certificates representing the shares in respect of which the
shareholder dissents to the corporation or its transfer agent.
(12) IDEM. A dissenting shareholder who fails to comply with subsections
(6), (10) and (11) has no right to make a claim under this section.
(13) ENDORSEMENT ON CERTIFICATE. A corporation or its transfer agent shall
endorse on any share certificate received under subsection (11) a notice that
the holder is a dissenting shareholder under this section and shall return
forthwith the share certificates to the dissenting shareholder.
(14) RIGHTS OF DISSENTING SHAREHOLDER. On sending a notice under
subsection (10), a dissenting shareholder ceases to have any rights as a
shareholder other than the right to be paid the fair value of the shares as
determined under this section except where,
(a) the dissenting shareholder withdraws notice before the
corporation makes an offer under subsection (15);
(b) the corporation fails to make an offer in accordance with
subsection (15) and the dissenting shareholder withdraws notice;
or
(c) the directors revoke a resolution to amend the articles under
subsection 168(3), terminate an amalgamation agreement under
subsection 176(5) or an application for continuance under
subsection 181(5), or abandon a sale, lease or exchange under
subsection 184(8),
Exhibit J - 2
<PAGE>
in which case the dissenting shareholder's rights are reinstated as of the date
the dissenting shareholder sent the notice referred to in subsection (10), and
the dissenting shareholder is entitled, upon presentation and surrender to the
corporation or its transfer agent of any certificate representing the shares
that has been endorsed in accordance with subsection (13), to be issued a new
certificate representing the same number of shares as the certificate so
presented, without payment of any fee.
(15) OFFER TO PAY. A corporation shall, not later than seven days after
the later of the day on which the action approved by the resolution is effective
or the day the corporation received the notice referred to in subsection (10),
send to each dissenting shareholder who has sent such notice,
(a) a written offer to pay for the dissenting shareholder's shares in
an amount considered by the directors of the corporation to be
the fair value thereof, accompanied by a statement showing how
the fair value was determined; or
(b) if subsection (30) applies, a notification that it is unable
lawfully to pay dissenting shareholders for their shares.
(16) IDEM. Every offer made under subsection (15) for shares of the same
class or series shall be on the same terms.
(17) IDEM. Subject to subsection (30), a corporation shall pay for the
shares of a dissenting shareholder within ten days after an offer made under
subsection (15) has been accepted, but any such offer lapses if the corporation
does not receive an acceptance thereof within thirty days after the offer has
been made.
(18) APPLICATION TO COURT TO FIX FAIR VALUE. Where a corporation fails to
make an offer under subsection (15) or if a dissenting shareholder fails to
accept an offer, the corporation may, within fifty days after the action
approved by the resolution is effective or within such further period as the
court may allow, apply to the court to fix a fair value for the shares of any
dissenting shareholder.
(19) IDEM. If a corporation fails to apply to the court under subsection
(18), a dissenting shareholder may apply to the court for the same purpose
within a further period of twenty days or within such further period as the
court may allow.
(20) IDEM. A dissenting shareholder is not required to give security for
costs in an application made under subsection (18) or (19).
(21) COSTS. If a corporation fails to comply with subsection (15), then
the costs of a shareholder application under subsection (19) are to borne by the
corporation unless the court otherwise orders.
(22) NOTICE TO SHAREHOLDERS. Before making application to the court under
subsection (18) or not later than seven days after receiving notice of an
application to the court under subsection (19), as the case may be, a
corporation shall give notice to each dissenting shareholder who, at the date
upon which the notice is given,
(a) has sent to the corporation the notice referred to in subsection
(10); and
(b) has not accepted an offer made by the corporation under
subsection (15), if such an offer was made,
of the date, place and consequences of the application and of the dissenting
shareholder's right to appear and be heard in person or by counsel, and a
similar notice shall be given to each dissenting shareholder who, after the date
of such first mentioned notice and before termination of the proceedings
commenced by the
Exhibit J - 3
<PAGE>
application, satisfies the conditions set out in clauses (a) and (b) within
three days after the dissenting shareholder satisfies such conditions.
(23) PARTIES JOINED. All dissenting shareholders who satisfy the
conditions set out in clauses (22)(a) and (b) shall be deemed to be joined as
parties to an application under subsection (18) or (19) on the later of the date
upon which the application is brought and the date upon which they satisfy the
conditions, and shall be bound by the decision rendered by the court in the
proceedings commenced by the application.
(24) IDEM. Upon an application to the court under subsection (18) or (19),
the court may determine whether any other person is a dissenting shareholder who
should be joined as a party, and the court shall fix a fair value for the shares
of all dissenting shareholders.
(25) APPRAISERS. The court may in it discretion appoint one or more
appraisers to assist the court to fix a fair value for the shares of the
dissenting shareholders.
(26) FINAL ORDER. The final order of the court in the proceedings
commenced by an application under subsection (18) or (19) shall be rendered
against the corporation and in favor of each dissenting shareholder who, whether
before or after the date of the order, complies with the conditions set out in
clauses (22)(a) and (b).
(27) INTEREST. The court may in its discretion allow a reasonable rate of
interest on the amount payable to each dissenting shareholder from the date the
action approved by the resolution is effective until the date of payment.
(28) WHERE CORPORATION UNABLE TO PAY. Where subsection (30) applies, the
corporation shall, within ten days after the pronouncement of an order under
subsection (26), notify each dissenting shareholder that is unable lawfully to
pay dissenting shareholders for their shares.
(29) IDEM. Where subsection (30) applies, a dissenting shareholder, by
written notice sent to the corporation within thirty days after receiving a
notice under subsection (28), may,
(a) withdraw a notice of dissent, in which case the corporation is
deemed to consent to the withdrawal and the shareholder's full
rights are reinstated; or
(b) retain a status as a claimant against the corporation, to be paid
as soon as the corporation is lawfully able to do so or, in a
liquidation, to be ranked subordinate to the rights of creditors
of the corporation but in priority to its shareholders.
(30) IDEM. A corporation shall not make a payment to a dissenting
shareholder under this section if there are reasonable grounds for believing
that,
(a) the corporation is or, after the payment, would be unable to pay
its liabilities as they become due; or
(b) the realizable value of the corporation's assets would thereby be
less than the aggregate of its liabilities.
(31) COURT ORDER. Upon application by a corporation that proposed to take
any of the actions referred to in subsection (1) or (2), the court may, if
satisfied that the proposed action is not in all the circumstances one that
should give rise to the rights arising under subsection (4), by order declare
that those rights will not arise upon the taking of the proposed action, and the
order may be subject to compliance upon such terms and conditions as the court
thinks fit and, if the corporation is an offering corporation, notice of
Exhibit J - 4
<PAGE>
any such application and a copy of any order made by the court upon such
application shall be served upon the Commission.
(32) COMMISSION MAY APPEAR. The Commission may appoint counsel to assist
the court upon the hearing of an application under subsection (31) if the
corporation is an offering corporation.
Exhibit J - 5
<PAGE>
================================================================================
___________________________________
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information .................................................... (i)
Summary .................................................................. 1
Risk Factors ............................................................. 13
General Proxy Information ................................................ 20
The Consolidation ........................................................ 22
Domestication and Merger ................................................. 23
Effect of Domestication on Shareholder Right ............................. 27
Dissent Rights of ATSI Shareholders ...................................... 32
The 1996 Option Plan ..................................................... 34
Price Range of Common Shares ............................................. 39
Capitalization ........................................................... 40
Selected Consolidated Financial Data ..................................... 41
Management's Discussion and Analysis of Financial Condition and
Results of Operations................................................... 42
Business ................................................................. 50
Management ............................................................... 72
Certain Transactions ..................................................... 77
Principal Shareholders ................................................... 78
Description of ATSI Merger Corp. Securities .............................. 79
Legal Opinions ........................................................... 90
Other Business at Special Meeting ........................................ 90
Approval of Prospectus ................................................... 90
Index to Financial Statements ............................................ F-1
Stock Option Plan .................................................. Appendix A
Exhibits ................................................................ A - J
</TABLE>
___________________________________
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL ANY OF THE SECURITIES
OFFERED HEREBY IN ANY JURISDICTION WHERE, OR TO ANY PERSON TO WHOM, IT IS
UNLAWFUL TO MAKE SUCH AN OFFER. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE INFORMATION SET FORTH HEREIN OR IN THE BUSINESS
OF THE COMPANY SINCE THE DATE HEREOF.
AMERICAN TELESOURCE
INTERNATIONAL INC.
24,975,275 SHARES OF
COMMON STOCK
and
5,009,963 WARRANTS
TO PURCHASE SHARES OF
COMMON STOCK
ATSI MERGER CORP.
12,487,638 SHARES OF
COMMON STOCK
and
5,009,963 WARRANTS
TO PURCHASE SHARES OF
COMMON STOCK
_____________________
PROSPECTUS
_____________________
________________, 1996
THE R-M TRUST COMPANY
================================================================================
<PAGE>
- --------------------------------------------------------------------------------
PROXY SOLICITED BY THE BOARD OF DIRECTORS
OF AMERICAN TELESOURCE INTERNATIONAL INC.
FOR THE SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ____________, 1996
I, the undersigned holder of Common Shares of American Telesource International
Inc. (the "Corporation"), hereby appoint Arthur L. Smith, President, and/or H.
Douglas Saathoff, Secretary and Treasurer, or *
as my proxy to vote for me and on my behalf AT THE SPECIAL MEETING OF THE
SHAREHOLDERS OF AMERICAN TELESOURCE INTERNATIONAL INC., TO BE HELD ____________,
1996 AT _______ O'CLOCK IN THE [MORNING/AFTERNOON] (C.S.T.) AT
________________________________________ AND AT ANY ADJOURNMENT THEREOF and at
every poll which may take place in consequence thereof. The said proxy is
directed to vote the shares represented by this form of proxy:
1. VOTE FOR [_] or AGAINST [_] passing with or without variation, a special
resolution authorizing and approving an amendment to the Articles of the
Corporation consolidating the Corporation's issued and outstanding common
shares on the basis of one common share for each two issued and outstanding
common shares in the capital of the Corporation, the complete text of which
is reproduced in Exhibit A-1 to the accompanying Information Circular and
Proxy Statement/Prospectus.
2. VOTE FOR [_] or AGAINST [_] passing with or without variation, a special
resolution authorizing and approving one additional future charter
amendment (without further action of shareholders) further consolidating,
on a one-for-two basis, the Corporation's issued and outstanding common
shares, or shares of ATSI Merger Corp.'s common stock in the event the
merger of the Corporation with and into ATSI Merger Corp. occurs, if the
Board of Directors in its sole discretion deems such further consolidation
necessary to satisfy the minimum per share price requirements for listing
on the Nasdaq National Market, Nasdaq SmallCap Market or another securities
market or exchange, the complete text of which is reproduced in Exhibit A-2
to the accompanying Information Circular and Proxy Statement/Prospectus.
3. VOTE FOR [_] or AGAINST [_] passing with or without variation, a special
resolution authorizing the continuance of the Corporation as a Delaware
corporation and the discontinuance of the Corporation as an Ontario
corporation, the complete text of which is reproduced in Exhibit B to the
accompanying Information Circular and Proxy Statement/Prospectus.
4. VOTE FOR [_] or AGAINST [_] passing with or without variation, a
resolution authorizing and approving the Corporation's 1996 Stock Option
Plan, the complete text of which is reproduced in Exhibit C to the
accompanying Information Circular and Proxy Statement/Prospectus.
5. In his discretion upon any amendments or variations to the above matters
and such other business as may properly come before the Meeting.
THIS PROXY WILL BE VOTED IN THE MANNER DIRECTED BY THE UNDERSIGNED STOCKHOLDER.
IF NO DIRECTION IS MADE, THE PROXY WILL BE VOTED FOR EACH MATTER AND AT THE
PROXY'S BEST JUDGMENT UPON OTHER BUSINESS THAT MAY COME BEFORE THE MEETING.
DATED __________, 1996.
_______________________________________________
(Signature of Shareholder(s))
_______________________________________________
(Print Name Plainly)
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
The abovesigned hereby revokes any proxy heretofore given and ratifies all
things said proxy may do by virtue hereof.
Please sign exactly as your shares are registered and return in the enclosed
envelope. Indicate your full title if signing as attorney, executor,
administrator, trustee or guardian. When shares are held by joint tenants, both
should sign. If the shareholder is a partnership, sign partnership name by
authorized person. If the shareholder is a corporation, this proxy must be
executed by an authorized officer who must sign the full corporate name.
To be valid, this form of proxy and the power of attorney, if any, under which
it is signed must arrive duly signed at the office of the registrar and transfer
agent of the corporation, The R-M Trust Company, 393 University Avenue, Toronto,
Ontario, M8G 1C6, not later than 10:00 a.m. (Eastern Daylight Time) on
____________, 1996 or, in the case of any adjournment of the Special Meeting, on
the second business day immediately preceding the date of such adjournment.
If this proxy is not dated in the designated space, it is deemed to bear the
date on which it is mailed by the Corporation to the shareholder.
*NOTE: IF THE SHAREHOLDER DESIRES TO APPOINT A PROXY OTHER THAN ARTHUR L. SMITH
AND/OR H. DOUGLAS SAATHOFF, HE SHOULD CROSS OUT THEIR NAMES AND PRINT THE NAME
OF HIS PROXY IN THE SPACE PROVIDED FOR THAT PURPOSE. A PERSON SO DESIGNATED NEED
NOT BE A SHAREHOLDER.
- --------------------------------------------------------------------------------
<PAGE>
- --------------------------------------------------------------------------------
PROXY AND POWER OF ATTORNEY SOLICITED
BY THE BOARD OF DIRECTORS OF
OF AMERICAN TELESOURCE INTERNATIONAL INC.
To Be Continued as
AMERICAN TELESOURCE INTERNATIONAL INC.
FOR A WRITTEN CONSENT
TO BE EXECUTED ON OR ABOUT ____________, 1996
I, the undersigned holder of common shares of American Telesource International
Inc., hereby appoint Arthur L. Smith and/or H. Douglas Saathoff or *
as my proxy and attorney-in-fact to execute a written consent for me and on my
behalf after the Continuance (as defined in the accompanying Information
Circular and Proxy Statement/Prospectus) becomes effective, on ____________,
1996 or on such later date, not later than ____________, 1996, that the said
proxy and attorney-in-fact determines to execute such consent. The said proxy
and attorney-in-fact is directed to express consent on behalf of the undersigned
as follows:
VOTE FOR [_] or AGAINST [_] the merger of American Telesource
International Inc. with and into its wholly-owned subsidiary, ATSI Merger
Corp., as described in the accompanying Information Circular and Proxy
Statement/Prospectus.
THIS PROXY WILL BE EXERCISED IN THE MANNER DIRECTED BY THE UNDERSIGNED
STOCKHOLDER. IF NO DIRECTION IS MADE, THE PROXY WILL BE EXERCISED TO CONSENT
FOR THE MERGER.
- ---
DATED______________________________, 1996.
__________________________________________
(Signature of Shareholder(s) of Record)
__________________________________________
(Printed Name(s) Plainly)
*NOTE: IF THE SHAREHOLDER DESIRES TO
APPOINT A PROXY OTHER THAN ARTHUR L. SMITH
AND/OR H. DOUGLAS SAATHOFF, HE SHOULD CROSS
OUT THEIR NAMES AND PRINT THE NAME OF HIS
PROXY IN THE SPACE PROVIDED FOR THAT
PURPOSE. A PERSON SO DESIGNATED NEED NOT BE
A SHAREHOLDER.
The abovesigned hereby revokes any proxy heretofore given and ratifies all
things said proxy may do by virtue hereof.
Please sign exactly as your shares are registered and return in the enclosed
envelope. Indicate your full title if signing as attorney, executor,
administrator, trustee or guardian. When shares are held by joint tenants, both
should sign. If the shareholder is a partnership, sign partnership name by
authorized person. If the shareholder is a corporation, this proxy must be
executed by an authorized officer who must sign the full corporate name.
To be valid, this form of proxy and the power of attorney, if any, under which
it is signed must arrive duly signed at the office of the registrar and transfer
agent of the corporation, The R-M Trust Company, 393 University Avenue, Toronto,
Ontario, M8G 1C6, not later than 10:00 a.m. (Eastern Daylight Time) on
____________, 1996 or, in the case of any adjournment of the Special Meeting, on
the second business day immediately preceding the date of such adjournment.
If this proxy is not dated in the designated space, it is deemed to bear the
date on which it is mailed by the Corporation to the shareholder.
PLEASE NOTE THAT A PROXY AND POWER OF ATTORNEY TO "ABSTAIN FROM" THE CONSENT ON
THE MERGER OR THE FAILURE TO GRANT A PROXY AND POWER OF ATTORNEY HAS THE SAME
EFFECT AS A VOTE "AGAINST" THE MERGER.
- --------------------------------------------------------------------------------
<PAGE>
PART II TO FORM S-4
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the Delaware General Corporation Law ("DGCL") authorizes a
corporation to indemnify any person ("indemnitee") who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding (other than an action by or in the right of the corporation)
because such person is or was a director, officer, employee or agent of the
corporation, or is or was serving at the request of the corporation, in a
similar position with another corporation or entity, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by him in connection with such action, suit or proceeding if
he acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reasonable cause to believe his conduct
was unlawful. With respect to actions or suits by or in the right of the
corporation, however, an indemnitee who acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation is generally limited to attorneys' fees and other expenses, and no
indemnification shall be made if such person is adjudged liable to the
corporation unless and only to the extent that a court of competent jurisdiction
determines that indemnification is appropriate. Section 145 further provides
that any indemnification shall be made by the corporation only as authorized in
each specific case upon a determination by the (i) board of directors by a
majority vote of directors who were not parties to such action, suit or
proceeding even though less than a quorum, (ii) independent counsel if there are
no such disinterested directors or if such directors so direct, or (iii)
stockholders, that indemnification of the indemnitee is proper because he has
met the applicable standard of conduct. Section 145 provides that
indemnification pursuant to its provisions is not exclusive of other rights of
indemnification to which a person may be entitled under any bylaw, agreement,
vote of stockholders or disinterested directors of otherwise.
ATSI's (upon Domestication) and ATSI Merger Corp.'s Certificate of
Incorporation and Bylaws, copies of which are filed as Exhibits to this
Registration Statement, provide, in substance, that directors and officers shall
be indemnified to the fullest extent permitted by Section 145 of the DGCL.
ATSI's (upon Domestication) and ATSI Merger Corp.'s Certificate of
Incorporation, copies of which are filed as Exhibits to this Registration
Statement, limit the liability of directors of the Company to the Company or its
stockholders (in their capacity as directors but not in their capacity as
officers) to the fullest extent permitted by the DGCL. Specifically, directors
of the Company will not be personally liable for monetary damages for breach of
a director's fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) for unlawful payments of
dividends or unlawful stock repurchases or redemptions as provided in Section
174 of the DGCL or (iv) for any transaction from which the director derived an
improper personal benefit. The Certificate of Incorporation also provides that
if the DGCL is amended after the approval of the Amended and Restated
Certificate of incorporation also provides that if the DGCL is amended after the
approval of the Amended and Restated Certificate of incorporation to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Company will be eliminated or
limited to the full extent permitted by the DGCL, as so amended.
Each ATSI Company has entered into or intends to enter into indemnification
agreements with each of its directors and its executive officers. The
indemnification agreements provide that the Company shall indemnify these
individuals against certain liabilities (including settlements) and expenses
actually and reasonably incurred by them in connection with any threatened or
pending legal action, proceeding or investigation (other than actions brought by
or in the right of the Company) to which any of them is, or is
II - 1
<PAGE>
threatened to be, made a party by reason of their status as a director, officer
or agent of the Company, provided that such individual acted in good faith and
in a manner he or she reasonably believed to be in or not opposed to the best
interests of the Company, and with respect to any criminal proceedings, had no
reasonable cause to believe his or her conduct was unlawful. With respect to any
action brought by or in the right of the Company, such individuals may also be
indemnified, to the extent not prohibited by applicable laws or as determined by
a court of competent jurisdiction, against expenses actually and reasonably
incurred by them in connection with such action if they acted in good faith and
in a manner they reasonably believed to be in or not opposed to the best
interests of the Company. The agreements also require indemnification of such
individuals for all reasonable expenses incurred in connection with the
successful defense of any action or claim and provide for partial
indemnification in the case of any partially successful defense.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- -----------
<S> <C> <C>
3.1 Canadian Certificate of Incorporation of American Telesource
International Inc. ("ATSI")
3.2 Canadian Bylaws of ATSI
3.3 Certificate of Domestication of ATSI
3.4 Certificate of Incorporation of ATSI Merger Corp. ("ATSI Merger
Corp.")
3.5 Bylaws of ATSI Merger Corp.
*4.1 Form of Certificate for ATSI's Common Stock
*4.2 Form of Certificate for ATSI Merger Corp.'s Common Stock
*4.3 Form of ATSI's Private Placement Warrant
*5.1 Opinion and Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P.
*10.1 Agreement between Telecomunicaciones de Mexico and ATSI, dated
October 2, 1995
10.2 Form of ATSI's Customer Service Agreement for Private Networks
*10.3 Form of ATSI's Master Independent Marketing Agreement
10.4 Telecommunications Agreement, by and between ATSI-Texas and Long
Distance Exchange Corp., dated December 13, 1994
*10.5 Zero plus-Zero minus Billing and Information Management Services
Agreement, by and between ATSI-Texas and ZeroPlus Dialing, Inc.,
dated June 14, 1994
10.6 ATSI 1996 Option Plan
10.7 Credit Card Processing Agreements
</TABLE>
II - 2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
NUMBER DESCRIPTION PAGE NUMBER
------- -----------
<S> <C> <C>
10.8 Financing Agreement - Convertible Note made by ATSI-Texas in the
amount of $100,000, payable to Robert G. Watt
10.9 Investment Banking Agreement, by and between Boles & Company, Inc.
and ATSI, dated December 14, 1995
10.10 FCC Radio Station Authorization-C Band
10.11 FCC Radio Station Authorization-Ku Band
10.12 Section 214 Certification from FCC
10.13 Carrier Termination Services Agreement, by and between U.S. Long
Distance, Inc. and ATSI-Texas, dated September 15, 1994
10.14 Office Space Lease Agreement
*10.15 Employment Agreement with Arthur L. Smith
*10.16 Employment Agreement with H. Douglas Saathoff
*10.17 Employment Agreement with Craig K. Clement
*10.18 Employment Agreement with Everett Waller
*10.19 Form of director and executive officer Indemnification Agreement
11 Statement of Computation of Per Share Earnings
22 Subsidiaries of Registrant
23.1 Consent of Arthur Andersen LLP
*23.2 Consent of Akin, Gump, Strauss, Hauer & Feld, L.L.P. (included in
Exhibit 5.1)
24 Powers of Attorney (included on Signature Pages to the Registration
Statement)
27 Financial Data Schedule
</TABLE>
_____________________________
* To be filed by amendment.
ITEM 22. UNDERTAKINGS
The undersigned registrants hereby undertake:
(a) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
registration statement.
II - 3
<PAGE>
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the Commission pursuant to Rule 424(b) if, in
the aggregate, the changes in volume and price represent no more than a 20
percent change in the maximum aggregate offering price set forth in the
"Calculation of Registration Fee" table in the effective registration
statement.
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or any
material change to such information in the registration statement.
(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(c) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
(d) If the registrant is a foreign private issuer, to file a post-
effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Act need not be
furnished, provided, that the registrant includes in the prospectus, by means of
a post-effective amendment, financial statements required pursuant to this
paragraph (d) and other information necessary to ensure that all other
information in the prospectus is at least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to
registration statements on Form F-3, a post-effective amendment need not be
filed to include financial statements and information required by Section
10(a)(3) of the Act or Rule 3-19 of this chapter if such financial statements
and information are contained in periodic reports filed with or furnished to the
Commission by the registrant pursuant to section 13 or section 15(d) of the
Securities Exchange Act of 1934 that are incorporated by reference in the Form
F-3.
(e) to respond to requests for information that is incorporated by
reference into the prospectus pursuant to Items 4, 10(b), 11, or 13 of this
Form, within one business day of receipt of such request, and to send the
incorporated documents by first class mail or other equally prompt means. This
includes information contained in documents filed subsequent to the effective
date of the registration statement through the date of responding to the
request.
(f) to supply by means of a post-effective amendment all information
concerning a transaction, and the company being acquired involved therein, that
was not the subject of and included in the registration statement when it became
effective.
(g) that prior to any public reoffering of the securities registered
hereunder through use of a prospectus which is a part of this registration
statement, by any person or party who is deemed to be an underwriter within the
meaning of Rule 145(c), the issuer undertakes that such reoffering prospectus
will contain the information called for by the applicable registration form with
respect to reofferings by persons who may be deemed underwriters, in addition to
the information called for by the other Items of the applicable form.
(h) that every prospectus (i) that is filed pursuant to paragraph (c)
immediately preceding, or (ii) that purports to meet the requirements of Section
10(a)(3) of the Act and is used in connection with an offering of securities
subject to Rule 415, will be filed as a part of an amendment to the registration
statement and will not be used until such amendment is effective, and that, for
purposes of determining any liability under the Securities Act of 1933, each
such post-effective amendment shall be deemed to be a new registration statement
II - 4
<PAGE>
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against liabilities
(other than the payment by the registrant of expenses incurred or paid by a
director, officer or controlling person of the registrant in the successful
defense of any action, suit or proceeding) is asserted by such director, officer
or controlling person in connection with the securities being offered, the
registrant will, unless in the opinion of its counsel the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act, and will be governed by the final adjudication
of such issue.
II - 5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, AMERICAN
TELESOURCE INTERNATIONAL INC. has duly caused this Form S-4 Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of San Antonio and State of Texas on June 7, 1996.
AMERICAN TELESOURCE INTERNATIONAL INC.,
an Ontario corporation
By: /s/ ARTHUR L. SMITH
------------------------------------------
Arthur L. Smith
President and Chief Operating Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, hereby
constitutes and appoints Arthur L. Smith and H. Douglas Saathoff, and each of
them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Form S-4 Registration Statement for filing with the
Securities and Exchange Commission, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting such attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or each of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-4
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ARTHUR L. SMITH President, Chief Operating June 7, 1996
- ----------------------------
Arthur L. Smith Officer and Director
/s/ MURRAY R. NYE Chairman of the Board, Chief June 7, 1996
- ----------------------------
Murray R. Nye Executive Officer and Director
(Principal Executive Officer)
/s/ H. DOUGLAS SAATHOFF Secretary and Treasurer (Principal June 7, 1996
- ----------------------------
H. Douglas Saathoff Financial and Accounting Officer)
/s/ JOHN MOSES Director June 7, 1996
- ----------------------------
John Moses
</TABLE>
II - 6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, ATSI MERGER
CORP. has duly caused this Form S-4 Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San Antonio
and State of Texas on June 7, 1996.
ATSI MERGER CORP.,
a Delaware corporation
By: /s/ ARTHUR L. SMITH
------------------------------------------
Arthur L. Smith
President and Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned, hereby
constitutes and appoints Arthur L. Smith and H. Douglas Saathoff, and each of
them, his true and lawful attorney-in-fact and agent with full power of
substitution and resubstitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all amendments (including post-effective
amendments) to this Form S-4 Registration Statement for filing with the
Securities and Exchange Commission, and to file the same with all exhibits
thereto, and all documents in connection therewith, with the Securities and
Exchange Commission, granting such attorneys-in-fact and agents, and each of
them, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully and to
all intents and purposes as he might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents, or each of them, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Form S-4
Registration Statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ ARTHUR L. SMITH President, Chief Executive Officer June 7, 1996
- ---------------------------
Arthur L. Smith and Director (Principal Executive
Officer)
/s/ H. DOUGLAS SAATHOFF Secretary, Treasurer and Chief June 7, 1996
- ---------------------------
H. Douglas Saathoff Financial Officer (Principal
Financial and Accounting Officer)
/s/ MURRAY R. NYE Director June 7, 1996
- ---------------------------
Murray R. Nye
/s/ TOMAS REVESZ Director June 7, 1996
- ---------------------------
Tomas Revesz
/s/ TERRY COLBERT Director June 7, 1996
- ---------------------------
Terry Colbert
</TABLE>
<PAGE>
EXHIBIT 10.8
FINANCING AGREEMENT
-------------------
<TABLE>
<S> <C>
BORROWER: American Telesource International, Inc., a
wholly owned Texas subsidiary of American
Telesource International, Inc., a Canadian
company registered in Ontario and
publicly traded on the Canadian Dealing
Network, collectively "ATI".
LENDER: Robert G. Watt ("Watt")
FORM: Convertible Note
AMOUNT: $100,000 US
MATURITY: April 1, 1995. However, ATI may repay the principal RGW
and accrued interest at any time in whole or part 1/18/95
without penalty. If ATI intends to repay, Watt still
has the right of exchange set forth herein. A.G.
INTEREST FATE: 12% per annum, to be accrued and paid at maturity.
GUARANTEE/SECURITY: The note will be guaranteed by the parent company.
USE OF PROCEEDS: Equipment acquisition, working capital and general
corporate purposes.
WARRANTS: At closing, Watt will receive a warrant to purchase
30,000 shares of voting common stock of ATI at
$.50 US per share. These warrants will be separate
and apart from the above described note.
EXCHANGE. At maturity, Watt shall have the option to: 1) be repaid
the note and accrued interest, or 2) exchange the note
and accrued interest, dollar-for-dollar, for common
stock of ATI at a price of $.5O US, or 3) extend the
note at 12.0% interest for consecutive ninety(90) days
periods with the same right of exchange.
EXERCISE OF WARRANTS/ The warrants may be exercised at any time. The warrants
EXPIRATION DATE: will expire, unless exercised beforehand, at the earlier
of a liquidity event or December 31, 1999. A "Liquidity
event" is defined as a sale or merger of ATI or a public
offering with net proceeds of at least $5 million to ATI.
REGISTRATION RIGHTS: Piggyback registration rights for the underlying common
stock will be granted to Watt.
</TABLE>
<PAGE>
FINANCING AGREEMENT
- -------------------
Page 2
<TABLE>
<S> <C>
FINANCIAL REPORTING/ ATI will provide monthly financial statements, including
REQUIREMENTS: balance sheet and income and cash flow statements with
comparisons to budget to Watt, within 30 days after the
end of each month.
</TABLE>
AGREED TO AND ACCEPTED THIS THE 11TH DAY OF JANUARY 1995.
American Telesource International, Inc.
By: /s/Robert G. Watt By: /s/Arthur L. Smith
----------------------------- ----------------------------------
Robert G. Watt Arthur L. Smith-President
<PAGE>
SHARE PURCHASE WARRANT
American Telesource International Inc. - 30,000 Share Purchase Warrants
-----------------------------------------------------------------------
THIS IS TO CERTIFY THAT, for value received, Robert G. Watt shall have the right
to purchase from American Telesource International, Inc. (the "Company"), upon
and subject to the terms and conditions hereinafter referred to one fully paid
and non-assessable common share of the Company for each one (1) warrant
represented hereby at the price of $.50 (U.S.) per common share in lawful money
of Canada at the earlier of a liquidity event or December 31, 1999. A
"Liquidity event" is defined as a sale or merger of ATI or a public offering
with net proceeds of at least $5 million to ATI.
The right to purchase the common shares of the Company may only be exercised by
the Warrant Holder within the time hereinbefore set out by: (a) duly completing
and executing the subscription form attached hereto, in the manner therein
indicated; (b) surrendering this warrant certificate to the company at American
Telesource International, Inc., at its registered office; and (c) paying the
appropriate purchase price for the common shares of the Company subscribed for,
either in cash or by certified cheque payable to the Company at par in Toronto,
Ontario, Canada.
Upon surrender and payment, the Company will issue to the Warrant Holder the
number of common shares subscribed for. Within five business days of surrender
and payment the Company will mail Warrant Holder a certificate evidencing the
common shares subscribed for. If the Warrant Holder subscribes for a lesser
number of common shares that the number of shares permitted by this warrant
certificate, the Company shall forthwith cause to be delivered to the Warrant
Holder a further certificate in respect of the common shares referred to in this
warrant certificate but not subscribed for.
THE WARRANT HOLDER, BY ACCEPTANCE OF THIS WARRANT CERTIFICATE, AGREES THAT THE
WARRANTS REPRESENTED HEREBY AND ALL RIGHTS HEREUNDER AND ANY SHARES ACQUIRED BY
THE WARRANT HOLDER PURSUANT TO THIS WARRANT CERTIFICATE ARE NOT QUALIFIED FOR
SALE IN ONTARIO OR CANADA AND MAY NOT BE OFFERED OR SOLD DIRECTLY OR INDIRECTLY
IN ONTARIO OR CANADA EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE SECURITIES
LEGISLATION OF THE JURISDICTION IN WHICH SUCH TRANSFER OR SALE TAKES PLACE.
IN WITNESS WHEREOF, THE COMPANY HAS caused this warrant certificate to be issued
by its duly authorized agent as of the 6th day of January, 1995.
American Telesource International, Inc.
Per: [SIGNATURE ILLEGIBLE]
-------------------------------
<PAGE>
[LOGO APPEARS HERE]
EXHIBIT 10.9
Mr. Terry L. Colbert
Boles & Company, Inc.
Dulles Corporate Center
2323 Horse Pen Road, Suite 450
Herndon, Virginia 22071
Dear Terry,
This letter hereby extends the original term of the Investment Banking Agreement
("Agreement") dated December 14, 1995 between Boles & Company, Inc. ("BCI") and
American Telesource International, Inc. ("ATI") for one hundred twenty (120)
days from the date of execution of this letter.
The terms and conditions set forth in the Agreement apply to ATI and any
subsidiary, whether existing or created during the term of this Agreement. Any
and all references in the Agreement to ATI will be interpreted to include the
words "and/or its subsidiaries."
It is further understood that the Agreement is exclusive and prohibits any other
Investment Banking Agreement(s) to be executed by ATI or its subsidiaries
without express written consent from BCI during the term of the extension.
The Agreement allows BCI to be paid in shares of ATI stock in lieu of cash for
Engagement Fees. Shares of ATI stock are earned in the amount of $15,000 U.S.
per month calculated by taking the average previous 30-day trading price. ATI
will immediately arrange for shares to be issued to BCI in the amount of
$60,000 U.S. for Engagement Fees earned during the term of the original
Agreement.
This letter is understood and agreed to this 24 day of April , 1996, by and
--- ------
between:
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ----------------------------- -----------------------------
Boles & Company, Inc. American Telesource Inc.
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
- ----------------------------- -----------------------------
Its Its
<PAGE>
[LETTERHEAD OF BOLES & COMPANY, INC.]
December 14, 1995
Mr. Craig K. Clement, Vice President
Corporate Development
American Telesource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
Investment Banking Agreement
Dear Craig:
Following our recent meetings and conversations, you have requested that we
submit to you the terms and conditions (AGREEMENT") under which we are to
exclusively provide corporate finance and investment banking services to
American Telesource International, Inc. ("ATI"). Our assignment is to assist ATI
in the development of an overall financing strategy, raising capital, and
consummating strategic partnerships, and business development.
We will work with ATI management to: (i) assist in the development of a business
and financing strategy including the preparation of Financing Memorandum; (ii)
prepare supporting financial pro-formas and "use of proceeds" schedules under
differing scenarios, and (iii) perform such other services as are normal and
customary to facilitate the Financing/s. We may also be required to address
other matters including: (i) corporate organization and capital structure; (ii)
accounting treatment & presentation
1
<PAGE>
organization and capital structure: (ii) accounting treatment & presentation
of existing and projected revenues, backlog and profitability: (iii) tax & legal
structure options and other matters that may be identified from time to time.
Prior to approaching any potential partner, investor, or any other third party,
we will submit the name, as well as any written material to be used in
presentations, to ATI for its approval. ATI will have the unlimited right to
disapprove any party from receiving a presentation.
BCI shall identify and use its best efforts to structure and complete a
Financing/s transaction with one or more Financing/s sources and to develop
joint ventures and business relationships that harmonize with the business plan
of ATI. Such Financing/s sources may include a combination of potential
strategic partners and/or private capital institutions. We will arrange
meetings with interested parties, discuss and meet with prospective strategic
partners, assist management in negotiation of terms and conditions and otherwise
use our best efforts to arrange completion of one or more Financing/s under
terms and conditions acceptable to ATI.
ATI will use their best efforts to support and assist BCI in the execution of
its assignment, and shall provide BCI with full and timely disclosure of all
information, and shall not withhold from BCI any information, which may be
relevant including current financial data, changes in financial condition,
market information, litigation, pending litigation, management changes and other
information which might have a material effect on BCI performing its duties.
As compensation for providing its services, BCI shall receive an Engagement Fee
of $15,000 of ATI common stock for each month during the term hereof calculated
by taking the average previous 30-day trading price and Completion Fees as set
forth below:
A. PRIVATE CAPITAL TRANSACTIONS: Upon the successful negotiation and closing
of one or more equity Financing transaction initiated or arranged by BCI
with a PRIVATE CAPITAL source (under terms acceptable to ATI). BCI shall
receive certain COMPLETION FEES as follows:
(1) EQUITY FINANCING/S: A fee equal to 6.0% of the first $10.0 million of
each equity Financing/s and 4.0% of all amounts in excess of $10.0
million. Equity Financing/s are defined as the net proceeds to ATI
from the sale of common stock, preferred stock, subordinated and non-
subordinated debt instruments convertible into equity securities, or
other equity and participating instruments and/or the sale of assets
and/or liabilites of ATI.
<PAGE>
(2) NON-CONVERTIBLE SUBORDINATED DEBT FINANCING: A fee equal to 4.0% of
the first $10.0 million of each non-convertible subordinated debt
Financing/s and 3.5% of all amounts in excess of $10.00 million. Non-
convertible subordinated debt Financing/s are defined as the total
face amount of credit facilities, guarantees or any non-convertible
debt instruments subordinated, or capable of being subordinated, to
any secured or unsecured creditors of ATI.
(3) SENIOR DEBT: A fee of 2.0% of all senior debt and non-subordinated
debt Financing/s with such senior debt and non-subordinated debt
Financing/s being defined as the total face amount of non-convertible
credit facilities, guarantees of debt instruments not subordinated to
any secured or unsecured creditors of ATI.
B. OTHER TRANSACTIONS: In the event that transactions and/or business
associations or arrangements are initiated by BCI and concluded with BCI's
active involvement, then BCI and ATI agree to negotiate in good faith the
amount of COMPLETION FEES due BCI under those circumstances as and when
they arise. In the event that a Financing transaction is concluded with
Paulson Investment Company. PULSAR. IPAC. Hantfen, Icahoff Inc./Cartyle
International Securities, and U.S. Securities and Futures during the Term
of this Agreement. BCI's success fee will be 30% of the fees enumerated in
paragraph A above.
C. WARRANTS TO PURCHASE STOCK. Upon the successful closing of each Financing/s
place pursuant to this AGREEMENT. ATI shall issue to BCI detachable
warrants to purchase up to 5% of the amount of stock of ATI associated with
each Financing (or equivalent securities of an equity Financing/s) with the
same registration rights. If any, per share paid by an investor
participating in the Financing/s If not exercised within a forty-eight
month period of following the closing of a Financing/s, the warrants shall
expire, all subject to private investment representations.
All Engagement Fees shall be credited to Completion Fees due BCI. Such
Completion Fees shall be due and payable within ten days of closing of any
Financing/s concluded by ATI: (I) during the term of this AGREEMENT, or (ii)
within twelve (12) months of the date of the termination, of this AGREEMENT,
with any institution, institution or other party with whom BCI has held
documented discussions pursuant to its assignment as set forth above.
3
<PAGE>
Upon the receipt of invoices, BCI shall promptly be reimbursed for all travel
expenses incurred by BCI in connection with its duties hereunder. BCI will not
incur any single item of expense in excess of $1,000 or total aggregate expenses
in excess of $5,000 without prior approval.
All non-public confidential information, and identified as such in writing,
provided the ATI to BCI or by BCI to ATI will be treated as confidential
information to any third party without first receiving written authorization
from the provider to make such disclosure.
This AGREEMENT shall commence on the date hereof and shall have an initial term
of one hundred twenty (120) days, and may be extended thereafter by the mutual
consent of the parties. Upon termination, all liabilities and continuing
obligations of each party to the other shall cease with the exception of those
provisions covering compensation due BCI and the treatment of each party's
confidential information.
If the above conforms with your understanding, kindly confirm your acceptance
and agreement by signing and returning a copy of this AGREEMENT to the
undersigned.
Sincerely,
/s/ J.Richard Knop
J. Richard Knop
Principal
AGREED & ACCEPTED By:
ATI, INC.
By: [SIGNATURE ILLEGIBLE]
----------------------------
Date: 12-18-95
--------------------------
<PAGE>
EXHIBIT 10.10
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
-----------------------------------------
RADIO STATION AUTHORIZATION
-----------------------------------------
( page 1 )
CALL SIGN: E940429
FILE NO.: 1639-DSE-P/L-94
NAME: AMERICAN TELESOURCE INTERNATIONAL INC.
CONSTRUCTION PERMIT AND LICENSE DATE OF GRANT: OCTOBER 21, 1994
DOMESTIC FIXED SATELLITE SERVICE EXPIIZATION DATE: OCTOBER 21, 2004
FIXED EARTH STATION
LATITUDE LONGITUDE
LOCATION OF STATION: 29 33 04.0 N 98 35 21.0 w
ADDRESS: 12500 Network Boulevard
CITY/COUNTY/STATE: SAN ANTONIO BEXAR, TEXAS
SUBJECT TO THE PROVISIONS OF THE COMMUNICATIONS ACT OF 1934, THE COMMUNICATIONS
SATELLITE ACT OF 1962, SUBSEQUENT ACTS AND TREATIES, AND ALL PRESENT AND FUTURE
REGULATIONS MADE BY THIS COMMISSION, AND FURTHER SUBJECT TO THE CONDITIONS AND
REQUIREMENTS SET FORTH IN THIS PERMIT AND LICENSE, THE GRANTEE IS AUTHORIZED TO
CONSTRUCT, USE AND OPERATE THE RADIO FACILITIES DESCRIBED BELOW FOR RADIO
COMMUNICATIONS FOR THE TERM BEGINNING OCTOBER 21, 1994 (3 A.M. EASTERN STANDARD
TIME) AND ENDING OCTOBER 21, 2004 (3 A.M. EASTERN STANDARD TIME).
THE REQUIRED DATE OF COMPLETION OF CONSTRUCTION IS OCTOBER 21, 1995. GRANTEE
MUST FILE WITH THE COMMISSION A CERTIFICATION UPON COMPLETION OF CONSTRUCTION.
1. PARTICULARS OF OPERATIONS
<TABLE>
<CAPTION>
FREQUENCIES (MHz) EIRP EIRP DEN. SPECIAL PROVISIONS
AND POLARIZATION EMISSION (dBW) (dBW/4kHz) (REFER FCC FORM 488-A)
------------------------ --------- ------ -------- ---- ----
<S> <C> <C> <C> <C> <C>
1. 5925.000- 6238.000 H,V 25MOF7w 62.600 42.600 1900
2. 6275.000- 6425.000 H,V 25MOF7W 62.600 42.600 1900
3. 3700.000- 4200.000 H,V 25MOF7W - - - - - - 1010
</TABLE>
2. FREQUENCY COORDINATION LIMITS
<TABLE>
<CAPTION>
Satellite Arc Elevation Azimuth Max. EIRP
(West Long.) (Degrees) (Degrees) Density to
Frequency Limits East West East West East West Horizion
(MHz) Limit Limit Limit Limit Limit Limit (dBW/4kHz)
------------------- ------------- ----------- ----------- ----------
<S> <C> <C> <C> <C> <C>
1. At 06 GHz 60.0- 146.0 35.8-28.4 121.7-245.6 -11.4
</TABLE>
RECEIVING SYSTEM NOISE TEMPERATURE:
105 KELVIN AT 20.0 DEGREES ELEVATION AND 4,000 MHz
3. POINTS OF COMMUNICATIONS -- THE FOLLOWING SPACE STATIONS LOCATED IN THE
GEOSTATIONARY SATELLITE ORBIT: ALSAT - ALL AUTHORIZED U.S. DOMESTIC
SATELLITES CONSISTENT WITH SECTIONS 1 AND 2 OF THIS LICENSE.
FCC FORM 488
<PAGE>
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
-----------------------------------------
RADIO STATION AUTHORIZATION
-----------------------------------------
( page 2 )
CALL SIGN: E940429
FILE NO.: 1639-DSE-P/L-94
4. TRANSMITTING EQUIPMENT
OUTPUT
UNITS MANUFACTURER MODEL NUMBER POWER-WATTS
1. 2 EF DATA CPA6020 20.0
5. ANTENNA FACILITIES SITE/ELEVATION: 312.4 METERS AMSL
DIAMETER MAX. ANT. HT.
UNITS (Meters) FEED MANUFACTURER MODEL NUMBER (Meters)
1. 1 6.10 CASS VERTEX KPC 318.5 AMSL
MAXIMUM GAIN(S): 46.5 dBi at 4 GHz 49.6 dBi at 6 GHz 6.1 AGL
6. REMOTE CONTROL POINT: NONE
7. ANTENNA STRUCTURE MARKING AND LIGHTING REQUIREMENTS: NONE
ATTACHED FCC FORMS 488-A AND 488-B (STANDARD PROVISIONS) ARE INCORPORATED INTO
THIS AUTHORIZATION. SPECIAL PROVISION REFERENCE NUMBERS ARE LISTED IN SECTION I
ABOVE; GENERAL PROVISION REVERENCE NUMBERS ARE AS FOLLOWS:
(1): 2000 (2): 2010 (3): 2087 (4): 2454 (5): 2500
(6): 2510 (7): 2810 (8): 2916 (9): 2938
[SEAL]
FCC FORM 488
<PAGE>
UNITED STATES OF AMERICA FILE NO. CS -94-173--ML
------------------------
FEDERAL COMMUNICATIONS COMMISSION
TRANSMITTER SAN ANTONIO,
LOCATION: TEXAS
--------- ------------------------
MODIFICATION OF COMMON CARRIER NAME OF SAN ANTONIO,
AUTHORIZATION STATION: TEXAS
------------------------
CALL SIGN: E940429
------------------------
The authority contained in Authorization call sign E940429 issued to
-----------------
American TeleSource International, Inc. for a radio transmitting station in the
- ---------------------------------------
Domestic Fixed-Satellite Service is hereby modified in part as follows:
Modification of a 6.1-meter C-band transmit and receive satellite earth station
for the provision of International Fixed-Satellite Service is to add the
following:
1) Points of communication for international transborder services:
Morelos/Solidaridad satellites in the arc 60 to 146 degrees West Longitude.
2) The licensee is authorized to provide transborder services between the
United States and Mexico via the Morelos/Solidaridad satellites consistent
with the technical parameters contained in the applicant's domestic
satellite earth station license.
3) All communications shall be in accordance with the satellites and services
which have completed consultations under Article XIV(D) of the INTELSAT
Agreement and which have been approved by the Commission.
4) This action constitutes the final step with respect to the provision of
transborder services only insofar as the U.S. regulatory process is
concerned. However, this authority shall not be construed as authorizing
the distribution of programming where the appropriate copyright clearances
have not been obtained or where the U.S. Government has determined that
appropriate copyright protection does not otherwise exist.
5) The provision of purely U.S. domestic service via non-U.S. satellites is
prohibited.
6) Operations via Morelos/Solidaridad satellites shall be on a non-common
carrier basis.
This modification of authorization is a part thereof and shall be posted
therewith. Except as herein expressly modified, the above-mentioned
authorization, subject to all modifications heretofore granted by the
Commission, is to continue in full force and effect in accordance with the terms
and conditions thereof and for the period therein specified.
Dated: October 25, 1994.
Page 1 of 1
FEDERAL
COMMUNICATIONS [SEAL]
COMMISSION
<PAGE>
EXHIBIT 10.11
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
---------------------------
RADIO STATION AUTHORIZATION
---------------------------
( page 1 )
CALL SIGN: E940428
FILE NO.: 1638-DSE-P/L-94
NAME: AMERICAN TELESOURCE INTERNATIONAL INC.
CONSTRUCTION PERMIT AND LICENSE
DATE OF GRANT: SEPTEMBER 9, 1994
EXPIRATION DATE: SEPTEMBER 9, 2004
DOMESTIC FIXED SATELLITE SERVICE
FIXED EARTH STATION
LATITUDE LONGITUDE
29 33 04.0 N 98 35 21.0 W
LOCATION OF STATION:
ADDRESS: 12500 Network Boulevard
CITY/COUNTY/STATE: SAN ANTONIO BEXAR, TEXAS
SUBJECT TO THE PROVISIONS OF THE CO ICATIONS ACT OF 1934, THE COMMUNICATIONS
SATELLITE ACT OF 1962, SUBSEQUENT ACTS AND TREATIES, AND ALL PRESENT AND FUTURE
REGULATIONS MADE BY THIS COMMISSION, AND FURTHER SUBJECT TO THE CONDITIONS AND
REQUIREMENTS SET FORTH IN THIS PERMIT AND LICENSE, TEE GRANTEE IS AUTHORIZED TO
CONSTRUCT, USE AND OPERATE THE RADIO FACILITIES DESCRIBED BELOW FOR RADIO
COMMUNICATIONS FOR THE TERM BEGINNING SEPTEMBER 9, 1994 (3 A.M. EASTERN STANDARD
TIME) AND ENDING SEPTEMBER 9, 2004 (3 A.M. EASTERN STANDARD TIME). THE REQUIRED
DATE OF COMPLETION OF CONSTRUCTION IS SEPTEMBER 9, 1995. GRANTEE MUST FILE WITH
THE COMMISSION A CERTIFICATION UPON COMPLETION OF CONSTRUCTION.
1. PARTICULARS OF OPERATIONS
<TABLE>
<CAPTION>
FREQUENCIES (MHz) EIRP EIRP DEN. SPECIAL PROVISIONS
AND POLARIZATION EMISSION (dBW) (dBW/4kHz) (REFER FCC FORM 488-A)
----------------------- -------- ------ ---------- ---- ----
<S> <C> <C> <C> <C> <C>
1. 14000.000-14500.000 H,V 25MOF7W 78.850 48.500 1900
2. 11700.000-12200.000 H,V 25MOF7W ------ ------ 1010
</TABLE>
2. FREQUENCY COORDINATION LIMITS
<TABLE>
<CAPTION>
Satellite Arc Elevation Azimuth Max. EIRP
(West Long.) (Degrees) (Degrees) Density to
Frequency Limits East West East West East West Horizion
(MHz) Limit Limit Limit Limit Limit Limit (dBW/4kHz)
------------------------ ------------ ------------ ------------ ----------
<S> <C> <C> <C> <C>
1. At 14 GHz 60.0 - 146.0 35.8 - 28.4 121.7 - 245.6 -13.0
</TABLE>
RECEIVING SYSTEM NOISE TEMPERATURE:
200 KELVIN AT 20.0 DEGREES ELEVATION AND 12,000 MHz
3. POINTS OF COMMUNICATIONS -- THE FOLLOWING SPACE STATIONS LOCATED IN THE
GEOSTATIONARY SATELLITE ORBIT: ALSAT - ALL AUTHORIZED U.S. DOMESTIC
SATELLITES CONSISTENT WITH SECTIONS 1 A= 2 OF THIS LICENSE.
FCC Form 488
<PAGE>
UNITED STATES OF AMERICA
FEDERAL COMMUNICATIONS COMMISSION
---------------------------
RADIO STATION AUTHORIZATION
---------------------------
( page 2 )
CALL SIGN: E940428
FILE No.: 1638-DSE-P/L-94
4. TRANSMITTING EQUIPMENT
OUTPUT
UNITS MANUFACTURER MODEL NUMBER POWER-WATTS
1. 2 SSE TECHNOLOGIES ASAT-1214 75.0
5. ANTENNA FACILITIES SITE/ELEVATION: 312.4 METERS AMSL
DIAMETER MAX. ANT. HT.
UNITS (Meters) FEED MANUFACTURER MODEL NUMBER (Meters)
1. 1 6.10 CASS VERTEX KPK 318.5 AMSL
MAXIMUM GAIN(S): 55.7 dBi at 12 GHz 57.1 dBi at 14 GHz 6.1 AGL
6. REMOTE CONTROL POINT: NONE
7. ANTENNA STRUCTURE MARKING KING AND LIGHTING REQUIREMENTS: NONE
ATTACHED FCC FORMS 488-A AND 488-B (STANDARD PROVISIONS) ARE INCORPORATED
INTO THIS AUTHORIZATION. SPECIAL PROVISION REFERENCE NMMERS ARE LISTED IN
SECTION 1 ABOVE; GENERAL PROVISION REFERENCE NUMBERS ARE AS FOLLOWS:
(1): 2000 (2): 2010 (3): 2454 (4): 2810 (5): 2916
(6): 2938
[SEAL]
FCC Form 488
<PAGE>
UNITED STATES OF AMERICA FILE NO. CSG-94-174-ML
------------------------
FEDERAL COMMUNICATIONS COMMISSION
TRANSMITTER SAN ANTONIO,
LOCATION: TEXAS
_________ ------------------------
MODIFICATION OF COMMON CARRIER NAME OF SAN ANTONIO,
AUTHORIZATION STATION: TEXAS
------------------------
CALL SIGN: E940428
------------------------
The authority contained in Authorization Call Sign E940428 issued to
-----------------
American TeleSource International, Inc. for a radio transmitting station in the
- ---------------------------------------
Domestic Fixed-Satellite Service is hereby modified in part as follows:
Modification of a 6.1-meter Ku-band transmit and receive satellite earth station
for the provision of International Fixed-Satellite Service is to add the
following:
1) Points of communication for international transborder services:
Morelos/Solidaridad satellites.
2) The licensee is authorized to provide transborder services between the
United States and Mexico via the Morelos/Solidaridad satellites consistent
with the technical parameters contained in the applicant's domestic
satellite earth station license.
3) All communications shall be in accordance with the satellites and services
which have completed consultations under Article XIV(d) of the INTELSAT
Agreement and which have been approved by the Commission.
4) This action constitutes the final step with respect to the provision of
transborder services only insofar as the U.S. regulatory process is
concerned. However, this authority shall not be construed as authorizing
the distribution of programming where the appropriate copyright clearances
have not been obtained or where the U.S. Government has determined that
appropriate copyright protection does not otherwise exist.
5) The provision of purely U.S. domestic service via non-U.S. satellites is
prohibited.
6) Operations via Morelos/Solidaridad satellites shall be on a non-Common
carrier basis.
7) Maximum total power at antenna flange: 19.5 Watts
Maximum E.I.R.P.: 73.63 dBW total all carriers based on Radiation Hazard
Study
This modification of authorization is a part thereof and shall be posted
therewith. Except as herein expressly modified, the above-mentioned
authorization, subject to all modifications heretofore granted by the
Commission, is to continue in full force and effect in accordance with the terms
and conditions thereof and for the period therein specified.
Dated: October 4, 1994
Page 1 of 1
FEDERAL
COMMUNICATIONS [SEAL]
COMMISSION
<PAGE>
EXHIBIT 10.12
PUBLIC NOTICE
[FEDERAL COMMUNICATIONS COMMISSION LOGO APPEARS HERE]
FEDERAL COMMUNICATIONS COMMISSION
1919 M STREET N.W.
WASHINGTON, D.C. 20554 44391
---------------------------------------------------------------------------
News media information 202/632-5050. Recorded listing of releases and texts
202/632-0002.
Report No. I-7019 August 17, 1994
OVERSEAS COMMON CARRIER SECTION 214 APPLICATIONS
ACTIONS TAKEN
(Formal Section 63.01)
The following applications for international Section 214 certification have
been granted effective August 13, 1994, pursuant to the Commission's streamlined
processing procedures set forth in Section 63.12 of the Commission's Rules, 47
C.F.R. Section 63.12.
ITC-94-358 American Telesource International, Inc. (resale of public
switched service).
ITC-94-359 RAM Technologies, Inc. (resale of public switched service).
ITC-94-360 Citadel Communications, Inc. (resale of public switched service).
ITC-94-361 Preferred Network Communications Corporation (resale of public
switched service).
The applicants listed above are authorized to provide international switched
services by reselling the international switched services of other carriers as
listed in their application, and only in accordance with all rules, regulations
and policies of the Commission.
________
ITD-94-011 Westinghouse Communication Services, Inc. applies to discontinue
common carrier service over international earth station KA-327,
Stamford, Connecticut.
The following applications for international Section 214 certification have
been granted effective August 13, 1994, pursuant to the Commission's streamlined
processing procedures set forth in Section 63.12 of the Commission's Rules, 47
C.F.R. Section 63.12.
<PAGE>
-2-
ITC-94-292 WilTel International, Inc. (resell of non-interconnected private
lines to various countries.
The applicants listed above are authorized to provide international switched
and/or private line services by reselling the international switched and/or
private line services of other carriers as listed in their application, and only
in accordance with all rules, regulations and policies of the Commission.
Applicants shall file semi-annual reports of circuit additions, pursuant to
Section 63.15(b) of the Commission's Rules. Applicants also shall file with the
Commission a copy of any operating agreement entered into with its foreign
correspondents within thirty (30) days of its execution, and shall otherwise
comly with the filing requirements contained in Section 43.51 of the
Commission's Rules. In addition, those applicants reselling international
interconnected private lines to Canada shall file all arrangements for private
line interconnection to the United States public switched network pursuant to
this section.
Those applicants reselling international private lines for the provision of
non-interconnected private line service are limited to the provision of such
private line service only between the U.S. and those points listed in their
application -- that is, private lines which originate in the U.S. and terminate
in one of the points listed in their application, or which originate in one of
the points listed in their application and terminate in the U.S. In addition,
applicants may not -- and the applicants' tariffs must state that the
applicants' customers may not -- connect private lines provided over these
facilities to the public switched network at either the U.S. or foreign end, or
both, for the provision of international basic telecommunications services,
including switched voice services, unless authorized to do so by the Commission
upon a finding that the foreign administration affords resale opportunities
equivalent to those available under U.S. law, in accordance with Regulation of
-------------
International Accounting Rates, Phase II, First Report and Order, 7 FCC Rcd 559
- ------------------------------
(1991), Order on Reconsideration and Third Further Notice of Proposed
-------------------------------------------------------------
Rulemaking, 7 FCC Rcd 7927 (1992), petition for reconsideration pending.
- ---------- ------------------------------------
Grant of applications to resell international private lines for the
provision of switched services and interconnected private line services between
the United States and Canada is conditioned upon Canada's continuing to afford
resale opportunities equivalent to those available under U.S. law. In addition,
grant of all of these private line resale applications may be subject to future
modification pursuant to the outcome of the Phase II Third Further Notice,
-----------------------------
fONOROLA/EMI Order, 7 FCC Rcd 7312 (1992), and any related proceedings.
- ------------------
Further, applicants nor any persons or companies directly or indirectly
controlling them or controlled by them, or under direct or indirect common
control with them, shall acquire or enjoy any right, for the purposes of
handling or interchanging traffic to or from the United States, its territories
or possessions which is denied to any other United States carrier by reason of
any concession, contract, understanding, or working arrangement to which the
applicants or any such persons or companies controlling or controlled by the
applicants are parties.
Provisions Pertaining to All Applicants
--------------------------------------
<PAGE>
- 3-
All of the applicants listed in this public notice shall file a tariff
pursuant to Section 203 of the Communications Act of 1934, as amended, 47 U.S.C.
Section 203, and Part 61 of the Commission's Rules, 47 C.F.R. Part 61, for the
services requested in their application. The applicants shall file the annual
reports of overseas telecommunications traffic 'required by Section 43.61 of the
Commission's Rules, 47 C.F.R. Section 43.61. Further,the grant of these
applications shall not be construed to include authorization for the
transmission of money in connection with the services the applicants have been
given authority to provide. The transmission of money is not considered to be a
common carrier service.
If an applicant is reselling services obtained pursuant to a contract, the
applicant shall file publicly any contracts entered into with other carriers or
a contract summary in accordance with Section 203 of the Communications Act, 47
U.S.C. (S) 203, and the Interexchange Order./(1)/ In addition, the services
-------------------
obtained by contract shall be made generally available to similarly situated
customers at the same terms, conditions and rates.
Petitions for reconsideration under Section 1.106 or applications for
review under Section 1.115 of the Commission's Rules in regard to the grant of
any of these applications may be filed within 30 days of the date of this public
notice (see Section 1.4(b)(2)).
---
For additional information concerning this matter, please contact Janice
Alston or Mary Cobbs at (202) 632-7265.
-FCC-
_________________
/1/ See Competition in the Interstate Interexchange Marketplace, 6 FCC Rcd
-----------------------------------------------------------
5880, 5902 (1991)(Interexchange Order).
-------------------
<PAGE>
EXHIBIT 10.13
U.S. LONG DISTANCE,
INC.
Presents:
===============================================================================
CARRIER TERMINATION SERVICES
AGREEMENT
===============================================================================
For
American Telesource
International, Inc.
(9/15/94)
<PAGE>
TELECOMMUNICATIONS AGREEMEENT
Tbs Agreement is entered into this 22 day of September, 1994, by and
---- ----------
between U.S. LONG DISTANCE, INC., a Texas corporation with its principal office
at 9311 San Pedro, Suite 300, San Antonio, Texas 78216 ("USLD"), and AMERICAN
TELESOURCE INTERNANONAL, INC.(ATI), a Texas corporation with its principal
office at 12500 Network Blvd., Suite 407, San Antonio, TX 78249 ("Customer").
WITNESSETH:
WHEREAS, USLD is in the business of providing telecommunications services;
and
WHEREAS, Customer desires to purchase telecommunications services from
USLD:
NOW, THEREFORE, in consideration of the mutual promises and convenants
contained herein, and for other good and valuable consideration, the parties do
hereby contract and agree as follows:
1. USLD agrees to furnish to Customer, and Customer agrees to purchase
from USLD, the telecommunication services as set forth in Exhibit A attached
hereto and made a part of this Agreement as if set forth verbatim herein.
2. This Agreement shall commence on the 22 day of September, 1994 (the
---- ---------
"Commencement Date") and continue for a period of one (1) year. This Agreement
shall be extended, on the same terms and conditions, for an additional period of
one (1) year unless either party notifies the other party in writing not less
than sixty (60) days prior to the termination date of its desire to terminate
this Agreement.
3. During the term of this Agreement, USLD shall charge for the
telecommunication services, and Customer shall pay for such telecommunication
services, that amount as determined by using the rates set out in Exhibit A.
4. USLD shall give Customer at least forty-five (45) days notification in
the event any service rate in Exhibit A is modified.
5. Customer hereby acknowledges that USLD's charges for the provision of
its telecommunication services will be billed on a monthly basis and that
payment for such services is due and payable fifteen (15) days from the invoice
date. Late payments will be assessed a late charge of 1.5% per month. Payments
not received within thirty (30) days of the date of billing will result in the
right of USLD to cancel and terminate the services provided herein.
6. In the event Customer contracts for billing and collection services
with Zero Plus Dialing, Inc., an affiliate of USLD, USLD shall have the right,
in addition to the use of the security deposit to offset any payments for
services rendered pursuant to this Agreement which are late by thirty (30) days
or more against customers collected funds held by Zero Plus Dialing, Inc.
7. Should Customer dispute any of the monthly charges on its monthly
invoice, it shall notify USLD of the disputed charges not later than ten (10)
days from the date of invoice. Said dispute shall set forth in writing all
details concerning the disputed charges. In the event of a dispute, Customer
shall pay the entire invoice in accordance with the payment terms set forth
herein. After resolution of the disputed portion of the invoice, the adjustment
if any, shall be immediately credited to Customers account.
8. Should Customer claim any exemption of any sales, use or other tax,
then Customer shall provide such exemption information to USLD. USLD will be
allowed to maintain a copy of such information in its offices in San Antonio,
Texas. It will be the responsibility of Customer to make sure that its proof of
exempt status remains current.
<PAGE>
9. No term or provision of this Agreement shall be deemed waived, and no
breach shall be deemed excused, unless such waiver or consent shall be in
writing and signed by the party claimed to have waived or consented. No consent
by any party to, or waiver of, a breach or default by the other, whether
expressed or implied, shall constitute a consent to, waiver of or excuse for any
different or subsequent breach or default.
10. Neither USLD nor Customer shall be liable to the other for any
consequential, indirect special or incidental damages whatsoever, including,
without liniitation, any loss of revenue, goodwill, or profits or claims by
third parties or otherwise in connection with or related to any of the services
provided pursuant to this Agreement.
11. USLD warrants that the equipment used in providing the services to
Customer pursuant to this Agreement is suitable for the uses intended, and
Customer warrants and represents that it is fully authorized to contract for the
services under this Agreement.
USLD MAKES NO OTHER WARRANTIES, EITHER EXPRESSED OR IMPLIED.
12a. This Agreement authorizes USLD to start provisioning of
telecommunications services, as set forth herein, to Customer on the
Commencement Date. TI-ds Agreement also authorizes USLD to act as Customer's
agent in placing orders with other carriers in order to provide
telecommunications services, if requested.
12b. Customer hereby represents and warrants that it is certified to do
business in all jurisdictions in which it conducts business and is in good
standing in all such jurisdictions. Customer further represents and warrants
that it is certified by the proper regulatory agencies to provide interstate,
intrastate and international long distance services to End-Users in those
jurisdictions where such services are to be provided by Customer.
12c. Customer shall be responsible for obtaining signed letter of agency
(LOAs") from prospective End-Users in the format set forth in Exhibit A attached
hereto and made part hereof. Customer shall retain the signed LOAs and promptly
make originals available upon request of USLD, a LEC or any regulatory agency.
Customer shall be responsible for LEC Primary Interexchange Carrier change
charges ("PIC Charges") that may be imposed on USLD as a result of End-Users
moving onto or off of the USLD network or as a result of Customer's inability or
@ to provide original End-User LOAs when requested. Any such PIC Charges shall
be billed to Customer periodically on a Customer Invoice.
12d. Customer shall be responsible for and pay all expenses in connection
with its business and its performance of this Agreement. Customer shall use its
best efforts to solicit and market the Services to a prospective End-User in
accordance with the terms of this Agreement and applicable law. Customer shall
at all times conduct its efforts in a commercially reasonable and ethical mmmer.
To the extent Customer makes any statements or representations to third parties
(including End-Users) with regard to USLD, the Services, or the terms of this
Agreement, such statements or representations shall be true, accurate and not
misleading and shall conform to and be consistent with the terms herein.
13. If the performance of the respective obligations of USLD or
Customer shall be prevented or interfered with by reason of any fire, flood,
epidemic, earthquake or any other act of God, explosion, strike or other
disputes, riot or civil disturbance, war (whether declared or undeclared) or
armed conflict, any municipal ordinance or state or federal law, govenunental
order or regulation or order of any court of competent jurisdiction, or other
similar forces not within the control of USLD or Customer, as the case may be,
then Customer and/or USLD, as the case may be, shall not be liable to the other
for its failure to perform such obligations hereunder.
14. If any term or provision of this Agreement shall be found to be
illegal or unenforceable, then, notwithstanding such illegality or
unenforceability, this Agreement shall remain in full force and effect and such
term or provision shall be deemed to be deleted. In addition, this Agreement
shall be
<PAGE>
terminated upon the determination of a governmental entity having jurisdiction
over the services provided under this Agreement.
15. Except as otherwise provided herein, the remedies provided for in
this Agreement are in addition to any other remedies available at law or in
equity, by statute or otherwise.
16. Should it be necessary for either party to this Agreement to
retain the services of an attorney to enforce its rights under this AgreemenL
and should any suite be necessary to enforce said rights, then the prevailing
party shall be entitled to receive reasonable attomey's fees from the other
party.
17. This Agreement shall be governed by the laws of the State of
Texas, with venue at San Antonio, Texas.
18. This Agreement shall be binding upon and inure to the benefit of
USLD and Customer and theirrespective successors and assigns. USLD retains the
right to assign all or part of this Agreement. This Agreement may not be
assigned by Customer without the prior written consent of USLD. USLD reserves
the right to obtain necessary credit information or require additional security
deposits from successors and assigns.
19. This Agreement, including the exhibits hereto and the documents
and instnunents referred to therein, embodies the entire agreement and
understanding of the parties hereto in respect of the subject matter contained
herein. There are no restrictions, promises, representations, warranties,
covenants or undemungs, other than those expressly set forth or referred to
herein. This Agreement and any documents and instruments contemplated hereby,
supersedes all prior agreements and understandings between the parties with
respect to such subject matter.
20. This Agreement may be amended, modified or supplemented only by an
instrument in writing executed by the party against which enforcement of the
ainendmenl modification or supplement is sought.
21. This Agreement may be executed in two (2) or more counterparts,
each of which shall be deemed an original. It shall not be necessary in making
proof of this Agreement to produce or account for more than one (1) of such
counterparts.
U.S. LONG DISTANCE, INC. AMERICAN TELESOURCE INTERNATIONAL
9311 SAN PEDRO, STE. #300 12500 NETWORK BLVD., SUITE 407
SAN ANTONIO, TX 78216 SAN ANTONIO, TX 78249
BY:[SIGNATURE ILLEGIBLE] BY: /s/ Everett Waller
---------------------------- ----------------------------------------
NAME: [SIGNATURE ILLEGIBLE] NAME: /s/ EVERETT WALLER
------------------------- --------------------------------------
TITLE: V.P. Sales TITLE: V.P. OPERATIONS
------------------------ -------------------------------------
DATE: [DATE ILLEGIBLE] DATE: 9/22/94
------------------------- --------------------------------------
U.S. BILLING, INC
9311 SAN PEDRO, STE. #300 (If Applicable)
SAN ANTONIO, TX
BY: [SIGNATURE ILLEGIBLE] NAME:
---------------------------- ______________________________________
TITLE: [SIGNATURE ILLEGIBLE] DATE:
------------------------- ______________________________________
<PAGE>
[LOGO OF U.S. LONG DISTANCE
APPEARS HERE] SWITCHLESS
Outbound I+ & Inbound 800 Rates
================================================================================
================================================================================
<TABLE>
<CAPTION>
ON-NET STATES Rate Code 01 RATE CODE 02
- ------------- ------------ ------------
OUTBOUND 1+ 800 INBOUND
<S> <C> <C> <C> <C>
ARIZONA Interstate $.1050 Interstate $.1100
Intrastate $.1075 Intrastate $.1350
CALIFORNIA Interstate $.1050 Interstate $.1100
Intrastate $.0825 Intrastate $.1075
COLORADO Interstate $.1050 Interstate $.1100
Intrastate $.1075 Intrastate $.1350
IDAHO Interstate $.1050 Interstate $.1100
Intrastate $.1500 Intrastate $.1425
LOUISIANA Interstate $.1050 Interstate $.1100
Intrastate $.1100 Intrastate $.1425
NEW MEXICO Interstate $.1050 Interstate $.1100
Intrastate $.1000 Intrastate $.1425
OKLAHOMA Interstate $.1050 Interstate $.1100
Intrastate $.1000 Intrastate $.1425
OREGON Interstate $.1050 Interstate $.1100
Intrastate $.0950 Intrastate $.1325
TEXAS Interstate $.1050 Interstate $.1100
Intrastate $.1300 Intrastate $.1425
WASHINGTON Interstate $.1050 Interstate $.1100
Intrastate $.1050 Intrastate $.1425
=======================================================================================================
</TABLE>
<TABLE>
<CAPTION>
Rate Code 03 Rate Code 04
------------ ------------
<S> <C> <C> <C> <C>
OFF-NET STATES Interstate $.1350 Interstate $.1850
Intrastate $.1350 Intrastate $.1850
</TABLE>
<TABLE>
<CAPTION>
====================================================================================================================================
MONTHLY VOLUME DISCOUNT:
====================================================================================================================================
MONTHLY VOLUME DISCOUNT MONTHLY VOLUME DISCOUNT
- -------------- -------- -------------- --------
<S> <C> <C> <C>
$0 - $24,999 0% $250,000 - $999,999 4%
$25,000 - $74,999 1% $1,000,000 + 5%
$75,000 - $249,999 3%
</TABLE>
<TABLE>
<CAPTION>
================================================================================
RECURRING FEES:
================================================================================
MONTHLY FEES
------------
<S> <C>
$1,000 per account Waived if monthly usage exceeds $5,000
Set-up $500
</TABLE>
================================================================================
BILLING INCREMENTS:
================================================================================
Rated on a per call basis
Six second minimum per call with three second increments
Billing: Rates include monthly mag tape, floppy disk or file transfer. All
other variations and/or requests priced ICB.
- --------------------------------------------------------------------------------
All rates and fees subject to change without notice. Rates effective as of
October 1, 1994.
================================================================================
CORPORATE OFFICES
9311 San Pedro, Suite 300, San Antonio, Texas 78216
(210) 525-9009 Fax (210) 525-0389
<PAGE>
Exhibit A
SERVICES & ATI REQUIREMENTS
ATI REQUIREMENTS:
. ATI provides its own dedicated DS-1 or DS-3 access into the USLD POP
at the Capital Building in downtown San Antonio
. USLD provides domestic and international services termination
. ATI provides its own customer service and billing
SERVICES:
1. Usage Charges:
USLD Base Carrier Termination Rates (See Attached)
ATI is granted the 1,000,000 minute price for Dedicated Carrier Interstate
and 800 services for the first 90 days. After which time their actual usage
will dictate the price.
2. Minimum Monthly Usage Charge.
Month 1: $10,000
Month 2: $25,000
Month 3-12 $50,000
3. Early Termination:
Minimum Usage Charge multiplied by the number of months remaining on the
contract.
4. Contract Term:
1 year
5. Security Deposit.
Waived. Must pass USLD credit approval process and have a tri-party
agreement with ZPDI and USLD.
US Long Distance, ATI
BY: [SIGNATURE ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
------------------------- --------------------------------
<PAGE>
EXHIBIT A (CONT.)
INTERSTATE TERMINATION RATES
(DALLAS/HOUSTON/SEATTLE/LOS ANGELES GATEWAYS)
<TABLE>
<CAPTION>
MONTHLY
MINUTES OF USAGE ON-NET(*) METROPOLITAN ON-NET OFF-NET
- ---------------- --------- ------------------- -------
<S> <C> <C> <C>
150,000 - 999,999 $0.0550 $0.0600 $0.0640
1,000,000 - Over See LATA Pricing $0.0575 $0.0620
</TABLE>
(*) Note: On-Net except for the following LATAs:Hearne (570) 0.0675-$O.0650, San
Angelo (961) $0.0675-$0.0650, Longview (554) $0.0595-$O.0570, Coeur D'Alene
(960) $0.0675-$O.0650
. Interstate rates applicable to continental U.S.
. On-Net includes Arizona, Colorado, Idaho, Lousiania, New Mexico, Oklahoma,
Oregon, Texas, Washington, (730) Los Angeles, (722) San Francisco.
. Metropolitan On-Net LATA's include:
132 New York 520 St. Louis 340 Detroit
358 Chicago 524 Kansas City 460 Miami
438 Atlanta 732 San Diego 952 Tampa
. Alaska, Hawaii, Puerto Rico, U.S. Virgin Islands: $0.1550
. Directory Assistance Charges: $0.50 per call
. Access: DS-1 or DS-3
. Meet Points: San Antonio, TX - Capital Bank Building
. Billing Increments: Six second minimum per call with six second rounding.
. Monthly Fees: Minimum usage as identified in contract.
. Billing: Mag tape, floppy diskette or LATA termination report.
. Installation: $400 per DS-1
US Long Distance, Inc. ATI
BY:[SIGNATURE ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
--------------------- --------------------------------------
<PAGE>
EXHIBIT A (CONT.)
MEXICO/CANADA TERMINATION RATES
(SWITCHED ACCESS)
MEXICO
<TABLE>
<CAPTION>
Rate Per Minute
(PEAK)
Mileage Band 1 Band 2 Band 3 Band 4 Band 5 Band 6 Band 7 Band 8
- ------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
0- 10 $0.22 $0.26 $0.42 $0.49 $0.66 $0.84 $1.10 $1.16
11- 22 $0.24 $0.29 $0.44 $0.51 $0.68 $0.86 $1.12 $1.18
23- 55 $0.27 $0.31 $0.47 $0.53 $0.71 $0.88 $1.14 $1.21
56-124 $0.29 $0.34 $0.50 $0.56 $0.74 $0.91 $1.17 $1.23
125-292 $0.31 $0.36 $0.52 $0.58 $0.76 $0.93 $1.19 $1.25
293-430 $0.33 $0.38 $0.54 $0.60 $0.78 $0.95 $1.21 $1.28
431-925 $0.36 $0.41 $0.56 $0.63 $0.80 $0.98 $1.24 $1.30
925+ $0.38 $0.43 $0.58 $0.65 $0.82 $1.00 $1.26 $1.32
(OFF-PEAK)
0- 10 $0.16 $0.19 $0.30 $0.35 $0.47 $0.59 $0.79 $0.84
11- 22 $0.18 $0.21 $0.32 $0.37 $0.49 $0.61 $0.81 $0.86
23- 55 $0.19 $0.23 $0.34 $0.39 $0.51 $0.63 $0.83 $0.88
56-124 $0.21 $0.25 $0.36 $0.41 $0.52 $0.65 $0.85 $0.89
125-292 $0.23 $0.27 $0.38 $0.43 $0.54 $0.67 $0.87 $0.91
293-430 $0.25 $0.29 $0.40 $0.45 $0.56 $0.69 $0.89 $0.93
431-925 $0.27 $0.31 $0.42 $0.47 $0.58 $0.71 $0.91 $0.95
925+ $0.29 $0.33 $0.44 $0.49 $0.60 $0.73 $0.92 $0.97
</TABLE>
0 AccesS: FG-D
0 Billing Increments: One minute minimum per call with six second
rounding.
CANADA
BASE RATE: $0.2500 Per Minute
VOLUME DISCOUNTS:
Monthly Usage % Discount
------------- ----------
$0 - $17,000 0%
$17,001 - $51,000 15%
$51,001 - Over 30%
0 Access: FG-D
0 Billing Increments: One minute minimum per call with six second rounding.
US Long Distance ATI
BY: [SIGNATURE ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
------------------------- ----------------------------------
<PAGE>
EXHIBIT A (CONT.)
800 ORIGINATION RATES
(DALLAS/HOUSTON/SEATTLEALOS ANGELES GATEWAYS)
<TABLE>
<CAPTION>
ON-NET (ONLY) OFF-NET
MONTHLY 800 DAL RATE 800 DAL RATE
MINUTES OF USAGE PER MINUTE PER MINUTE
- ---------------- ------------- ------------
<S> <C> <C>
150,000 - 999,999 $0.0650 $0.0840
1,000,000 - 1,499,999 $0.0640 $0.0820
1,500,000 - 2,500,000 $0.0630 $0.0810
2,500,001 - Over $0.0620 $0.0795
</TABLE>
0 Rates applicable to continental U.S.
0 On-Net includes Arizona, California, Colorado, Idaho, Lousiania, New
Mexico, Oklahoma, Oregon, Texas, Washington, Mississippi
0 Access: DS-1 or DS-3
0 Meet Points: San Antonio, TX - Capital Bank Building
0 Billing Increments: Six second minimum per call with six second rounding.
0 Monthly Fees: Minimum usage as identified in contract.
0 Billing: Mag tape, floppy diskette or LATA termination report.
0 Installation: $400 per DS-1
US Long Distance, Inc. ATI
BY: [SIGNATURE ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
--------------------- ----------------------------------------------
<PAGE>
EXHIBIT A (CONT.)
MEXICO/CANADA TERMINATION RATES
(DEDICATED CARRIER)
MEXICO
<TABLE>
<CAPTION>
Rate Per Minute
Peak Off-Peak
---- --------
<S> <C> <C>
Band 1 0.2280 $0.1680
Band 2 0.2760 $0.2040
Band 3 0.4440 $0.3120
Band 4 0.5040 $0.3600
Band 5 0.6960 $0.4800
Band 6 0.8880 $0.6120
Band 7 1.1640 $0.8040
Band 8 1.2240 $0.8520
</TABLE>
0 Access: DS-I or DS-3
0 Meet Points: Available USLD POP
0 Billing Increments: 30 second minimum per call with six second rounding.
CANADA
BASE RATE: $0.1200 Per Minute for Vancouver LATA
$0.1400 Per Minute for the rest of Canada
0 Access: DS-I or DS-3
0 Meet Points: Available USLD POP
0 Billing Increments: 30 second minimum per call with six second rounding.
US Long Distance, Inc. ATI
BY: [SIGNATURE ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
------------------------- ------------------------------------
<PAGE>
U.S. LONG DISTANCE
Dedicated Carrier International Rates
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------
Country Rate Country Rate Country Rate
- ------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Afghanistan $3.49 Cayman Islands $ 0.78 Ghana $0.98
Albania $1.54 Central Afr. Rep. $13.35 Gibralter $1.41
Algeria $1.10 Chad $ 3.15 Greece $0.87
American Sainoa $1.66 Chile $ 0.70 Greenland $0.93
Andorra $0.36 China $ 1.45 Grenada $0.90
Angola $1.76 Christmas & Cocos $ 2.65 Guadeloupe $1.19
Anguilla $0.97 Columbia $ 0.65 Gumn $0.51
Antigua $0.83 Comorros $ 3.05 Guano Bay si.ii
Antarctica $2.84 Congo $ 1.53 Guatenmla $0.68
Barbuda $0.83 Cook Island $ 3.68 Guinea $2.47
Argentina $0.68 Costa Rica $ 0.72 Guinea Bissau$2.17
Aruba $0.95 Cyprus $ 1.14 Guyana $1.37
Ascension $1.35 Czechoslovakia $ 0.83 Haiti $0.83
Austria $0.33 Denmark $ 0.59 Honduras $0.74
Australia $0.55 Diego Garcia $ 2.81 Hong Kong $0.35
Bahamas $0.37 Djibouti $ 1.88 Hungary $0.81
Bahrain $1.04 Dominica $ 1.14 Iceland $0.85
Bangladesh $1.78 Dominican Rep $ 0.58 India $0.96
Barbados $0.80 Equador $ 0.80 Indonesia $1.18
Belgium $0.56 Egypt $ 0.84 Iran $1.81
Belize $1.07 El Salvador $ 0.19 Iraq $1.50
Benin $1.54 Equatorial Guinea $ 2.87 Ireland $0.60
BerTnuda $0.49 Estonia $ 1.35 Israel $0.76
Bhutan $3.60 Ethiopia $ 1.72 Italy $0.64
Bolivia $0.91 Faeroe Islands $ 1.42 Ivory Coast $1.56
Botswana $1.38 Falkland Islands $ 2.80 Jamica $0.82
Brazil $0.68 Fiji $ 1.85 Japan $0.39
British Vi $0.69 Finland $ 0.56 Jordan $0.90
Brunei $2.01 France $ 0.33 Kenya $1.11
Bulgaria $1.00 French Ant $ 1.08 Kiribati $1.81
Burkina Faso $1.93 French Guiana $ 1.25 Korea $0.68
Burundi $3.35 French Poiy $ 2.58 Kuwait $0.96
Cainbodia $1.99 Gabon $ 1.44 Laos $3.30
Cameroon $1.85 Gainbia $ 1.22 Latvia $1.35
Cape Verde $1.70 Germany $ 0.39 Lebanon $0.96
- ------------------------------------------------------------------------
</TABLE>
Access: DS-1 or DS-3
Billing Incr 30 second minimum per call and 6 second rounding thereafter
<PAGE>
U.S. LONG DISTANCE
Dedicated Carrier International Rates
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------
Country Rate Country Rate Country Rate
- ----------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Lesotho $1.43 Palm Island $ .60 Turkey $1.01
Liberia $0.68 Panama $0.65 Turks/Caico $0.88
Libya $1.39 Papua New G $1.78 Tuvalu $3.35
Liechtenstein $0.40 Paraguay $1.30 Uganda $1.44
Lithuania $1.35 Peru $0.74 Union Wand $1.03
Luxembourg $0.57 Phillipines $0.98 United Arab $0.77
Macao $1.86 Poland $0.79 United Kingdom $0.25
Madasgascar $3.25 Portugal $0.75 Uruguay $0.95
Malawi $1.19 Qatar $1.35 Vanuatu $3.40
Malaysia $1.20 Reunion Wand $2.54 Vatican City $0.70
Maldives $2.96 Romania $1.52 Venezuela $0.52
Mali Republic $2.45 Russia & Cis $1.29 Vietnam $2.03
Malta $1.38 Rwanda $2.43 Wallis & Fuhm $3.04
Marshall Isl $1.80 Saipan $1.02 Westcm Sainoa $1.62
Mauritania $2.15 San Marino $0.73 Yemen $1.00
Mauritius $2.30 Sao Tome $1.91 Yugoslavia $1.01
Mayotte Isi $2.92 Saudia Arabia $1.03 Zaim $1.04
Micronesia $1.72 Senegal $1.56 Zainbia $1.54
Monaco $0.45 Seychelles $2.81 Zimbabwe $1.46
Mongolia $3.49 Sierra Leone $3.20 -----------------------
Montserrat $1.14 Singapore $0.39
Morrocco $1.23 Solomon Isi $1.81 -----------------------
Mozainbique $1.53 South Africa $0.79 InMarsals Rate
Mustiquc $1.20 Spain $0.62 -----------------------
Myanmar $3.75 Sri Lanka $1.45 AtL-wtic $8.75
Namibia $1.23 St. Helena $2.74 Indian $9.00
Nauru $1.79 St Kitts $1.14 Pacific $8.75
Nepal $2.12 St Lucia $0.82 -----------------------
Neterhlands $0.38 St Pierre $0.76
Neth Antilles $0.40 St Vincent $0.83
Nevis $1.21 Suriname $1.59
New Caledoma $2.40 Swaziland $1.36
New Zealand $0.62 Sweden $0.33
Nicamgua $0.92 Switzerland $0.36
Niger $2.03 Syria $2.00
Nigeria $0.76 Taiwan $0.57
Niue Island $3.80 Tanzania $1.52
Norfolk Island $3.80 Tbailand $0.92
Norway $0.52 Togo $1.60
Oman $2.00 Tongo $2.26
Pakistan $1.45 Trinidad/-rob $1.03
Palua $2.54 Tunisia $1.36
- ---------------------------------------------
</TABLE>
<PAGE>
Exhibit A (Cont.)
LETTER OF AGENCY
I, the undersigned Customer, authorize, AMERICAN TELESOURCE @RNATIONAL (the
"Carrier') to provide my long distance service and to act as my agent in all
matters related to providing my long distance service for the telephone
number(s) listed on this form. I understand that, I may only subscribe to one
long distance carrier for outbound services for the listed telephone number(s),
AMERICAN TELESOURCE INTERNATIONAL's name may appear on my local telephone
company bill at the time my service begins, hter may be a charge from my local
telephone company for subscribing my long distance service to Carrier, there may
be a charge from my local telephone company should I decide to change my long
distance carrier after my service begins, and I may be serviced and billed
directly by AMERICAN TELESOURCE DMRNATIONAL with respect to my long distance
service.
This Letter of Agency shall remain in effect until Customer signs a new Letter
of Agency.
Telephone Numbers ___________________________
___________________________
___________________________
__________________________________ Customer's billing address and telephone
#:
(PRINT CUSTOMER'S NAME) ________________________________________
________________________________________
________________________________________
US Long Distance, Inc. AMERICAN TELESOURCE INTERNATIONAL
BY:[SIGNATURER ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
-------------------------- ----------------------------------------
<PAGE>
MCP
11/08/94 PAGE: 1
3:17PM
MEXICO DESTINATIONS WITH
BPRDER CROSSING POINTS AND
RATE BAND
<TABLE>
<CAPTION>
BORDER
NPA-NXX CITY, STATE VNH-COORDINATES RATE BAND BORDER CITY
- ------- ----------- ------------------- ----------- -------------
<S> <C> <C> <C> <C>
521-210 TAMPICO TA MX V: 09683 H: 04098 0816 LAREDO, TX
521-310 CDVICTO TA MX V: 09683 H: 04098 0815 LAREDO, TX
521-400 CHIHUNU CH MX V: 09232 H: 05655 0814 EL PASO, TX
521-611 CDJUARE CH MX V: 09232 H: 05655 0811 EL PASO, TX
521-712 TORREON CO MX V: 09683 H: 04098 0815 LAREDO, TX
521-811 DURANGO DU MX V: 09683 H: 04098 0816 LAREDO, TX
522-232 PUEBLA PU MX V: 09683 H: 04098 0817 LAREDO, TX
522-299 VERACRZ VE MX V: 09683 H: 04098 0817 LAREDO, TX
522-382 TEHUCAN PU MX V: 09683 H: 04098 0817 LAREDO, TX
522-814 JALAPA VE MX V: 09683 H: 04098 0817 LAREDO, TX
522-972 SOLEDAD VE MX V: 09683 H: 04098 0817 LAREDO, TX
523-222 PURTVRT JA MX V: 09683 H: 04098 0817 LAREDO, TX
523-332 MANZANL CO MX V: 09683 H: 04098 0817 LAREDO, TX
523-656 GUADAJR JA MX V: 09683 H: 04098 0817 LAREDO, TX
524-639 QUERETR QU MX V: 09683 H: 04098 0816 LAREDO, TX
524-712 LEON GU MX V: 09683 H: 04098 0816 LAREDO, TX
524-732 GUANAJT GU MX V: 09683 H: 04098 0816 LAREDO, TX
524-810 SNLSPTS SA MX V: 09683 H: 04098 0816 LAREDO, TX
524-914 AGULNTS AG MX V: 09683 H: 04098 0816 LAREDO, TX
524-922 ZACATCS ZA MX V: 09683 H: 04098 0816 LAREDO, TX
525-707 MEXICCY FE MX V: 09683 H: 04098 0817 LAREDO, TX
526-212 HERMOSL SO MX V: 09532 H: 06436 0814 NO GALES, AZ
526-623 TIJUANA LO MX V: 09502 H: 07603 0811 LA MESA, CA
526-713 CULICAN SI MX V: 09532 H: 06436 0816 NO GALES, AZ
526-781 MAZATIN SI MX V: 09532 H: 06436 0817 NO GALES, AZ
526-815 LOSMCHS SI MX V: 09532 H: 06436 0816 NO GALES, AZ
526-822 LA PAZ SO MX V: 09532 H: 06436 0816 NO GALES, AZ
527-212 TOLUCA MO MX V: 09683 H: 04098 0817 LAREDO, TX
527-313 CUERNAC MO MX V: 09683 H: 04098 0817 LAREDO, TX
527-322 CUERNAC MO MX V: 09683 H: 04098 0817 LAREDO, TX
527-480 ACAPLCO GU MX V: 09683 H: 04098 0818 LAREDO, TX
527-712 PACHUCA HI MX V: 09683 H: 04098 0817 LAREDO, TX
528-286 HIDALGO NU MX V: 09683 H: 04098 0813 LAREDO, TX
528-300 MONTERY NU MX V: 09683 H: 04098 0814 LAREDO, TX
528-410 SALTILL CO MX V: 09683 H: 04098 0814 LAREDO, TX
528-712 NUEVLRD TA MX V: 09683 H: 04098 0811 LAREDO, TX
528-910 MATAMRS TA MX V: 09865 H: 03606 0811 BROWNSVILLE, TX
528-922 REYNOSA TA MX V: 09879 H: 03764 0811 MISSION, TX
529-312 VILARMS TA MX V: 09683 H: 04098 0818 LAREDO, TX
529-515 OAXACA OA MX V: 09683 H: 04098 0818 LAREDO, TX
529-816 CAMPECH CA MX V: 09683 H: 04098 0818 LAREDO, TX
529-872 COZUMEL QU MX V: 09683 H: 04098 0818 LAREDO, TX
529-883 CANCUN QU MX V: 09683 H: 04098 0818 LAREDO, TX
529-921 HERIDA YU MX V: 09683 H: 04098 0818 LAREDO, TX
</TABLE>
<PAGE>
EXHIBIT 10.14
LEASE AGREEMENT
UNIVERSITY BUSINESS PARK
STATE OF TEXAS
COUNTY OF BEXAR
This Lease Agreement (the "Lease"), made and entered into by and between
UBP PARTNERS LIMITED, a Texas partnership (hereinafter referred to as
"Landlord") and LatinAmerica Telecomm, Inc. a Corporation hereinafter
----------------------------------------------------
referred to as "Tenant");
W I T N E S S E T H:
- - - - - - - - - -
1. Definitions. For the purpose of this Lease, the following terms
-----------
shall have the meanings hereinafter specified:
(a) Landlord: UBP PARTNERS LIMITED
--------
(b) Tenant: Latin America Telecomm, a Corporation
------ -------------------------------------------------
(c) Project: UNIVERSITY BUSINESS PARK
------- --------------------------
(d) Premises: Approximately 4,000 square feet situated within a
-------- ------
building comprising a part of the Project, such Premises being the area
indicated on the site plan attached hereto as Exhibit "A-2", and also known
as Suite 407. The gross leasable area of the Premises is hereby stipulated
----
for all purposes to be 4,000 square feet. The Premises represent .044
------ ----
percent of the area of the Project which shall be Tenant's Proportionate
Share.
(e) Term: Subject to and upon the conditions set forth herein, the
----
Term of this Lease shall commence on May 1 1994 and shall terminate sixty
------, -- -----
(60) months thereafter on April 30 , 1999
----- ---------- -
(f) Base Rent: Subject to the provisions of the Notice of Completion
---------
and Rental Payment Schedule to be attached hereto as Exhibit "F", Base Rent
shall be payable to Landlord according to the following schedule:
<TABLE>
<CAPTION>
Month Rental Amount Annual Rental Rent PSF
----- ------------- ------------- --------
<S> <C> <C> <C>
1-24 $1,400.00 $16,800.00 $4.20
25-48 $2,000.00 $24,000.00 $6.00
49-60 $2,333.34 $28,000.00 $7.00
</TABLE>
Total rent due during Lease Term: $109,600.00
(g) Security Deposit is $ O .
----------------- ---
(h) Purpose of Tenancy: Offices for telecommunication operation.
------------------- --------------------------------------------
(i) Common Areas: All parking areas, sidewalks, driveways,
------------
landscaped areas and other common facilities described in Paragraph 19 of
this Lease Agreement and such other areas and facilities within the
Project that the Landlord shall from time to time designate as being for
the mutual use of the Tenants of the Project.
(j) Common Expenses: Those expenses incurred by Landlord in operating
---------------
the Project which are more particularly described in Paragraph 4 of this
Lease Agreement
(k) Rent: The sum of Base Rent plus Tenant's Proportionate Share of
----
Common Expenses as described in paragraph 4 of this lease.
(l) Initial Common Area Charge: $106.00(.04 psf).
-------------------------- ----------------
2. Premises and Term. In consideration of the obligation of Tenant to pay
-----------------
Rent as herein provided,
1
<PAGE>
and in consideration of the other terms, provisions and covenants hereof,
Landlord hereby demises and leases to Tenant and Tenant hereby takes from
Landlord the Premises, and to HAVE AND TO HOLD the same for the Term specified
in Section 1.(e), commencing on the Commencement Date herein specified. TENANT
ACKNOWLEDGES THAT IT HAS INSPECTED THE PREMISES AND ACCEPTS THE PREMISES IN
THEIR PRESENT CONDITION AS SUITABLE FOR THE PURPOSE FOR WHICH THE PREMISES ARE
LEASED; AND FURTHER ACKNOWLEDGES, THAT NO REPRESENTATIONS AS TO THE REPAIR OF
THE PREMISES NOR PROMISES TO ALTER, REMODEL OR IMPROVE THE PREMISES HAVE BEEN
MADE BY LANDLORD EXCEPT AS SET OUT IN SECTION 12 OF THIS LEASE. If this Lease is
executed before the Premises become vacant or otherwise available and ready for
occupancy by Tenant, including the Landlord's completion of the Tenant finish
out required under Section 12 of this Lease, or if any present tenant or
occupant of the Premises holds over and Landlord cannot acquire and deliver to
Tenant possession of the Premises prior to the date above recited as the
Commencement Date of this lease, Landlord shall not be deemed to be in default
hereunder or responsible for any claims, damages or liabilities in connection
therewith, or by reason thereof. Tenant agrees to accept possession of the
Premises at such time as Landlord is able to tender the same to Tenant, in which
event, the date of tender of the Premises by the Landlord to Tenant shall be the
Commencement Date unless the delay in tender is due to Tenant's actions, in
which event the Commencement Date shall not be altered; and Landlord hereby
waives payment of Rent covering any period prior to the tendering of possession
to Tenant hereunder. Tenant's failure to occupy the Premises when tendered by
Landlord upon completion of the Landlord's improvements shall not delay the
Commencement Date.
3. Base Rent: Tenant agrees to pay monthly as Base Rent during the term
---------
of this Lease the sum of money set forth in Section 1.(f) of this Lease, which
amount shall be payable to Landlord at the address shown in section 30. The
initial monthly installment of Base Rent shall be due and payable upon the
execution of this Lease and future monthly installments shall be due and payable
on or before the first day of each calendar month succeeding the Rental
Commencement Date during the term of this Lease; provided, if the Commencement
Date should be a date other than the first day of a calendar month, the monthly
rental set forth above shall be prorated to the end of that calendar month, and
all succeeding installments of Rent shall be payable on or before the first day
of each succeeding calendar month during the term of this Lease. Tenant shall
pay, as additional rent, all other sums due under this Lease. Unless otherwise
specifically allowed by the hereinafter enumerated terms of this Lease, the
Tenant shall pay the Rent and other sums payable hereunder without notice or
demand and without regard to any counterclaim, right or set off, deduction or
defense Tenant may have against Landlord, and without abatement, suspension,
deferment, diminution or reduction; and, the obligations of Tenant hereunder
shall not be in any way affected or reduced by any restriction, prevention or
curtailment of or interference with any use of the Project, Premises, or any
part thereof for any reason whatsoever.
4. Common Expenses. "Common Expenses," as used herein, shall consist of
----------------
certain operating expenses of the Project, and shall consist of expenditures by
Landlord to keep and maintain all facilities in operation at the beginning of
the Term of the Lease and such additional facilities in subsequent years as may
be determined by Landlord to be necessary or beneficial for the operation of the
Project. All operating expenses shall be determined in accordance with generally
accepted cash or accrual (at Landlord's option) accounting principles which
shall be consistently applied. The Term "Common Expenses," as used herein, shall
mean all expenses, costs, and disbursements (but not the cost of capital
improvements originally installed in the Project by Landlord, nor specific costs
especially billed to and paid by specific tenants) of every kind and nature
which Landlord shall pay or become obligated to pay because of or in connection
with the ownership and operation of the Project, including, but not limited to,
the following:
(a) Cost of all utilities for the Project not separately metered to
the tenants.
(b) Cost of providing those Landlord services to the Project
prescribed in Paragraph 18 hereof.
(c) Lighting, planting, cleaning, policing, inspecting, landscaping
and repairing the Common Areas.
(d) Pest control expenditures attributable to the Project.
(e) Except as otherwise provided in this Lease, cost of repairs
(structural and nonstructural) and general maintenance of the Project
(excluding repairs and general maintenance paid by proceeds of insurance or
by Tenant or other third parties, and alterations attributable solely to
other tenants of the Project).
(f) Heating, ventilation and air conditioning maintenance contract.
(g) A reasonable management fee for managing the Project.
Such common expenses shall not include taxes and insurance. Prior to
January 1 of each calendar year or at any tine during Tenant's occupancy,
Landlord reserves the right to provide an estimate of Common Expenses for the
forthcoming calendar year, whereupon, upon receipt of Notice by Landlord, Tenant
shall pay an amount equal to the product of Tenant's Proportionate Share
multiplied by Landlord's estimate of Common
2
<PAGE>
Expenses for the forthcoming calendar year.
By June 1 of each calendar year during Tenant's occupancy, or as soon
thereafter as possible, or upon initial occupancy of the Premises by Tenant, for
the remainder of the calendar year in which Tenant first occupies the Premises.
Landlord shall furnish to Tenant a statement of Landlord's actual Common
Expenses for the previous calendar year. A lump sum payment or credit (which
payment or credit shall be deemed a payment of or credit against the Rent
payable hereunder for all purposes) will be made from Tenant to Landlord in the
case of a payment, and from Landlord to Tenant, in the case of a credit, within
thirty (30) days of the delivery of such statement, equal to the difference
between the product of Tenant's Proportionate Share times Landlord's actual
Common Expenses for the previous calendar year minus the amount already paid by
Tenant pursuant to the immediately preceding paragraph. The effect of this
reconciliation payment is that Tenant will pay during the Term of this Lease,
its Proportionate Share of Common Expenses.
5. Security Deposit. The Security Deposit set forth in 1.(g) above
----------------
shall be held by Landlord for the performance of Tenant's covenants and
obligations under this Lease, it being expressly understood that the deposit
shall not be considered an advance payment of rental or a measure of Landlord's
damage in case of default by Tenant. Upon the occurrence of any event of default
by Tenant or breach by Tenant of Tenant's covenants under this Lease, Landlord
may, from time to time, without prejudice to any other remedy, use the Security
Deposit to the extent necessary to make good any arrears of rent, or to repair
any damage or injury, or pay any expense or liability incurred by Landlord as a
result of the event of default or breach of covenant, and any remaining balance
of the Security Deposit shall be returned by Landlord to Tenant upon termination
of this Lease. If any portion of the Security Deposit is so used or applied,
Tenant shall upon ten days written notice from Landlord, deposit with Landlord
by cash or cashier's check an amount sufficient to restore the Security Deposit
to its original amount.
6. Holding Over. In the event that Tenant does not vacate the Premises
------------
upon the expiration or termination of this Lease, Tenant shall be a tenant at
will for the holdover period and all of the terms and provisions of this Lease
shall be applicable during that period, except that Tenant shall pay Landlord as
Base Rent for the period of such holdover an amount equal to two times the Rent
which would have been payable by Tenant had the holdover period been a part of
the original term of this Lease. Tenant agrees to vacate and deliver the
Premises to Landlord upon Tenant's receipt of notice from Landlord to vacate.
The Rent payable during the holdover period shall be payable to Landlord on
demand. No holding over by Tenant, whether with or without the consent of
Landlord, shall operate to extend the term of this Lease.
7. Use. Tenant warrants and represents to Landlord that the Premises
---
shall be used and occupied only for the purpose as set forth in Section 1.(h).
Tenant shall occupy the Premises, conduct its business and control its agents,
employees, invitees and visitors in such a manner as is lawful, reputable and
will not create a nuisance. Tenant shall not permit any operation which emits
any odor or matter which intrudes into other portions of the Project, use any
apparatus or machine which makes undue noise or causes vibration in any portion
of the Project or otherwise interfere with, annoy or disturb any other lessee in
its normal business operations or Landlord in its management of the Project.
Tenant shall neither permit any waste on the Premises nor allow the Premises to
be used in any way which would, in the opinion of Landlord, be extra hazardous
on account of fire or which would in any way increase or render void the fire
insurance on the Project. If at any time during the term of this Lease the State
Board of Insurance or other insurance authority or imposes an additional penalty
or surcharge in Landlord's insurance premiums because of Tenant's original or
subsequent placement or use of storage racks or bins, method of storage or
nature of Tenant's inventory or any other act of Tenant, Tenant agrees to pay as
additional rent the increase in Landlord's insurance premiums.
8. Signs. No sign of any type or description shall be erected, placed or
-----
painted in or about the Premises or project except those signs submitted to
Landlord in writing and approved by Landlord in writing, and which signs are in
conformance with Landlord's sign criteria established for the project. Tenant
shall remove such signs at the termination of this Lease without defacing the
building.
9. Compliance with Laws, Rules and Regulations. Tenant, at Tenant's sole
-------------------------------------------
cost and expense, shall comply with all laws, ordinances, orders, rules and
regulations of state, federal, municipal or other agencies or bodies having
jurisdiction over use, condition and occupancy of the Premises. Tenant will
comply with the Rules and Regulations of the project adopted by Landlord which
are set forth on a Exhibit D attached to this Lease. Landlord shall have the
right at all times to change and amend the Rules and Regulations in any
reasonable manner as may be deemed advisable for the safety, care, cleanliness,
preservation of good order and operation or use of the Project or the Premises.
All changes and amendments to the Rules and Regulations of the Project will be
sent by Landlord to Tenant in writing and shall thereafter be carried out and
observed by Tenant. In addition to the foregoing, Landlord shall bare the
continuing obligation during the Lease Term to ensure that the Premises and the
Project are at all times in compliance with all laws, regulations and
ordinances including the provisions of the Americans with Disabilities Act.
3
<PAGE>
10. Warranty of Possession. Landlord warrants that it has the right and
----------------------
authority to execute this Lease, and Tenant, upon payment of the required rents
and subject to the terms, conditions, covenants and agreements contained in this
Lease, shall have possession of the Premises during the full term of this Lease
as well as any extension or renewal thereof. Landlord shall not be responsible
for the acts or omissions of any other lessee or third party that may interfere
with Tenant's use and enjoyment of the Premises.
11. Inspection. Landlord or its authorized agents shall at any and all
----------
reasonable times have the right to enter the Premises to inspect the same, to
supply janitorial service or any other service to be provided by Landlord, to
show the Premises to prospective purchasers or lessees, and to alter, improve or
repair the Premises or any other portion of the Project. Tenant hereby waives
any claim for damages for injury or inconvenience to or interference with
Tenant's business, any loss of occupancy or use of the Premises, and any other
loss occasioned thereby. Landlord shall at all times have and retain a key with
which to unlock all of the doors in, upon and about the Premises. Tenant shall
not change Landlord's lock system or in any other manner prohibit Landlord from
entering the Premises, except as may be provided in this Lease or Landlord's
written Rules and Regulations. Landlord shall have the right to use any and all
means which Landlord may deem proper to open any door in an emergency without
liability therefore. Notwithstanding the above, Tenant may secure the storage
and computer room within the Demised Premises.
12. Landlord's Improvements. Landlord shall construct the finish-out
-----------------------
work (hereinafter "Tenants Improvements") pursuant to the Final Working
Drawings, now or to be hereafter attached as Exhibit "C" pursuant to the terms
and conditions of Landlord's Workletter attached as Exhibit "B".
In the event of any delay in the completion of Tenant's Improvements
caused by Tenant, Landlord shall not be liable for any damage caused thereby. In
the event Tenant takes occupancy prior to the completion of Landlord's
Improvements, Tenant shall provide uninterrupted access to the Premises to
Landlord, its employees, agents, representatives and governmental inspectors at
all reasonable times.
Upon Landlord and Tenant's approval in writing of the final plans and
specifications of Tenant's Improvements, including the improvements described in
Exhibit "C", Landlord shall promptly commence work on such improvements and
shall thereafter diligently pursue the completion thereof. The time period for
completion of the Tenant's Improvements shall be extended by any changes in the
work requested by Tenant, any delays beyond Landlord's reasonable control in
securing materials for the improvements, or permits from governmental
authorities having jurisdiction over Landlord's work, and any delays caused by
Tenant or Tenant's contractors. Tenant shall coordinate its work schedule for
improvements being constructed by Tenant and Tenant's "move in" activities with
the Landlord so as not to unreasonably interfere with the completion of the
Tenant's Improvements.
13. Utilities and Services.
----------------------
(a) Utility Services. Landlord shall provide or cause to be provided
----------------
the mains, conduits and other facilities necessary to supply water, gas,
electricity, telephone service and sewage service to the Leased Premises.
Tenant shall, however, be responsible, at its expense, to make provisions
for connecting or hooking up to such utilities, directly with the
appropriate utility company furnishing same.
(b) Responsibility for Charges. Landlord, subject to Section C,
--------------------------
below, shall bear the cost of water sewage services provided to the Leased
Premises. Tenant shall promptly pay all charges and deposits for
electricity, gas, and telephone service and all other utilities (except for
water and sewage) furnished to the Leased Premises. Landlord may, if it so
elects, furnish one or more utility services to Tenant, and in such event,
Tenant shall purchase the use of such services as are tendered by Landlord,
and shall pay on demand the rates established therefor by Landlord which
shall not exceed the rates which would be charged for the same services if
furnished to Tenant directly by the local public utility furnishing the
same to the public at large. Landlord may at any time discontinue
furnishing any such service without obligation to Tenant other than to
connect the Leased Premises to the public utility, if any, furnishing such
service.
(c) Landlord's Services. Landlord shall provide routine maintenance,
-------------------
painting and electric lighting service for all Common Areas and special
service areas of the Property in the manner and to the extent deemed by
Landlord to be standard. Landlord may, in its sole discretion, provide
additional services not enumerated herein.
(d) Excessive Utility Consumption. Tenant shall pay all water and
-----------------------------
sewage costs occasioned by high consumption for such services, as
determined by Landlord, including (without limitation) the cost of
installing, servicing and maintaining any special or additional inside or
outside lines, meters or submeters, or the cost of any other equipment
necessary to increase the amount or type of water and sewage services
available to the Leased Premises.
(e) Window Coverings. Landlord may (but shall not be obligated to)
----------------
furnish and install window coverings on all exterior windows to maintain a
uniform exterior appearance. Tenant shall not
4
<PAGE>
remove or replace these window coverings or install any other window
covering which would affect the exterior appearance of the Building. Tenant
may install lined or unlined over draperies on the interior sides of the
Landlord furnished window coverings for interior appearance or to reduce
light transmission, provided such over draperies do not (in Landlord's
determination) affect the exterior appearance of the Building or affect the
operation of the Building's heating, ventilating and air conditioning
systems.
(f) No Liability. Landlord shall not be liable for any interruption
------------
whatsoever in utility service not furnished by it, nor for interruptions in
utility service furnished by it which are due to fire, accident, strikes,
acts of God, riot, civil commotion, terrorist act, national emergency,
shortages of labor or materials, or other causes beyond the control of
Landlord or in order to make alterations, repairs or improvements.
Moreover, Landlord shall not be liable for any interruption of such utility
services which continues during any reasonable period necessary to restore
such service upon the occurrence of any of the foregoing conditions.
Failure by Landlord to any extent to provide any service of Landlord
specified herein or any other services not specified, or any cessation
thereof, shall not render Landlord liable in any respect for damages to
either person or property, be construed as an eviction of Tenant, work an
abatement of rent or relieve Tenant form fulfillment of any covenant in
this Lease. If any of the equipment or machinery necessary or useful for
provision of any utility services, and for which Landlord is responsible,
breaks down, or for any cause ceased to function properly, Landlord shall
use reasonable diligence to repair the same promptly, but Tenant shall have
no claim for rebate of rent or damages on account of any interruption in
service occasioned from the repairs. Notwithstanding the above, if
electrical service is disrupted for a continuous period of at least five
(5) full days because of Landlord's negligence, Tenant may provide Landlord
with written notice of such fact, afterwhich Landlord shall have forty-
eight (48) hours to restore service to the Premises. In the event
electrical service is not restored within said fortyeight (48) hour
period, Tenant, at Tenant's sole option, may terminate this Lease.
(g) Theft or Burglary. Landlord shall not be liable to Tenant for
-----------------
losses to Tenant's property or personal injury caused by criminal acts or
entry by unauthorized persons into the Leased Premises or the Property.
14. Taxes.
-----
(a) The maximum amount of taxes levied or assessed against the real
property of which the Premises are a part during any one real estate tax
year to be paid by Landlord shall be a total of the actual calendar year
1994 real estate tax expense for the Project. If, in any real estate tax
year during the term hereof or any renewal or extension of this Lease, the
ad valorem taxes levied or assessed against the Premises for such tax year
shall exceed such specified sum, Tenant shall pay to Landlord upon demand
within thirty (30) days the amount for such excess. In the event the
Premises constitute a portion of a multiple occupancy building, Tenant
agrees to pay to Landlord upon demand the amount of Tenant's proportionate
share of such excess (with respect to taxes lawfully levied or assessed
against the building and grounds, parking areas, driveways, and alleys
around the said building), such share to be calculated by Landlord as .044
----
(b) Tenant shall pay before delinquent all taxes, assessments, and
other charges that are levied against Tenant's personal property installed
or located in or on the Premises that become due and payable during the
Term hereof.
15. Landlord's Repairs. Landlord shall, at its expense, keep and
------------------
maintain the roof, foundation, and the structural soundness of the exterior
walls of the building in good repair, reasonable wear and tear excepted.
Landlord expressly reserves the right to use all exterior walls and the roof of
the building of which the Premises are a part. Tenant shall repair and pay for
any damage caused by the negligence of Tenant, or Tenant's employees, agents or
invitees, or caused by Tenant's default hereunder. The term "walls," as used
herein, shall not include windows, glass and plate glass, stairways, doors or
special storefronts. Tenant shall immediately give Landlord written notice of
defect or need for repairs, after which Landlord shall have a reasonable
opportunity to repair same or cure such defect. Landlord's liability hereunder
shall be limited to the cost of such repairs or curing such defect. Landlord
shall not be liable for damage to Tenant's Improvements, inventory and equipment
within the Premises. In the event the Premises have air conditioning and heating
systems, or fire sprinkler systems installed therein on the date of this Lease,
then Landlord represents that on the Commencement Date of this Lease, such air
conditioning and heating systems and sprinkler systems shall be in good
operating condition; provided, however, that during the Term of this Lease,
Tenant shall, at its own cost and expenses, maintain such systems in good
operating condition, shall make all necessary repairs and replacements, and upon
termination of this Lease, shall deliver such system to Landlord in good
operating condition.
16. Tenant's Repairs. Tenant shall, at its own cost and expense, keep and
----------------
maintain (including periodic cleaning and preventative maintenance) all other
parts of the Premises in good repair and condition, including, but not limited
to, windows, glass and plate glass, doors, any special storefront, interior
walls and finish work, stairways, floors and floor covering, downspouts and
gutters, dock boards, plumbing work and fixtures, all lighting and all
electrical systems and the HVAC systems within the Premises and shall take good
care of the Premises and
5
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its fixtures; and Tenant shall not permit the Premises to suffer waste. Tenant
shall further be responsible for all damages to the exterior and other portions
of the building of which the Premises are a part, which are caused by Tenant,
Tenant's employees, invitees and guests. Landlord shall make available to Tenant
any and all warranties and guaranties of construction and materials of the
improvements on the Premises and the building in which the same are situated,
and the equipment situated therein. Tenant shall not be obligated to repair any
damage caused by fire, tornado or other casualty covered by items set forth
under the extended coverage provisions of Landlord's fire insurance policy.
Tenant shall not be permitted to dump or drain any garbage, waste water, refuse,
liquids or any other materials directly onto the parking lot surface surrounding
the building in which the Premises are situated or anywhere in the Project
without the prior written consent of Landlord. Tenant shall also be responsible
for any damage to the parking lot caused by front-end loaders or other vehicles
and equipment utilized in connection with Tenant's use of the Premises. If
Tenant fails to make the repairs or replacements promptly as required herein,
Landlord may, at its option, make the repairs and replacements and the
reasonable cost of such repairs and replacements shall be charged to Tenant as
additional rent and shall become due and payable by Tenant within ten (10) days
from receipt of Landlord's invoice. Costs incurred under this paragraph are the
total responsibility of Tenant and do not constitute common expenses under
Paragraph 4.
17. Alterations. Tenant shall not make any alterations, additions or
-----------
improvements to the Premises without the prior written consent of Landlord.
Tenant may, without the consent of Landlord, but at its own cost and expense and
in a good and workmanlike manner, make such minor alterations, additions or
improvements, or erect, remove or alter such partitions, or erect such shelves,
bins, machinery and trade fixtures as Tenant may deem advisable without altering
the basic character of the building or improvements and without overloading or
damaging such building or improvements; and, in each case, complying with all
applicable governmental laws, ordinances, regulations, and other requirements.
At the termination of this Lease, Tenant shall, if Landlord so elects, remove
all alterations, additions, improvements and partitions erected by Tenant and
restore the Premises to their original condition; otherwise, such improvements
shall be delivered up to the Landlord with the Premises. All shelves, bins,
machinery and trade fixtures installed by Tenant may be removed by Tenant at the
termination of this Lease if Tenant so elects, and shall be removed if required
by Landlord. All such removals and restoration shall be accomplished in a good
workmanlike manner so as not to damage the primary structure or structural
qualities of the buildings and other improvements situated on the Premises. All
roof penetrations and roof alterations of any kind which are approved by
Landlord, shall be performed by the Landlord's roofing contractor at Tenant's
sole cost and expense.
Prior to making any alterations or repairs to the Premises which will
involve the alteration or removal of plumbing, electrical wiring, air
conditioning, heating or ventilation systems, or the fire sprinkler system,
Tenant shall furnish Landlord with a set of the plans and specifications for the
alterations or repairs and shall not commence any such work without Landlord's
express written approval.
18. Services by the Landlord. Landlord shall furnish the Tenant, while
------------------------
occupying the Premises, cold water at those points of supply provided for the
general use of the tenants in the building, exterior security lights (as
determined necessary by Landlord) and exterior janitorial service for the
building so that the parking lot, sidewalks, exterior sides of exterior glass,
and landscaping of the Project are maintained in a clean, neat and orderly
fashion. Tenant shall be responsible for all interior janitorial services and
for placing trash in the exterior dumpsters or other trash receptacles serving
the Project in accordance with reasonable rules and regulations promulgated from
time to time by Landlord.
Landlord, at Landlord's option, may provide general area security or
guard services from time to time for the Project, in which event, the cost of
such service attributable to the Project shall be considered a Common Expense.
Tenant, at its sole cost and expense, shall provide whatever security or alarm
services or systems which Tenant deems necessary and/or appropriate for the
protection of the Premises and contents thereof. In no event shall the Landlord
be responsible for loss or damage to any of the Tenant's property, including all
furniture, fixtures, equipment and inventory, even if Landlord has provided
security service. Tenant may, with Landlord's prior written approval, re-key the
Premises' locks as deemed necessary by Tenant from time to time, provided Tenant
uses the locksmith specified by Landlord and complies with all of Landlord's
Rules and Regulations concerning keys and locks.
19. Common Areas. All parking areas, sidewalks, driveways, landscaped
------------
areas (inclusive of sprinkler systems), and other common areas located on the
real property on which the Project is located, and such other areas and
facilities that the Landlord shall from time to time designate as being for the
mutual use of itself and the Tenant, their customers and employees, shall be
known as the "Common Areas." Tenant, its employees, customers and invitees shall
have the nonexclusive right to use the Common Areas, together with the Landlord
and the other Tenants of the building, their customers, employees and guests,
and subject to such rules and regulations governing the use of the Common Areas
as the Landlord may from time to time prescribe, such rules specifically
including, but not limited to, parking rules. The Tenant shall not solicit any
business within the Common Areas or use the Common Areas for storage without the
prior written consent of the Landlord or take any action which would interfere
with the rights of other persons to use the Common Areas. Landlord may
temporarily close any part of the Common Areas for such period of time as is
necessary to make repairs or alterations to the Common Areas or the improvements
located in the Project of which the Premises are a part.
6
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Tenant shall, at all times during the Term of this Lease, have in
common with the Landlord and all other tenants and guests of the Project, the
nonexclusive use of the parking areas located within the Project; provided,
however, the Landlord shall have the right to designate portions of the parking
areas as reserved for covered parking for specific tenants of the Project.
Landlord may make, modify and enforce rules and regulations relating to the
parking of automobiles, trucks, trailers and other vehicles on the Project, and
the entrances, exits and traffic lanes of parking areas. The Tenant, its
employees, customers and guests, will abide by such rules and regulations.
20. Fire & Casualty Damage.
----------------------
(a) Substantial Destruction - If the Leased Premises should be
-----------------------
totally destroyed by fire or other casualty, or if the Premises, as
determined by Landlord, should be damaged so that rebuilding cannot
reasonably be completed within one hundred twenty (120) working days after
the date of written notification by Tenant to Landlord of the destruction,
this Lease shall terminate and the Rent shall be abated for the unexpired
portion of the Lease, effective as of the date of the written notification.
(b) Partial Destruction - If the Premises should be partially damaged
-------------------
by fire or other casualty, and rebuilding or repairs can reasonably be
completed within one hundred twenty (120) working days from the date of
written notification by Tenant to Landlord of the destruction, this Lease
shall not terminate, and Landlord shall at its sole risk and expense
proceed with reasonable diligence to rebuild or repair the building or
other improvements to substantially the same condition in which they
existed prior to the damage. If the Premises to be rebuilt or repaired are
untenantable in whole or in part following the damage, and the damage or
destruction was not caused or contributed to by act or negligence of
Tenant, its agents, employees, invitees or those for whom Tenant is
responsible, the Rent payable under this Lease during the period for which
the Premises are untenantable shall be adjusted to such an extent as may be
fair and reasonable under the circumstances.
In the event that Landlord fails to complete the necessary repairs or
rebuilding within one hundred twenty (120) working days from the date of
written notification by Tenant to Landlord of the destruction, Tenant may
at its option terminate this Lease by delivering written notice of
termination to Landlord, whereupon all rights and obligations under this
Lease shall cease to exist. Notwithstanding anything herein to the
contrary, in the event the holder of any indebtedness secured by a mortgage
or deed of trust covering the Project of which the Premises are a part
requires that the insurance proceeds be applied to such indebtedness, then
Landlord shall have the right to terminate this Lease by delivering written
notice of termination to Tenant whereupon all rights and obligations
hereunder shall cease and terminate.
21. Insurance.
---------
(a) Landlord shall at all times during the term of this Lease
maintain a policy or policies of insurance with the premiums paid in
advance, issued by and binding upon some solvent insurance company,
insuring the building against all risk of direct physical loss in an amount
equal to at least eighty percent of the full replacement cost of the
building structure and its improvements as of the date of the loss;
provided, Landlord shall not be obligated in any way or manner to insure
any personal property (including, but not limited to, any furniture,
machinery, goods or supplies) of Tenant upon or within the Leased Premises,
any fixtures installed or paid for by Tenant upon or within the Premises
or any improvements which Tenant may construct on the Premises. Tenant
shall have no right in or claim to the proceeds of any policy of insurance
maintained by Landlord even if the cost of such insurance is home by Tenant
as set forth in Paragraph 4 (e).
(b) The maximum amount of insurance premiums for fire and extended
coverage insurance in the Project during any one calendar year which is to
be paid by the Landlord shall be a total of the actual calendar year 1994
insurance expense for the Project. If, in any one calendar year during the
term or any renewal hereof, the fire and extended coverage insurance
premiums assessed against the building and improvements of which the
Premises are a part exceed such specified sum, Tenant shall pay to the
Landlord upon demand the amount of such excess. In the event the Premises
constitute a portion of a multiple occupancy building, Tenant agrees to pay
the Landlord upon demand the amount of Tenant's proportionate share of such
excess as calculated by Landlord.
(c) Tenant at all times during the Lease term shall, at its own
expense, keep in full force and effect comprehensive general liability
insurance with "personal injury" coverage and contractual liability
coverage, with minimum limits of $1,000,000.00 on account of bodily
injuries to, or death of, one or more than one person as the result of any
one accident or occurrence and $500,000.00 on account of damage to
property. Tenant shall also carry insurance against fire and such other
risks as are from time to time included in Standard All-Risk Insurance
(including coverage against vandalism and malicious mischief) for the full
insurable value of Tenant's merchandise, trade fixtures, furnishings, wall
covering, carpeting, drapes, equipment and all items of personal property
of Tenant located on or in the Leased Premises. Landlord shall be a named
additional insured on said policy. All insurance policies or duly executed
certificates for the same required to be carried by Tenant under this
Lease, together with satisfactory
7
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evidence of the payment of the premium thereof, shall be deposited with
Landlord on the date Tenant first occupies the Leased Premises and upon
renewals of such policies not less than fifteen (15) days prior to the
expiration of the term of such coverage. All insurance required to be
carried by Tenant under this Lease shall be in form and content, and
written by insurers acceptable to Landlord, in its sole discretion. If
Tenant shall fail to comply with any of the requirements contained relating
to insurance, Landlord may obtain such insurance and Tenant shall pay to
Landlord, on demand as additional rent hereunder, the premium cost thereof.
(d) Tenant, at its sole cost and expense, shall insure all tenant
improvements excluding improvements done by Landlord prior to occupancy and
outlined in EXHIBITS "B" and "C" and property located on the Premises.
Landlord shall in no way be responsible to insure or restore any of
Tenant's personal property or improvements; and Tenant hereby releases and
discharges Landlord from any and all such claims and demands.
(e) All policies of insurance shall be written by insurance company
or companies qualified to do business in the State of Texas which are
acceptable to the Landlord, and all such policies shall contain
endorsements providing for ten (10) days' notice of termination or
cancellation to the Landlord, and its mortgagee, if any.
(f) Fifteen (15) days prior to the expiration of any policy of
insurance required to be provided by Tenant under the terms of this Lease,
the Tenant shall deliver to Landlord a Certificate of Insurance evidencing
the renewal of each such policy of insurance. Any certificate of insurance
required hereunder shall provide that at least ten (10) days' written
notice of any change in or cancellation of the insurance shall be given by
the insurance company to the Landlord and Landlord's mortgagee, if any. The
Tenant shall promptly pay the premiums for any renewal of insurance.
(g) In compliance with the insurance company requirements, Tenant
shall not violate or permit to be violated any of the conditions or
provisions of any such policy or policies of insurance, and Tenant shall
perform and satisfy the requirements of the company writing such policies.
(h) Upon the failure at any time of the Tenant to obtain and deliver
to the Landlord or the Landlord's mortgagee, any certificate of insurance
or duplicate policy of insurance required by this Lease, together with the
appropriate receipts indicating that the policy's premiums have been paid
at least fifteen (15) days before the expiration of the insurance policies,
if any, or to pay the premiums therefor, the Landlord shall be at liberty
from time to time, and as often as such failure should occur, to procure
such insurance and to pay the premiums therefor as are commercially
reasonable, and, any and all sums paid for insurance by the Landlord shall
be and become and are hereby declared to be additional rental under the
terms of the Lease, which sum shall be immediately due and payable to
Landlord.
22. Waiver of Subrogation. Anything in this Lease to the contrary
---------------------
notwithstanding, Landlord and Tenant hereby waive and release each other of and
from any and all right of recovery, claim, action or cause of action, against
each other, their agents, officers and employees, for any loss or damage that
may occur to the Premises, improvements to the building of which the Premises
are a part, or personal property within the building, by reason of fire or the
elements, regardless of cause or origin, including negligence of Landlord or
Tenant and their agents, officers and employees. Landlord and Tenant agree
immediately to give their respective insurance companies which have issued
policies of insurance covering all risk of direct physical loss, written notice
of the terms of the mutual waivers contained in this section, and to have the
insurance policies properly endorsed, if necessary, to prevent the invalidation
of the insurance coverages by reason of the mutual waivers.
23. Hold Harmless. Landlord shall not be liable to Tenant or Tenant's
-------------
employees, agents, patrons or visitors, or to any other person whomsoever for
any injury to person or damage to property on or about the Premises, caused by
the negligence or misconduct of Tenant, its agents, servants or employees, or of
any other person entering upon the Premises under express or implied invitation
of Tenant, or caused by the buildings and improvements located on the Project
becoming out of repair, or caused by leakage of gas, oil, water or steam or by
electricity emanating from the Premises, drain or sewer stoppages or backups, or
due to any cause whatsoever; and, Tenant agrees to indemnify Landlord and hold
it harmless from any loss, expense or claims, including attorneys' fees,
arising out of any such damage or injury, except that any injury to person or
damage to property caused by the negligence of Landlord or by the failure of
Landlord to repair and maintain that part of the Premises which Landlord is
obligated to repair and maintain, if any, after the receipt of written notice
from Tenant of needed repairs or of defects shall be the liability of Landlord
and not of Tenant; and, Landlord agrees to indemnify Tenant and hold it harmless
from any and all loss, expenses or claims, including attorneys' fees, arising
out of such damage or injury. Tenant shall procure and maintain throughout the
Term of this Lease a policy or policies of insurance, at its sole cost and
expense, insuring both Landlord and Tenant against all claims, demands or
actions arising out of or in connection with Tenant's use or occupancy of the
Premises, or by the condition of the Premises, the limits of such policy or
policies to be consistent with the limits of the liability policies described in
Paragraph 21 of this Lease.
8
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24. Assignment and Subletting. Tenant shall not have the right to
-------------------------
assign this Lease or to sublet the whole or any part of the Premises without the
prior written consent of Landlord. Notwithstanding any permitted assignment or
subletting, Tenant shall at all times remain fully responsible and liable for
the payment of the Rent herein specified and for compliance with all of its
other obligations under the terms, provisions and covenants of this Lease. Upon
the occurrence of an "event of default," as hereinafter defined, if the
Premises or any part thereof are then assigned or sublet, Landlord, in addition
to any other remedies herein provided or provided by law, may, at its option,
collect directly from such assignee or subtenant all rents becoming due to
Tenant under such assignment or sublease and apply any such Rent against any
sums due to it by Tenant hereunder; and, no such collection shall be construed
to constitute a novation or a release of Tenant from the further performance of
its obligations hereunder. Landlord shall have the right to assign any of its
rights under this Lease.
25. Condemnation.
------------
(a) Substantial Taking - If all or a substantial part of the
------------------
Premises are taken for any public or quasi-public use under any
governmental law, ordinance or regulation, or by right of eminent domain or
by purchase in lieu thereof, and the taking would prevent or materially
interfere with the use of the Premises for the purpose for which it is then
being used, this Lease shall terminate and the Rent shall be abated during
the unexpired portion of this Lease effective on the date physical
possession is taken by the condemning authority. Tenant shall have no claim
to the condemnation award or proceeds in lieu thereof.
(b) Partial Taking - If a portion of the Premises shall be taken for
--------------
any public or quasi-public use under any governmental law, ordinance or
regulation, or by right of eminent domain or by purchase in lieu thereof,
and this Lease is not terminated as provided in Section 24.(a) above, or if
necessary access to parking for the Premises is materially affected by such
action, Tenant shall have the right to terminate this Lease and the Rent
and other obligations for the unexpired portions of this Lease shall be
abated. If Tenant does not terminate this Lease, Landlord shall at
Landlord's sole risk and expense, promptly restore and reconstruct the
building and other improvements in the Premises to the extent necessary to
make it reasonably tenantable. The Rent payable under this Lease during the
unexpired portion of the term shall be adjusted to such an extent as may be
fair and reasonable under the circumstances. Tenant shall have no claim to
the condemnation award or proceeds in lieu thereof.
26. Default and Remedies.
--------------------
(a) Default by Tenant - The following shall be deemed to be events of
-----------------
default by Tenant under this Lease:
(1) Tenant shall fail to pay when due any installment of Rent or any
other payment required pursuant to this Lease; and the failure is not
cured within five (5) days after written notice to Tenant;
(2) Tenant shall abandon, desert, vacate, or cease operation in any
substantial portion of the Premises and discontinue paying rental;
(3) Tenant shall fail to comply with any term, provision or covenant
of this Lease, other than the payment of Rent, and the failure is not
cured within ten (10) days after written notice to Tenant:
(4) Tenant shall file a petition or be adjudged bankrupt or insolvent
under any applicable federal or state bankruptcy or insolvency law or
admit that it cannot meet its financial obligations as they become
due; or a receiver or trustee shall be appointed for all or
substantially all of the assets of Tenant; or Tenant shall make a
transfer in fraud of creditors or shall make an assignment for the
benefit of creditors; or
(5) Tenant shall do or permit to be done any act which results in a
lien being filed against the Premises or the building and/or project
of which the Premises are a part.
(b) Remedies for Tenant's Default - Upon the occurrence of any event
-----------------------------
of default set forth in this Lease, Landlord shall have the option to
pursue any one or more of the remedies set forth herein without any notice
or demand.
(1) Landlord may enter upon and take possession of the Premises, by
picking or changing locks if necessary, and lock out, expel or remove
Tenant and any other person who may be occupying all or any part of
the Premises without being liable for any claim for damages, and relet
the Premises on behalf of Tenant and receive the rent directly by
reason of the reletting. Tenant agrees to pay landlord on demand any
deficiency that may arise by reason of any reletting of the Premises:
further, Tenant agrees to reimburse Landlord for any reasonable
expenditures made by it in order to relet the Premises, including, but
not limited to, remodeling and repair costs.
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<PAGE>
(2) Landlord may enter upon the Premises, by picking or changing locks
if necessary, without being liable for any claim for damages, and do
whatever Tenant is obligated to do under the terms of this Lease.
Tenant agrees to reimburse Landlord on demand for any expenses which
Landlord may incur in effecting compliance with Tenant's obligations
under this Lease; further, Tenant agrees that Landlord shall not be
liable for any damages resulting to Tenant from effecting compliance
with Tenant's obligations under this Lease unless caused by the
negligence of Landlord or otherwise.
(3) Landlord may terminate this Lease, in which event Tenant shall
immediately surrender the Premises to Landlord, and if Tenant fails to
surrender the Premises, Landlord may, without prejudice to any other
remedy which it may have for possession or arrearages in rent, enter
upon and take possession of the Premises, by picking or changing locks
if necessary, and lock out, expel or remove Tenant and any other
person who may be occupying all or any part of the Premises without
being liable for any claim for damages. Tenant agrees to pay on demand
the amount of all loss and damage which Landlord may suffer by reason
of the termination of this Lease under this section, whether through
inability to relet the Premises on satisfactory terms or otherwise.
Notwithstanding any other remedy set forth in this Lease, in the event
Landlord has made rent concessions of any type or character, or waived
any Rent, and Tenant fails to take possession of the Premises on the
commencement or completion date or otherwise defaults at any time
during the term of this Lease, the rent concessions, including any
waived Rent, shall be canceled and the amount of the Rent or other
rent concessions shall be due and payable immediately as if no rent
concessions or waiver of any Rent had ever been granted. A rent
concession or waiver of the Rent shall not relieve Tenant of any
obligation to pay any other charge due and payable under this Lease
including without limitation any sum due under Section 3.
Notwithstanding anything contained in this Lease to the contrary, this
Lease may be terminated by Landlord only by mailing or delivering
written notice of such termination to Tenant, and no other act or
omission of Landlord shall be construed as a termination of this
Lease.
(c) Repetitive Default - Should Tenant be in default for the same
------------------
cause three (3) or more times during the Term of this Lease, regardless of
whether Tenant has cured previous defaults, Landlord may elect at its
option to declare the term hereof ended, re-enter the Premises and take
possession thereof, and remove all persons therefrom, and Tenant shall have
no further claim therein or hereunder.
(d) Fees and Costs - If on account of any breach or default by
--------------
Tenant in Tenant's obligations hereunder, it shall become necessary for
Landlord to employ (or contract with) an attorney or other professional to
enforce or defend any of Landlord's rights or remedies hereunder, Tenant
agrees to pay any reasonable fees and costs incurred by Landlord in such
connection.
(e) Remedies Cumulative - No reference to any specific right or
-------------------
remedy in this Lease shall preclude Landlord from exercising any other
right or from having any other remedy or from maintaining any action or
proceeding to which it may otherwise be entitled at law or in equity (or
both). Landlord's failure to insist upon a strict performance of any
covenant of this Lease or to exercise any option or right herein contained
shall not be a waiver or relinquishment for the future of such covenant,
right or option, or the continuance of the failure of Tenant, but the same
shall remain in full force and effect.
(f) Remedies of Tenant - In the event of any default by Landlord,
------------------
Tenant's exclusive remedy shall be an action for damages (Tenant hereby
waiving the benefit of any laws granting Tenant a lien upon the property of
Landlord and/or upon rental due Landlord), but prior to any such action
Tenant shall give Landlord written notice specifying such default with
particularity, and Landlord shall thereupon have thirty (30) days plus such
additional reasonable period as may be required in the exercise by Landlord
of due diligence in which to cure any such default. Unless and until
Landlord fails thereof. All obligations of Landlord hereunder shall be
construed as covenants, not conditions; and all such obligations shall be
binding upon Landlord only during the period of Landlord's possession of
the Shopping Center and not thereafter.
27. Liens.
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(a) Landlord's Lien - As security for payment of Rent, damage and all
---------------
other payments required to be made by this Lease, Tenant hereby grants to
Landlord a lien upon all property of Tenant now or subsequently located
upon the Premises. Notwithstanding, Landlord hereby agrees to subordinate
any statutory or contractual landlord's lien to any security interest in
Tenant's property, now existing or hereafter granted by Tenant. In this
regard, Landlord agrees to execute any and all documents which may
reasonably be necessary to accomplish such subordination. If Tenant
abandons or vacates any substantial portion of the Premises or is in
default in the payment of any rentals, damages or other payments required
to be made by this Lease or is in default of any other provision of this
Lease. Landlord may enter upon the Premises, by picking or changing locks
if necessary, and take possession of all or any part of the personal
property, and may sell all or any part of the personal property at a public
or private sale, in one or successive sales, with or without notice, to the
highest bidder for cash, and, on behalf of Tenant, sell and convey all or
part of the personal property to the highest bidder, delivering to the
hightest bidder all of Tenant's title and interest in the personal property
sold. The proceeds of the sale of the personal
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attorney's fees, and then toward the payment of all sums then due by Tenant
to Landlord under the terms of this Lease. Any excess remaining shall be
paid to Tenant or any other person entitled thereto by law.
(b) Mortgages - Tenant accepts this Lease subject and subordinate
---------
to any recorded mortgage or deed of trust lien presently existing or
hereafter created upon the building or Project and to all existing recorded
restrictions, covenants, easements and agreements with respect to the
building or Project. Landlord is hereby irrevocably vested with full power
and authority to subordinate Tenant's interest under this Lease to any
first mortgage or deed of trust lien hereafter placed on the Premises, and
Tenant agrees upon demand to execute additional instruments subordinating
this Lease as Landlord may require. If the interests of Landlord under this
Lease shall be transferred by reason of foreclosure or other proceedings
for enforcement of any first mortgage or deed of trust on the Premises,
Tenant shall be bound to the transferee (sometimes called the "Purchaser")
at the option of the Purchaser, under the terms, covenants and conditions
of this Lease for the balance of the term remaining, including any
extensions or renewals, with the same force and effect as if the Purchaser
were Landlord under this Lease, and, if requested by the Purchaser, Tenant
agrees to attorn to the Purchaser, including the first mortgagee under any
such mortgage if it be the Purchaser, as its Landlord.
(c) Mechanic's liens - Tenant shall have no authority, express or
----------------
implied, to create or place any lien or encumbrance of any kind or nature
whatsoever upon, or in any manner to bind the interest of Landlord in the
Premises or to charge the rentals payable hereunder for any claim in favor
of any person dealing with Tenant, including those who may furnish
materials or perform labor for any construction or repairs, and each such
claim shall affect and each such lien shall attach to, if at all, only the
leasehold interest granted to Tenant by this instrument. Tenant covenants
and agrees that it will pay or cause to be paid all sums legally due and
payable by it on account of any labor performed or materials furnished in
connection with any work performed on the Premises on which any lien is or
can be validly and legally asserted against its leasehold interest in the
Premises or the improvements thereon, and that it will save and hold
Landlord harmless from any and all loss, cost or expense based on or
arising out of asserted claims or liens against the leasehold estate or
against the rights, title and interest of the Landlord in the Premises or
under the terms of this Lease.
Nothing contained in this Lease shall constitute the consent or
the request of the Landlord, expressed or implied, for the performance of
any labor or the furnishing of any materials or other property in respect
to the Leased Premises, or any part thereof, nor is the Tenant given any
authority to contract for or commit the renting of any services or the
furnishing of any materials or other properties so as to permit the making
of any claims against the Landlord.
(d) Estoppel Certificates - Tenant agrees to furnish, from time to
---------------------
time, within ten (10) days after receipt of a request from Landlord or
Landlord's mortgagee, a statement certifying, if applicable and to the
extent true, the following: Tenant is in possession of the Premises; the
Premises are acceptable; the Lease is in full force and effect; the Lease
is unmodified; Tenant claims no present charge, lien, or claim of offset
against rent; the rent is paid for the current month, but is not prepaid
for more than one month and will not be prepaid for more than one month in
advance; there is no existing default by reason of some act or omission by
Landlord; and such other matters as may be reasonably required by Landlord
or Landlord's mortgagee. Tenant's failure to deliver such statement, in
addition to being a default under this Lease, shall be deemed to establish
conclusively that this Lease is in full force and effect except as declared
by Landlord, that Landlord is not in default of any of its obligations
under this Lease, and that Landlord has not received more than one month's
rent in advance.
28. Laws and Governmental Regulations. Tenant agrees to comply promptly
---------------------------------
with all laws, rules and orders of the federal, state and municipal governments
and all other departments applicable to the Premises and to comply promptly with
the requirements of the Board of Fire Underwriters. This lease shall be governed
by the laws of the State of Texas.
29. Hazardous or Toxic Materials.
----------------------------
(a) Hazardous Substances.
--------------------
(1) Presence and Use of Hazardous Substances. Tenant shall not,
----------------------------------------
without Landlord's prior written consent, keep on or around the
Premises, Common Areas or Building, for use, disposal, treatment,
generation, storage or sale, any substances designated as, or
containing components designated as hazardous, dangerous, toxic or
harmful (collectively referred to as "Hazardous Substances"), and/or
subject to regulation, statute or ordinance. With respect to any such
Hazardous Substance, Tenant shall:
(i) Comply promptly, timely, and completely with all
governmental requirements for reporting, keeping, and submitting
manifests, and obtaining and keeping current identification numbers;
11
<PAGE>
(ii) Submit to Landlord true and correct copies of all reports,
manifests, and identification numbers at the same time as they are
required to be and/or are submitted to the appropriate governmental
authorities;
(iii) Within five (5) days of Landlord's request, submit written
reports to Landlord regarding Tenant's use, storage, treatment,
transportation, generation, disposal of sale of Hazardous Substances
and provide evidence satisfactory to Landlord of Tenant's compliance
with the applicable government regulations;
(iv) Allow Landlord or Landlord's agent or representative to
come on the premises at all times to check Tenant's compliance with
all applicable governmental regulations regarding Hazardous
Substances;
(v) Comply with minimum levels, standards or other performance
standards or requirements which may be set forth or established for
certain Hazardous Substances (if minimum standards or levels are
applicable to Hazardous Substances present on the Premises, such
levels or standards shall be established by an on-site inspection by
the appropriate governmental authorities and shall be set forth in an
addendum to this Lease); and
(vi) Comply with all applicable governmental rules, regulations
and requirements regarding the proper and lawful use, sale,
transportation, generation, treatment, and disposal of Hazardous
Substances.
(2) Any and all costs incurred by Landlord and associated with
Landlord's inspection of Tenant's Premises and Landlord's monitoring
of Tenant's compliance with this Paragraph 29, including Landlord's
attorneys' fees and costs, shall be Additional Rent and shall be due
and payable to Landlord immediately upon demand by Landlord.
(b) Cleanup Costs, Default and Indemnification.
------------------------------------------
(1) Tenant shall be fully and completely liable to Landlord for any
and all cleanup costs, and any and all other charges, fees, penalties
(civil and criminal) imposed by any governmental authority with
respect to Tenant's use, disposal, transportation, generation and/or
sale of Hazardous Substances, in or about the Premises, Common Areas,
or Building.
(2) Tenant shall indemnify, defend and save Landlord harmless from any
and all of the costs, fees, penalties and charges assessed against or
imposed upon Landlord (as well as Landlord's attorneys' fees and
costs) as a result of Tenant's use, disposal, transportation,
generation and/or sale of Hazardous Substances.
(3) Upon Tenant's default under this Paragraph 29, in addition to the
rights and remedies set forth elsewhere in this Lease, Landlord shall
be entitled to the following rights and remedies:
(i) At Landlord's option, to terminate this Lease immediately;
and/or
(ii) To recover any and all damages associated with the default,
including, but not limited to cleanup costs and charges, civil and
criminal penalties and fees, loss of business and sales by Landlord
and other tenants of the Building, any and damages and claims asserted
by third parties and Landlord's attorneys' fees and costs.
(c) Indemnification. Notwithstanding Paragraph 29.(b) above, in the
---------------
event of concurrent negligence of Tenant, its agents, employees,
sublessees, invitees, licensees or contractors on the one hand, and that of
Landlord, its partners, directors, officers, agents, employees, or
contractors on the other hand, which concurrent negligence results in
injury or damage to persons or property and relates to the construction,
alteration, repair, addition to, subtraction from, improvement to or
maintenance of the Premises, Common Areas or Building, Tenant's obligation
to indemnify Landlord as set forth in this Paragraph 30 shall be limited to
the extent of Tenant's negligence, and that of its agents, employees,
sublessees, invitees, licensees or contractors, including Tenant's
proportional share of costs, attorneys' fees and expenses incurred in
connection with any claim, action or proceeding brought with respect to
such injury or damage. Tenant hereby agrees to waive its immunity under
industrial insurance. Landlord shall indemnify Tenant for any and all costs
or claims relating to any pre-exiting hazardous substances or contamination
of Premises of Hazardous Substances which is not caused by Tenant. Such
costs shall not be considered Common Expenses as described in Paragraph 4
of this Lease Agreement.
30. Notices. Each provision of this instrument or of any applicable
-------
governmental laws, ordinances, regulations and other requirements with
reference to the sending, mailing or delivery of any notice or the making of any
payment by Landlord to Tenant, or with reference to the sending, mailing or
delivery of any notice or the making of any payment by Tenant to Landlord, shall
be deemed to be complied with, when and if the following steps are taken:
12
<PAGE>
(a) All Rent and other payments required to be made by Tenant to
Landlord hereunder shall be payable to Landlord at the address hereinbelow
set forth or at such other address as Landlord may specify from time to
time by written notice, delivered in accordance herewith.
(b) All payments required to be made by Landlord to Tenant hereunder
shall be payable to Tenant at the address hereinbelow set forth, or at such
other address within the continental United States as Tenant may specify
from time to time by written notice, delivered in accordance herewith.
(c) Any notice or document required or permitted to be delivered
hereunder shall be deemed to be delivered whether actually received or not,
when deposited in the United States Mail, postage prepaid, Certified or
Registered Mail, addressed to the parties hereto at the respective
addresses set forth below, or at such other address as they have
theretofore specified by written notice, delivered in accordance herewith:
If and when included within the Term "Landlord," as used in this
instrument, there are more than one person, firm or corporation, all shall
jointly arrange among themselves for their joint execution of such a notice
specifying some individual at some specific address for the receipt of
notices and payments to Landlord; if, and when included within the Term
"Tenant," as used in this instrument, there are more than one person, firm
or corporation, all shall jointly arrange among themselves for their joint
execution of such a notice specifying some individual at some specific
address within the continental United States for the receipt of notices and
payments to Tenant. All parties included within the terms "Landlord" and
"Tenant," respectively, shall be bound by notices in accordance with the
provisions of this Section to the same effect as if each had received such
notice. If requested in writing by Landlord's mortgagee, Tenant agrees to
furnish the mortgagee with copies of all notices to Landlord.
Landlord: with a copy to:
UBP Partners Limited
c/o Fulcrum Property Group, Inc.
9100 IH 10 West, Suite 330
San Antonio, Texas 78230
Tenant: with a copy to:
/s/ Art Smith
President
7710 Crooked Brook-
San Antonio, 7X 78250
31. Miscellaneous.
-------------
(a) Waiver - Failure of Landlord to declare an event of default
------
immediately upon its occurrence, or delay in taking any action in
connection with an event of default, shall not constitute a waiver of the
default; but Landlord shall have the right to declare the default at any
time and take such action as is lawful or authorized under this Lease
pursuant to any one or more of the remedies set forth in Paragraph 26.(b)
above.
Pursuit of any one or more of the remedies set forth in Paragraph
26.(b) above shall not preclude pursuit of any one or more of the other
remedies provided elsewhere in this Lease or provided by law, nor shall
pursuit of any remedy constitute forfeiture or waiver of any rent or
damages accruing to Landlord by reason of the violation of any of the
terms, provisions or covenants of this Lease. Failure by Landlord to
enforce one or more of the remedies provided upon an event of default shall
not be deemed or construed to constitute a waiver of the default or of any
other violation or breach of any of the terms, provisions and covenants
contained in this Lease.
(b) Act of God - Landlord shall not be required to perform any
----------
covenant or obligation in this Lease, or be liable in damages to Tenant, so
long as the performance or non-performance of the covenant or obligation is
delayed, caused or prevented by an act of God, force majeure or by Tenant.
(c) Attorney's Fees - In the event Tenant defaults in the performance
---------------
of any of the terms, covenants, agreements or conditions contained in this
Lease and Landlord places in the hands of an attorney the enforcement of
all or any part of this Lease, the collection of any rent due or to become
due or recovery of the possession of the leased premises, Tenant agrees to
pay Landlord's costs of collection, including reasonable attorney's fees
for the services of the attorney, whether suit is actually filed or not.
(d) Successors - This Lease shall be binding upon and inure to the
----------
benefit of Landlord and Tenant and their respective heirs, personal
representatives, successors and assigns. It is hereby covenanted and agreed
that should Landlord's interest in the Leased Premises cease to exist for
any reason during the term of this Lease, then notwithstanding the
happening of such event, this Lease nevertheless shall remain unimpaired
and in full force and effect, and Tenant hereunder agrees to attorn to the
then owner of the Leased Premises.
13
<PAGE>
(e) Captions - The captions appearing in this Lease are inserted
---------
only as a matter of convenience and in no way define, limit, construe or
describe the Scope or intent of any section.
(f) Submission of Lease - Submission of this Lease to Tenant for
-------------------
signature does not constitute a reservation of space or an option to lease.
This Lease is not effective until execution by and delivery to both
Landlord and Tenant.
(g) Corporate Authority - If Tenant executes this Lease as a
-------------------
corporation, each of the persons executing this Lease on behalf of Tenant
does hereby personally represent and warrant that Tenant is a duly
authorized and existing corporation, that Tenant is qualified to do
business in the state of Texas, that the corporation has full right and
authority to enter into this Lease, and that each person signing on behalf
of the corporation is authorized to do so. In the event any representation
or warranty by the Tenant is false, all persons who execute this Lease on
behalf of Tenant shall be liable, individually, as Tenant.
(h) Severability - If any provision of this Lease or the application
------------
thereof to any person or circumstance shall be invalid or unenforceable to
any extent, the remainder of this Lease and the application of such
provisions to other persons or circumstances shall not be affected thereby
and shall be enforced to the greatest extent permitted by law.
(i) Landlord's Liability - If Landlord shall be in default under this
--------------------
Lease and, if as a consequence of such default, Tenant shall recover a
money judgement against Landlord, such judgement shall be satisfied only
out of the right, title and interest of Landlord in the Project as the same
may then be encumbered and neither Landlord nor any person or entity
comprising Landlord shall be liable for any deficiency. In no event shall
Tenant have the right to levy execution against any property of Landlord
nor any person or entity comprising Landlord other than its interest in the
Project as herein expressly provided.
(j) Indemnity - Landlord agrees to indemnify and hold harmless Tenant
---------
from and against any liability or claim, whether meritorious or not,
arising with respect to any broker whose claim arises by, through or on
behalf of Landlord. Tenant agrees to indemnify and hold harmless Landlord
from and against any liability or claim, whether meritorious or not,
arising with respect to any broker whose claim arises by, through or on
behalf of Tenant.
32. Amendment and Limitation of Warranties.
--------------------------------------
(a) Entire Agreement - IT IS EXPRESSLY AGREED BY TENANT, AS A
----------------
MATERIAL CONSIDERATION FOR THE EXECUTION OF THIS LEASE, THAT THIS LEASE,
WITH THE SPECIFIC REFERENCES TO WRITTEN EXTRINSIC DOCUMENTS, IS THE ENTIRE
AGREEMENT OF THE PARTIES; THAT THERE ARE, AND WERE, NO VERBAL
REPRESENTATIONS, WARRANTIES, UNDERSTANDINGS, STIPULATIONS, AGREEMENTS OR
PROMISES PERTAINING TO THIS LEASE OR TO THE EXPRESSLY MENTIONED WRITTEN
EXTRINSIC DOCUMENTS NOT INCORPORATED IN WRITING IN THIS LEASE.
(b) Amendment - THIS LEASE MAY NOT BE ALTERED, WAIVED, AMENDED OR
---------
EXTENDED EXCEPT BY AN INSTRUMENT IN WRITING SIGNED BY LANDLORD AND TENANT.
(c) Limitation of Warranties - LANDLORD AND TENANT EXPRESSLY
------------------------
AGREE THAT THERE ARE AND SHALL BE NO IMPLIED WARRANTIES OF MERCHANTABILITY,
HABITABILITY, FITNESS FOR A PARTICULAR PURPOSE OR OF ANY OTHER KIND ARISING
OUT OF THIS LEASE, AND THERE ARE NO WARRANTIES WHICH EXTEND BEYOND THOSE
EXPRESSLY SET FORTH IN THIS LEASE.
AGREED TO AND UNDERSTOOD this the 25th day of March , 1994
---- ------- --
LANDLORD: TENANT:
UBP PARTNERS LIMITED LATIN AMERICA TELECOMM INC.
BY:[SIGNATURE ILLEGIBLE] BY:[SIGNATURE ILLEGIBLE]
-------------------------------- -------------------------------
ITS: general partner ITS: President
------------------------------- ------------------------------
14
<PAGE>
AMENDMENT TO LEASE AGREEMENT
This lst Amendment to Lease Agreement is entered into this day of April,
1994, by and between UBP PARTNERS LIMITED, a Texas Limited Partnership
(hereinafter referred to as "Landlord") and LATIN AMERICAN TELECOMM, INC.
(hereinafter referred to as "Tenant"):
WITNESSETH:
WHEREAS, by Lease Agreement dated March 25, 1994, Landlord leased to Tenant
approximately 4,000 square feet of office space located at 12500 Network Blvd,
Suite 407, in the University Business Park, legally described as Lot 1, Block 1,
New City Block 17386, UNIVERSITY BUSINESS PARK, UNIT 1, in the City of San
Antonio, Bexar County, Texas, according to plat thereof recorded in Volume 9506,
Page 165, Deed and Plat Records of Bexar County, Texas; hereinafter referred to
as the "Lease Agreement"); and
WHEREAS, Landlord and Tenant desire to amend said Lease Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
accrue to Landlord and Tenant under and by virtue of this lst Amendment to Lease
Agreement, Landlord and Tenant agree that Effective April 8, 1994, the following
designated paragraphs of the Lease Agreement shall be, and are hereby amended as
follows:
A. PARAGRAPH 1(D) PREMISES. The size of the Demised Premises covered under
the term of the Lease Agreement shall be increased from 4,000 square feet
to 5,042 square feet. That area which comprises the increased square
footage under this Agreement is identified on the attached "Exhibit "A" and
contains approximately 1,042 square feet (hereinafter referred to as the
"Expansion Space").
B. PARAGRAPH 1(F) Base RENT - AMOUNT AND PAYMENT. Subject to Exhibit "F" of
the Lease Agreement, the Base Rent payable to Landlord during the term of
the lease shall be increased to conform with the following schedule:
<TABLE>
<CAPTION>
Months Monthly Annual Per Square Foot
<S> <C> <C> <C>
1-24 1,764.70 21,176.40 4.20
25-48 2,521.00 30,252.00 6.00
49-60 2,941.16 35,294.00 7.00
</TABLE>
C. PARAGRAPH 1(E) - Initial COMMON AREA CHARGE. Effective the Delivery
Date as hereinabove defined, the Initial Common Area Charge shall be
increased from $160.00 per month to $201.68 per month.
D. OPTION TO Renew. The extension terms specified on the Lease Addendum
shall be paid according to the following schedule:
1st Option
<TABLE>
<CAPTION>
Month Monthly Annual Per Square Foot
<S> <C> <C> <C>
1-24 3,361.33 40,336.00 8.00
25-60 3,781.50 45,378.00 9.00
<CAPTION>
2nd Option
<S> <C> <C> <C>
1-36 4,033.60 48,403.20 9.60
37-60 4,201.66 50,420.00 10.00
</TABLE>
<PAGE>
E. RIGHT OF FIRST REFUSAL. The Right of First Refusal specified under
Paragraph two (2) of the Lease Addendum is hereby amended to provide that
Tenant will have a Right of First Refusal to lease the following spaces:
Suite 404 which contains 1,950 square feet.
The remainder of Suite 407 which contains approximately 675 square feet.
The Right of First Refusal spaces are outlined in blue on the attached
Exhibit "A".
F. PARKING. In addition to the four (4) parking spaces designated for
Tenant on Exhibit "G", Landlord will designate twelve (12) spaces for
Tenant's use behind the Demised Premises.
Except as herein amended, the Lease Agreement dated March 25, 1994, by
and between Landlord and Tenant shall remain in full force and effect in
accordance with its terms and provisions.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands
the day and year FIRST above written.
LATIN AMERICAN TELECOMM, INC. UBP PARTNERS LIMITED
[SIGNATURE ILLEGIBLE] [SIGNATURE ILLEGIBLE]
By:---------------------- By:---------------------
Name:
Title: general partner
Date: 4-11-94 Date: 4-11-94
-------------------- -------------------
<PAGE>
2ND AMENDMENT TO LEASE AGREEMENT
This 2nd Amendment to Lease Agreement is entered into this 30th day of
----
September 1994, by and between UBP PARTNERS LIMITED, a Texas Limited Partnership
- ---------
(hereinafter referred to as "Landlord") and AMERICAN TELESOURCE INTERNATIONAL, a
Texas Corporation, as assignee of LATIN AMERICAN TELECOMM, INC. (hereinafter
referred to as "Tenant"):
W I T N E S S E T H:
WHEREAS, by Lease Agreement dated March 25, 1994, Landlord leased to Tenant
approximately 4,000 square feet of office space located at 12500 Network Blvd,
Suite 407, in the University Business Park, legally described as Lot 1, Block 1,
New City Block 17386, UNIVERSITY BUSINESS PARK, UNIT 1, in the City of San
Antonio, Bexar County, Texas, according to plat thereof recorded in Volume 9506,
Page 165, Deed and Plat Records of Bexar County, Texas, and;
WHEREAS by a lst Amendment to Lease Agreement executed by both Landlord and
Tenant on April 11, 1994 the size of the Premises was increased from 4,000
square feet to 5,042 square feet, (hereinafter the Lease Agreement and the 1st
Amendment to Lease Agreement are collectively referred to as the "Lease
Agreement") and;
WHEREAS, Landlord and Tenant desire to further amend said Lease Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual benefits to
accrue to Landlord and Tenant under and by virtue of this 1st Amendment to Lease
Agreement, Landlord and Tenant agree that Effective April 8, 1994, the following
designated paragraphs of the Lease Agreement shall be, and are hereby amended as
follows:
A. PARAGRAPH 1(d) PREMISES. The size of the Demised Premises covered under
the term of the Lease Agreement shall be increased from 5,042 square feet
to 6,350 square feet. The area which comprises the increased square footage
under this Agreement is identified on the attached "Exhibit "A" and is
referred to as the "Expansion Space".
B. PARAGRAPH 1(F) Base RENT - AMOUNT AND PAYMENT. Effective November 1,
1994 or upon delivery and acceptance of the Expansion Space by Tenant,
whichever date shall occur later, the rent payable to Landlord hereunder
shall be increased to conform to the following schedule:
<TABLE>
<CAPTION>
DATE MONTHLY PER SQFT
<S> <C> <C>
11/01/94 - 06/30/95 $2,799.30 $5.29
07/01/95 - 06/30/96 $2,899.30 $5.48
07/01/96 - 06/30/97 $3,655.60 $6.90
07/01/97 - 06/30/98 $3,755.60 $7.10
07/01/98 - 06/30/99 $4,175.76 $7.90
</TABLE>
Note: In the event Landlord has not substantially completed construction
and Tenant has not accepted possession of the Expansion Space on or
before November 1, 1994, then Tenant will continue paying rent to
Landlord according to the rental schedule set forth in Section "B"
of the lst Amendment to Lease Agreement until such time as Landlord
completes construction and delivers the Expansion Space to Tenant.
C. PARAGRAPH 1(e) - Initial COMMON AREA CHARGE. Effective the Delivery
Date as hereinabove defined, the Initial Common Area Charge shall be
increased from $160.00 per month to $267.08 per month.
D. LANDLORD'S IMPROVEMENTS. Landlord shall construct the finish-out work
(hereinafter referred to as the "Tenants Improvements") pursuant to the
Drawings and Specifications attached hereto as Exhibit "B". Following the
full execution of this Second Amendment to Lease Agreement, Landlord shall
commence construction of the Tenant Improvements and shall use all
reasonable efforts to substantially complete the Tenant Improvements on or
before November 1, 1994. Tenant expressly acknowledges that in the event
the substantial completion of construction is delayed for reasons beyond
the reasonable control of Landlord, Landlord will not be liable to Tenant
in any manner.
In the event of any delay in the completion of Tenant's Improvements caused
by Tenant,
<PAGE>
Landlord shall not be liable for any damage caused thereby. In the event
Tenant takes occupancy prior to the completion of Landlord's Improvements,
Tenant shall provide uninterrupted access to the Premises to Landlord, its
employees, agents, representatives and governmental inspectors at all
reasonable times.
E. OPTION TO RENEW. The Lease extension terms specified in Section D of
the lst Lease Amendment are hereby modified to conform to the following
schedule:
lst Option
<TABLE>
<CAPTION>
Month Monthly Annual Per Sqft
<S> <C> <C> <C>
1-24 $4,596.83 $55,161.96 $ 8.69
25-60 $5,017.00 $60,204.00 $ 9.48
2nd Option
<CAPTION>
<S> <C> <C> <C>
1-36 $5,269.10 $63,229.20 $ 9.96
37-60 $5,437.16 $65,245.92 $10.27
</TABLE>
Except as herein amended, the Lease Agreement dated March 25, 1994, by
and between Landlord and Tenant and all subsequent Amendments to Lease
Agreement, shall remain in full force and effect in accordance with its
terms and provisions.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands
the day and year first above written.
AMERICAN TELESOURCE INTERNATIONAL, INC. UBP PARTNERS LIMITED
By:[SIGNATURE ILLEGIBLE] By:[SIGNATURE ILLEGIBLE]
---------------------- -----------------------
Title: President Title: general partner
------------------- --------------------
Date: 9-29-94 Date: 9-30-94
-------------------- ---------------------
<PAGE>
EXHIBIT "B"
UNIVERSITY BUSINESS PARK
LANDLORD'S WORKLETTER
By execution hereof, AMERICAN TELESOURCE INTERNATIONAL, a Texas
Corporation, as assignee of LATIN AMERICAN TELECOMM, INC. (hereinafter referred
to as "Tenant") and UBP PARTNERS LIMITED, a Texas Limited Partnership
(hereinafter referred to as "Landlord") agree to simultaneously execute a 2nd
Lease Amendment ("2nd Amendment") for space ("Premises") at 12500 Network Blvd,
located in University Business Park, ("Building"). Pursuant to Section "D" of
the 2nd Amendment, this Letter Agreement shall become Exhibit "C" thereof.
In consideration of the mutual covenants hereinafter contained, Landlord
and Tenant do mutually agree as follows:
Landlord will make improvements and alterations to the Premises (herein
called "Landlord's Work") according to the working drawings and specifications
agreed upon by both Landlord and Tenant, a copy of which is attached hereto as
Exhibit "B-2", and is initialled by both Landlord and Tenant.
1. Landlord's Work will be limited to the following:
a. Demolition work in existing office #115 and #116.
b. Construct two (2) new offices in the Expansion Space, including
all framing and drywall work. All exterior walls to be framed.
c. Install RACO track along all ceilings (aluminum finish).
d. Install acoustical drop ceiling including at least two (2)
lighting fixtures for each office and fixtures for the hallway
and open area. All fixtures to be 2 ft x 4 ft lay-in fluorescent
fixtures.
e. Install telephone outlets (conduit only), duplex outlets,
computer outlets (conduit only) and J-boxes at locations marked
on Exhibit "B-2". All electrical to tie into Tenant's existing
service.
f. Install one (1) 4 ton roof top air conditioning unit with gas
heat.
g. Install carpeting to match carpet in Tenant's current offices.
h. All finishes, ie:, doors, hardware, paint and trim to match
Tenant's existing finishes. Note: floor base molding to have
"shoe".
2. It is agreed, that the Commencement Date of the Lease and Tenant's
obligation to pay rent (on the Expansion Space), shall be the date
upon which Landlord substantially completes Landlord's Work as
described above and delivers the Premises to Tenant, or the date upon
which Tenant opens for business, whichever date shall occur first.
"Substantial Completion" shall be defined as the completion of
construction subject to punch list items. Landlord shall use all
reasonable efforts to complete Landlord's Work on or before November
1, 1994. Tenant expressly acknowledges that in the event the
substantial completion of construction is delayed for reasons beyond
the reasonable control of Landlord, Landlord will not be liable to
Tenant in any manner. Notwithstanding the foregoing, where Landlord
shall be delayed in substantially completing said work as a result of:
a. Tenant's failure to approve the final working drawings; or
b. Change orders (Note: Tenant shall be responsible for the cost of
completing any change orders, if any); or
c. The performance by a person, firm or corporation, employed by
Tenant, if applicable, within the Premises which interferes with
the undertaking of Landlord's work;
then the commencement of the term of said Lease and the obligation of
Tenant for the payment of rent thereunder shall be accelerated by the number of
days of such delay.
AGREED TO AND UNDERSTOOD this the ___ day of __________, 19__.
LANDLORD TENANT
UBP PARTNERS LIMITED AMERICAN TELESOURCE
INTERNATIONAL INC.
By:_______________________ By:[SIGNATURE ILLEGIBLE]
---------------------
Its:______________________ Its: President
--------------------
<PAGE>
EXHIBIT 11
AMERICAN TELESOURCE INTERNATIONAL INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For the period from
December 17, 1993 (Inception) For the year ended For the six month periods ended
through July 31, 1994 July 31, 1995 January 31, 1995 January 31, 1996
------------------------- -------------------- ------------------ -----------------
(unaudited)
<S> <C> <C> <C> <C>
Primary
Earnings:
Net loss ($343,528) ($2,004,167) ($907,405) ($1,420,699)
========================= ================== ================= ================
Shares:
Weighted average number of common shares
outstanding 9,146,091 13,922,018 12,546,257 19,094,398
Incremental shares assuming conversion of
warrants 0 162,360 225,552 137,830
------------------------- ----------------- ----------------- ----------------
Weighted average number of common shares
outstanding as adjusted 9,146,091 14,084,378 12,771,809 19,232,228
========================= ================= ================= ===============
Primary earnings per common share
Net loss ($0.04) ($0.14) ($0.07) ($0.07)
========================= ================= ================= ===============
Fully Diluted
Earnings:
Net loss ($343,528) ($2,004,167) ($907,405) ($1,420,699)
Add: Interest expense applicable to convertible
debt 0 6,000 0 6,000
---------------------- ----------------- ----------------- ---------------
Net loss - as adjusted ($343,528) ($1,998,167) ($907,405) ($1,414,699)
====================== ================= ================= ===============
Shares:
Weighted average number of common shares
outstanding 9,146,091 13,922,018 12,546,257 19,094,398
Incremental shares assuming conversion of
convertible debt 0 100,000 0 200,000
Incremental shares assuming conversion of
warrants 39,835 202,229 226,552 200,018
---------------------- ----------------- ----------------- ---------------
Weighted average number of common shares
outstanding as adjusted 9,185,926 14,224,247 12,771,809 19,494,416
====================== ================= ================= ===============
Fully diluted earnings per common share
Net loss, as adjusted ($0.04) ($0.14)(a) ($0.07) ($0.07)(a)
====================== ================= ================= ===============
</TABLE>
(a) This calculation is submitted in accordance with paragraph 601 (b) (11) of
Regulation S-K although it is contrary to APB Opinion No. 15 because it produces
an antidilutive result.
<PAGE>
Exhibit 22
SUBSIDIARIES OF THE COMPANY
The subsidiaries of American Telesource International Inc. are as follows:
State or other
Company Jurisdiction of Incorporation
------- -----------------------------
American Telesource International, Inc. Texas
American Telesource International de Mexico, S.A. de C.V. Mexico
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our reports
(and to all references to our firm) included in or made a part of this
Registration Statement.
ARTHUR ANDERSEN LLP
San Antonio, Texas
May 31, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM THE CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED ATATEMENTS OF LAWS
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<NAME> AMERICAN TELESOURCE INTERNATIONAL INC.
<CIK> 0001014052
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUL-31-1996
<PERIOD-START> AUG-01-1995
<PERIOD-END> JAN-31-1996
<CASH> 691,593
<SECURITIES> 0
<RECEIVABLES> 724,568
<ALLOWANCES> 262,236
<INVENTORY> 0
<CURRENT-ASSETS> 1,441,742
<PP&E> 1,736,150
<DEPRECIATION> 231,467
<TOTAL-ASSETS> 3,309,697
<CURRENT-LIABILITIES> 2,776,073
<BONDS> 0
0
0
<COMMON> 4,181,766
<OTHER-SE> 5,823,218
<TOTAL-LIABILITY-AND-EQUITY> 3,309,697
<SALES> 4,866,771
<TOTAL-REVENUES> 4,866,71
<CGS> 4,061,275
<TOTAL-COSTS> 6,277,188
<OTHER-EXPENSES> 10,282
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,420,699
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,420,699
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,420,699
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
<PAGE>
EXHIBIT 10.4
TELECOMMUNICATIONS AGREEMENT
This Agreement is entered into this 13 day of Dec , 1994, by and between
-- -----
American Telesource International a Texas corporation with their principal
-----
office at 12500 Network Blvd. #407 San Antonio, Tx 78249 ("ATI"), and Long
Distance Exchange Corp. a Texas corporation with its principal office at 2301
ohio dr. #285 Plano, Tx. 75093 ("Customer"). Any notice to be given under this
Agreement shall be delivered to the address listed above. Either party must give
notice of a change of address to the other party by certified mail return
receipt requested.
WITNESSETH:
WHEREAS, ATI is in the business of providing telecommunications services;
and
WHEREAS, Customer desires to use telecommunications services from ATI:
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, and for other good and valuable consideration, the parties do
hereby contract and agree as follows:
1. ATI agrees to furnish to Customer operator services, and Customer
agrees to the commission schedule as set forth in Exhibit "A" attached hereto
and made a part of this Agreement as if set forth verbatim herein.
2. This Agreement shall commence on the 13 day of Dec , 1994 (The
------ -----
"Commencement Date") and continue for a period of two (2) years. This Agreement
shall be extended, on the same terms and conditions, for an additional period of
one (1) year unless either party notifies the other party in writing not less
than sixty (60) days prior to the termination date of its desire to terminate
this Agreement.
3. During the term of this Agreement, ATI shall pay the commissions for
such telecommunication services, that amount as determined by using the
commission rates set forth in Exhibit "A".
4. ATI shall give Customer at least forty-five (45) days notification in
the event any commission rates in Exhibits "A" are modified, Customer shall have
the right to terminate the contract immediately if, in the Customers opinion the
modified commissions rates are unacceptable to the Customer.
5. Commissions shall be paid according to the schedule set forth in
Exhibit "A".
6. During the term of this Agreement and for a period of (1) year after
the term of this Agreement, ATI and the Customer agrees not to disclose any
trade secrets, business practices or sales procedures revealed to each other.
Neither party shall solicite, hire or
Page 1 of 3
<PAGE>
directly compete with any employees, agents, or customers of each other during
the term of this Agreement and for a period of one year after the expiration of
this Agreement.
7. No term or provision of this Agreement shall be deemed waived, and no
breach shall be deemed excused, unless such waiver or consent shall be in
writing and signed by the party claimed to have waived or consented. No consent
by any party to, or waiver of, a breach or default by the other, whether
expressed or implied, shall constitute a consent to, waiver of or excuse for any
different or subsequent breach or default.
8. Neither ATI nor the Customer shall be liable to the other for any
consequential, indirect, special or incidental damages whatsoever, including,
without limitation, any loss of revenue, goodwill, or profits or claims by third
parties or otherwise in connection with or related to any of the services
provided pursuant to this Agreement.
9. ATI warrants that it has the title to or the right to use the
equipment used in providing the services to Customer pursuant to this Agreement
and the equipment is suitable for the uses intended, and Customer warrants and
represents that it is fully authorized to contract for the services under this
Agreement.
ATI MAKES NO OTHER WARRANTIES, EITHER EXPRESSED OR IMPLIED.
10. This Agreement authorizes ATI to start providing telecommunications
services, as set forth herein, to the Customer on the commencement Date. This
Agreement also authorizes ATI to act as Customer's agent in placing orders with
other carriers in order to provide telecommunications services, if requested by
customer. ATI shall provide all equipment necessary to provide operator
services and maintain the equipment, to provide the services needed by the
Customer.
11. If the performance of the respective obligations of ATI or customer
shall be prevented or interfered with by reason of any fire, flood, epidemic,
earthquake or any other act of God, explosion, strike or other disputes, riot or
civil disturbance, war (whether declared or undeclared) or armed conflict, any
municipal ordinance or state or federal law, governmental order or regulation or
order of any court of competent jurisdiction, or other similar forces not within
the control of ATI or Customer, as the case may be, then Customer and/or ATI, as
the case may be, shall not be liable to the other for its failure to perform
such obligations hereunder.
12. If any term or provision of this Agreement shall be found to be illegal
or unenforceable, then notwithstanding such illegality or enforceability, this
Agreement shall remain in full force and effect and such term or provision
shall be deemed to be deleted. In addition, this Agreement shall be terminated
upon the determination by a governmental entity having jurisdiction over the
services provided under this Agreement.
13. Except as otherwise provided herein, the remedies provided for in this
Agreement are in addition to any other remedies available at law or in equity,
by statute or otherwise.
Page 2 of 3
<PAGE>
14. Should it be necessary for either party to this Agreement to retain
the services of an attorney to enforce its right under this Agreement, and
should any suit be necessary to enforce said rights, then the prevailing party
shall be entitled to receive reasonable attorney's fees from the other party.
15. This Agreement shall be governed by the laws of the State of Texas,
with venue at San Antonio, Texas.
16. This Agreement shall be binding upon and inure to the benefit of ATI
and Customer and their respective successors and assigns. ATI and Customer
retains the right to assign all or part of this Agreement. This Agreement may
not be assigned by Customer or ATI without the prior written consent of each
other.
17. This Agreement, including the exhibits hereto and the document and
instruments referred to therein, embodies the entire agreement and understanding
of the parties hereto in respect of the subject matter contained herein. There
are no restrictions, promises, representations, warranties, covenants or
undertakings, other than those expressly set forth or referred to herein. This
Agreement, and any documents and instrument contemplated hereby, supersedes all
prior agreements and understandings between the parties with respect to such
subject matter.
18. This Agreement may be amended, modified or supplemented only by an
instrument in writing executed by the party against which enforcement of the
amendment, modification of supplement is sought.
19. This Agreement may be executed in two (2) or more counterparts, each
of which shall be deemed an original. It shall not be necessary in making proof
of this Agreement to produce or account for more than one (1) of such
counterparts.
20. This Agreement shall use those terms and phrases unique to the
telecommunications industry and used within this Agreement shall be defined in
accordance with the everyday meaning assigned to the terms within the industry.
AMERICAN TELESOURCE INT. LONG DISTANCE EXCHANGE CORP.
By: [SIGNATURE ILLEGIBLE] BY: [SIGNATURE ILLEGIBLE]
------------------------- -------------------------
NAME: [SIGNATURE ILLEGIBLE] NAME: [SIGNATURE ILLEGIBLE]
----------------------- -----------------------
TITLE: VICE PRESIDENT SALES TITLE: PRESIDENT
---------------------- -----------------------
DATE: 12-13-94 DATE: 12/13/94
---------------------- -----------------------
Page 3 of 3
<PAGE>
EXHIBIT "A"
-----------
COMMISSION RATE: 40% OF GROSS BILLING + 100% OF (PIF) PROPERTY IMPOSED FEE, LESS
A BAD DEBT CHARGE OF 8%.
RATES WILL BE SET BY LEC ACCORDING TO THE FOLLOWING RATE TABLES. THE FOLLOWING
RATES WILL PAY 40%. LEC WILL RECEIVE A $0.75 PER MINUTE SURCHARGE ON ALL
COMPLETED MINUTES. AFTER 15 MINUTES THE RATE PER CALL WILL BE REDUCED TO $3.25
PER MINUTE AND ONLY THE 40% COMMISSION WILL APPLY.
RATE BAND (4)
CALLING CARD $4.00
COLLECT/3rd PARTY $4.00
PERSON TO PERSON $4.00
OTHER CARDS $4.00
BASE RATE PER MIN. $3.25 (END USER RATE $4.00 FIRST (15) MINUTES EACH ADD'L
$3.25 PER MINUTE.)
1.) PAYMENTS OF THE COMMISSIONS WELL BE PAID BY THE 25TH OF THE MONTH, AFTER THE
FIRST (30) DAYS OF TRAFFIC.
EXAMPLE: AUGUST IST ------- AUGUST 31ST REVENUE WILL BE PAID ON SEPTEMBER 25TH.
2.) IF FACTORING IS USED THERE WILL BE A 1% PER MONTH CHARGE ON THE NET
COMMISSIONS DUE TO THE AGENT. THE AGENT WILL BE ADVANCED 95% OF THE COMMISSION
WITH THE BALANCE PAID IN 60 DAYS.
3.) LEC WILL RECEIVE _________ SHARES OF STOCK UPON THE SIGNING OF THE CONTRACT.
THERE WILL BE _________ SHARES OF STOCK FOR EACH MONTH FOR $__________ ADDED
IN NEW BUSINESS.
Int.
[SIGNATURE ILLEGIBLE]
- ---------------------
[SIGNATURE ILLEGIBLE]
- ---------------------
_____________________
<PAGE>
EXHIBIT 10.6
AMERICAN TELESOURCE INTERNATIONAL INC.
1996 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to promote the interest of
-------
American Telesource International Inc. (the "Company") and its shareholders by
providing an effective means to attract, retain and increase the commitment of
certain individuals and to provide such individuals with additional incentive to
contribute to the success of the Company.
2. ELIGIBILITY. Options may be granted under the Plan to directors and
-----------
employees of, and advisors and consultants to, the Company, or of any parent or
subsidiary of the Company (if any) provided, however, in the case of consultants
or advisors, that such grant be in consideration of bona fide services rendered
by such consultant or advisor and such services not be in connection with the
offer or sale of securities in a capital-raising transaction. The Committee
(defined below) shall select from such eligible class the individuals to whom
Options shall be granted from time to time.
3. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a
--------------------------
Committee consisting of at least two outside directors (the "Committee"). No
member of the Committee shall have been, during the one-year period prior to
service as an administrator of the Plan, nor shall be, during service as an
administrator, granted or awarded options, rights, or equity securities under
the Plan or under any other plan of the Company or its affiliates except as
permitted in Section 5(F) of the Plan or Rule 16b-3 ("Rule 16b-3") under
------------
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). A quorum
of such Committee shall consist of a majority of the members of such Committee,
or as may be otherwise provided in the Company's bylaws. The Committee shall
hold meetings at such times and places and conduct its business at such meetings
as it may determine, subject to any express provisions of the Company's bylaws.
Acts of a majority of the Committee members attending at a meeting at which a
quorum is present, or such acts as are reduced to or approved in writing by the
majority of the members of the Committee, shall be the valid acts of the
Committee. The Committee shall from time to time in its discretion determine
which individuals shall be granted Options, the amount of shares covered by such
Options, and certain other specific terms and conditions of such Options subject
to the terms and conditions contained herein, including outside director Options
as set forth in Section 5(F).
------------
The Committee shall have the sole authority and power, subject to the
express provisions and conditions hereof, to construe this Plan and the Options
granted hereunder, and to adopt, prescribe, amend, and rescind rules and
regulations relating to this Plan, and to make all determinations necessary or
advisable for administering this Plan. The Committee shall also have the
authority and power to modify any provision of this Plan to render the Plan
consistent with any amendments to Rule 16b-3 or Form S-8 of the Securities Act
of 1933, as amended (the "Securities Act"), including amendments which permit
the grant of Options on terms which are less restrictive than the terms set
forth herein. The interpretation by the Committee of any provision of this Plan
with respect to any incentive stock option granted hereunder shall be in
accordance with section 422 of the Internal Revenue Code of 1986 and the
regulations issued thereunder, as amended from time to time (the "Internal
Revenue Code"), in order that the incentive stock options granted hereunder
("Incentive Stock Options") shall constitute "incentive stock options" within
the meaning of section 422 of the Internal Revenue Code. Options granted under
the Plan which are not intended to be Incentive Stock Options are referred to
herein as "Nonqualified Stock Options." The term "Options" as used herein shall
refer to Incentive Stock Options and Nonqualified Stock Options, either
collectively or without distinction. The interpretation and construction by the
Committee, if any, of any provisions of the Plan or of any Option
Appendix A - 1
<PAGE>
granted hereunder shall be final and conclusive. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option granted hereunder.
4. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 6, the
-------------------------- ---------
number of shares subject to Options granted hereunder shall not exceed 4,000,000
shares of the Company's authorized but unissued or reacquired Common Stock (the
"Common Stock"). Such number of shares shall be subject to adjustment as
provided in Section 6 (e.g., such number shall be adjusted to 2,000,000 shares
---------
in the event the proposed one-for-two reverse stock split of the Company's
Common Stock approved by the Board of Directors in June 1996 is effected).
Shares that by reason of the expiration, termination, cancellation or
surrender of an Option are no longer subject to purchase pursuant to an Option
granted under the Plan (other than by reason of exercise of such Option) may be
reoptioned hereunder.
5. TERMS AND CONDITIONS.
--------------------
(A) OPTION PRICE. Each Option shall state the number of shares that
------------
may be purchased thereunder, shall expressly designate such Option as an
Incentive Stock Option or a Nonqualified Stock Option, and shall state the
option price per share (the "Option Price") which shall be paid in the manner
specified in this Section 5(A) in order to exercise such Option. The Option
------------
Price shall not be less than 100% of the fair market value of the shares on the
day the Option is granted with respect to any Incentive Stock Option granted
hereunder, and not less than 100% of the fair market value of the shares on the
date the Option is granted with respect to any Nonqualified Stock Option.
For purposes of the Plan, the fair market value per share of the
Common Stock on any date shall be deemed to be the closing price of the Common
Stock on the principal national securities exchange on which the Common Stock is
then listed or admitted to trading, if the Common Stock is then listed or
admitted to trading on any national securities exchange. The closing price shall
be the last reported sale price regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices regular way,
as reported by said exchange. If the Common Stock is not then so listed on a
national securities exchange, the fair market value per share of the Common
Stock on any date shall be deemed to be the closing price (the last reported
sale price regular way) in the over-the-counter market as reported by the Nasdaq
National Market System, if the Common Stock closing price is then reported on
the Nasdaq National Market System, or, if the Common Stock closing price of the
Common Stock is not then reported by the Nasdaq National Market System, shall be
deemed to be the mean of the highest closing bid and lowest closing asked price
of the Common Stock in the over-the-counter market as reported by the National
Association of Securities Dealers Automated Quotation System ("Nasdaq") or, if
the Common Stock is not then quoted by Nasdaq, as furnished by any member of the
National Association of Securities Dealers, Inc. selected from time to time by
the Company for that purpose. If no member of the National Association of
Securities Dealers, Inc. furnishes quotes with respect to the Common Stock of
the Company, such fair market value shall be determined by resolution of the
Committee. Notwithstanding the foregoing provisions of this Section 5(A), if the
------------
Committee shall at any time determine that it is impracticable to apply the
foregoing methods of determining fair market value, the Committee is empowered
to adopt other reasonable methods for such purpose. The Committee may, if it
deems it appropriate, engage the services of an independent qualified expert or
experts to appraise the value of the Common Stock.
Options under the Plan may be exercised by payment of the Option Price
in cash or, if the Common Stock is then registered under the Exchange Act and is
then traded on Nasdaq or one or more securities exchanges, by delivery of the
equivalent fair market value of Common Stock or by a "cashless exercise"
procedure in which an Optionee is permitted to exercise an Option by arranging
with the Company and his or her broker to deliver the appropriate Option Price
from the concurrent market sale of the acquired shares, or a combination of the
foregoing (subject to the discretion of the Committee). An employee's
Appendix A - 2
<PAGE>
withholding tax due upon exercise of a Nonqualified Stock Option may be
satisfied either by a cash payment or the retention from the exercise of a
number of shares of Common Stock with a fair market value equal to the required
withholding tax, as the Committee may permit. For Optionees who are subject to
the reporting and other provisions of Section 16 under the Exchange Act (except
as may otherwise be permitted by the Committee, subject to compliance with Rule
16b-3), the election of a partial cash settlement of an Option in order to
satisfy the tax withholding requirement upon exercise of a Nonqualified Stock
Option may be made only during a ten-day "window" period each fiscal quarter
beginning on the third business day following the date of release of the
Company's financial data for the quarter and ending on the twelfth business day
following such date, and shall be subject to the approval of the Committee.
In addition, with respect to the exercise of any Nonqualified Stock
Option, the Committee (or an authorized representative) shall advise the
Optionee, upon receipt of notice of intent to exercise such Option, of the
income tax withholding consequences to such Optionee of such exercise, the
amount of the appropriate withholding tax and any other payments due by reason
thereof. Such Optionee must satisfy all of the preceding payment requirements in
order to receive stock upon exercise of such Option.
(B) OPTION PERIOD. Any Options granted pursuant to this Plan must be
-------------
granted within ten years from the date the Plan was adopted by the Board of
Directors of the Company (____________, 1996).
Each Option shall state the date upon which it is granted. Each Option
shall be exercisable during such period as is provided under the terms of the
Option, but in no event shall an Option be exercisable after the expiration of
ten years from the date of grant. Except in the case of death or disability,
Incentive Stock Options may be exercised within three months (or for such
shorter period as may be specified in the particular Option) after termination
of employment to the extent such Options were exercisable at the date of
termination, and Nonqualified Stock Options may be exercised after termination
of employment or other service to the Company for such period as may be
specified in the particular Option. In the event of the disability of an
Optionee, Incentive Stock Options may be exercised for up to one year after
disability of the Optionee, to the extent exercisable prior to the date of
disability. Nonqualified Stock Options may be exercised following the Optionee's
death or disability and Incentive Stock Options may be exercised following the
Optionee's death by such Optionee or by his or her estate, heirs, or devisees,
as the case may be, for such period thereafter as may be specified in the
particular Option.
(C) ASSIGNABILITY. An Option granted pursuant to this Plan shall be
-------------
exercisable during the Optionee's lifetime only by the Optionee and shall not be
assignable or transferable by the Optionee (except with the Committee's prior
written approval, and only in any such additional circumstances as shall not
affect the Plan's qualification with the requirements of the incentive stock
option provisions of the Internal Revenue Code, the requirements of Rule 16b-3
under the Exchange Act, or the plan eligibility requirements for the use of Form
S-8 of the Securities Act), and shall not be subject to levy, attachment or
similar process. Upon any other attempt to transfer, assign, pledge or otherwise
dispose of Options granted under this Plan, such Options shall immediately
terminate and become null and void.
(D) LIMIT ON 10% SHAREHOLDERS. No Incentive Stock Option may be granted
-------------------------
under this Plan to any individual who would, immediately after the grant of such
Incentive Stock Option directly or indirectly own more than 10% of the total
combined voting power of all classes of stock of the Company or of any parent or
subsidiary corporation unless (i) such Incentive Stock Option is granted at an
Option Price not less than 110% of the fair market value of the shares on the
date the Incentive Stock Option is granted, and (ii) such Incentive Stock Option
expires on a date not later than five years from the date the Incentive Stock
Option is granted.
Appendix A - 3
<PAGE>
(E) LIMITS ON OPTIONS. An individual may be granted one or more Options,
-----------------
provided that the aggregate fair market value (determined as of the time the
Option is granted) of Common Stock for which an individual may be granted
Incentive Stock Options that are first exercisable in any calendar year (under
all stock option plans of the Company and any parent or subsidiary corporations,
if any) may not exceed $100,000.
(F) OUTSIDE DIRECTORS OPTIONS. Each outside director of the Company (that
-------------------------
is, each director who is not also an employee of the Company) shall be
automatically granted Nonqualified Options for 7,500 shares (3,750 shares as
adjusted for a one-for-two reverse stock split) on an annual basis on the fifth
business day following the first public announcement, filing or release of the
Company's net income for the Company's preceding fiscal year. Such annually
awarded Options shall become exercisable in whole or in part from time to time
upon the first anniversary following the date of grant. In addition to such
automatic annual awards, each outside director who is a member of the Company's
Board of Directors immediately following the domestication of the Company from a
corporation existing under the laws of the Province of Ontario, Canada to a
corporation existing under the laws of the State of Delaware, United States of
America, and each director who joins the Company's Board of Directors thereafter
shall receive upon such election or appointment an automatic award of
Nonqualified Options for 75,000 shares (37,500 shares as adjusted for a one-for-
two reverse stock split) of Common Stock, which shall become exercisable in four
equal annual installments (9,375 shares each as adjusted for a one-for-two
reverse stock split) on the first, second, third and fourth anniversaries of the
date of grant. All of the foregoing Options, once granted and to the extent they
have become exercisable, shall remain exercisable throughout their term,
regardless of whether the holder continues to serve as a director, and such term
shall expire on the tenth anniversary following the date of grant. To the extent
any such Option is not yet exercisable upon termination of service, such Option
shall be terminated. The Option Price for all such automatic awards shall be
equal to 100% of the fair market value of the covered shares of Common Stock at
the time of grant. The provisions of this Plan regarding formula awards to
outside directors shall not be amended more than once every six months
thereafter, other than to comport with changes in the Internal Revenue Code, the
Employee Retirement Income Security Act, or the rules thereunder.
(G) RIGHTS AS SHAREHOLDER. An Optionee, or a transferee by will or
---------------------
inheritance of an Option, shall have no rights with respect to any shares
covered by an Option until the date of the issuance of a stock certificate for
such shares and the recording of such issuance upon the Company's stock ledger
by its duly appointed, regular transfer agent. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities or other
property) or distributions or other rights for which the record date is prior to
such date, except as provided in Section 6 hereof.
---------
(H) ADDITIONAL PROVISIONS. The Options authorized under this Plan shall
---------------------
contain such other provisions as the Board or Committee shall deem advisable,
including, without limitation, further restrictions upon the exercise of the
Option. Any Incentive Stock Option shall contain such limitations and
restrictions upon the exercise of the Option as shall be necessary in order that
the Option shall be an "incentive stock option" as defined in section 422 of the
Internal Revenue Code.
(I) COMPLIANCE WITH SECURITIES LAWS. At the time of exercise of any
-------------------------------
Option, the Company may require the Optionee to execute any documents or take
any action which may then be necessary to comply with the Securities Act and the
rules and regulations adopted thereunder, or any other applicable federal or
state laws regulating the sale and issuance of securities, and the Company may,
if it deems necessary, include provisions in the Options to assure such
compliance. The Company may from time to time change its requirements with
respect to enforcing compliance with federal and state securities laws,
including the request for, or insistence upon, letters of investment intent,
such requirements to be determined by the Company in its judgment as necessary
to assure compliance with said securities laws. Such changes may be made with
respect to any particular Option or to any stock issued upon exercise thereof.
Appendix A - 4
<PAGE>
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event of any
------------------------------------------
change in the number of issued and outstanding shares of Common Stock which
results from a stock split, reverse stock split, the payment of a stock dividend
or any other change in the capital structure of the Company, such as a merger,
consolidation, reorganization or recapitalization, the Committee shall
appropriately adjust (a) the maximum number of shares which may be issued under
this Plan, (b) the number of shares subject to each outstanding Option, and (c)
the Option Price per share thereof, so that upon exercise of the Option the
Optionee shall receive the same number of shares the Optionee would have
received had the Optionee been the holder of all shares subject to such
outstanding Options immediately before the effective date of such change in the
number of issued shares of the Common Stock of the Company. Any such adjustment
shall not result in or entitle the Optionee to the issuance of fractional
shares. Instead, appropriate adjustments to any such Option and, in the
aggregate, all other options of the Company of the same class (that is,
Incentive Stock Options or Nonqualified Options) held by each Optionee shall be
made so that such Option and other options of the same class, if any, held by
any such Optionee cover the greatest whole number of shares of the Common Stock
which does not exceed the number of shares which would be covered applying such
adjustments in the absence of any restriction on the issuance of fractional
shares. Any excess fractional share shall be redeemed in cash at the then-
current fair market value of the Common Stock (determined as provided in Section
-------
5(A) hereof) multiplied by the appropriate fraction of a share.
- ----
7. TERMINATION OR AMENDMENT OF THE PLAN. The Board of Directors may at
------------------------------------
any time suspend, amend, or terminate this Plan, provided that, except as set
forth in Section 6 hereof, no amendment may be adopted that will change the
---------
requirement that the Option Price be at least a specified percentage of the fair
market value of the Common Stock or change the provisions required for
compliance with section 422 of the Internal Revenue Code, except to conform to a
change in the requirements of such law or regulations thereof. Except as
otherwise specifically provided herein, the Board shall not, without the
approval of the shareholders of the Company, amend this Plan so as to materially
increase the benefits accruing to Optionees under the Plan, increase the
aggregate number of shares that may be issued under this Plan or materially
modify the requirements for eligibility for participation in the Plan. No
amendment or termination of the Plan shall, without the consent of the Optionee,
alter or impair any rights or obligations under any Option previously granted
under the Plan.
Appendix A - 5
<PAGE>
EXHIBIT 10.7
CREDIT CARD PROCESSING SERVICE AGREEMENT
----------------------------------------
This AGREEMENT is made and entered into as of the __________ day of ________,
19__ by and between __________________________________________________________
("Merchant") and National Bank of the Redwoods, a national banking association
("Bank")and member of VISA USA, Inc. ("VISA) and MasterCard International,
Incorporated ("MasterCard").
WHEREAS, Merchant is engaged in the business of providing telecommunications
services through pay telephones, call processors, card processing terminals
and/or operator systems operated by it (collectively, "Telecommunications System
Services"), the costs of which services are regularly charged by Merchant's
customers to credit cards maintained by such customers;
WHEREAS, Merchant, in order to receive payment for Telecommunications System
Services charged to customer credit cards, requires the assistance of a credit
card processing firm familiar with Telecommunication System Services;
WHEREAS, Transaction Billing Resources, Inc. ("TBR"), a New Jersey
corporation, and a Third Party Servicer ("TPS") registered as such with VISA and
a Member Service Provider ("MSP") registered as such with MasterCard, has
contracted with the Bank to provide through its proprietary automated system,
TSL-2000, processing services for credit card transactions of a type and nature
similar to those generated by Merchant; and
WHEREAS, Merchant wishes to engage the Bank to provide such credit card
processing services and the Bank is willing to do so on the terms and conditions
hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. DEFINITIONS. In addition to the terms defined elsewhere in this Agreement,
------------
when used herein, the following terms shall have the following meanings (such
meanings shall be equal and applicable to the singular and plural forms of the
terms used as the context requires):
a) "Audiotext Transaction" shall mean any use of a Card by a Card Holder in
-----------------------
order to obtain information or entertainment services, commonly referred to as
"pay-per-call" services, provided by telephone by information and/or
entertainment service providers.
b) "Cards" shall mean any credit, charge, and ATM debit cards accepted by
-------
Merchant for the payment of Telecommunication System Services provided by
Merchant to its customers and acceptable to the Bank. This section does not
include telephone prepaid calling cards.
c) "Card Comp" shall mean MasterCard, VISA and any other entity issuing Cards.
-----------
d) "Card Holder" shall mean (i) the person in whose name a Card is maintained
-------------
by the Card Company or (ii) an authorized user of the Card and/or Card number.
For purposes of this Agreement, parties agree that the person who submits the
Card number and the Card expiration date is presumed to be the Card Holder.
e) "Card Transaction" shall mean any use of a Card by a Card Holder in order
------------------
to obtain Telecommunication System Services.
f) "Chargeback" shall mean any Card Transaction which is considered by the
------------
relevant Card Company and/or the Bank to be invalid under the Operating
Regulations and/or which is returned to Merchant for reimbursement to the Bank.
1
<PAGE>
g) "0perating Regulations" shall mean the rules, bylaws, operating
-----------------------
regulations, procedures, fee schedules, and other requirements of Card
Companies, VISA and MasterCard Associations, and the Bank as may be amended from
time to time.
h) "Reserve Account" has the meaning ascribed to that term in paragraph 3(m)
-----------------
and Schedules A and B attached, hereof.
i) "Rules" shall mean the communication protocols and procedures specified
-------
in TBR's document entitled Set-up and Processing Guidelines and Record Format
as amended by TBR from time to time.
j) "Services" shall mean any and all Card Transaction processing functions
----------
performed by the Bank and/or TBR, the results of which are remitted to the
Merchant in the form of management reports and other means.
k) "Service Fees" has the meaning ascribed to that term in paragraph 4 hereof.
--------------
l) "TSI-2000" shall mean the proprietary system of hardware, software and
----------
management procedures employed by TBR in providing the Services on behalf of
the Bank.
2. RESPONSIBILITIES. The Bank shall perform the Services referenced in this
-----------------
paragraph. The Services cited as "optional" shall be performed by the Bank if
such Services are itemized in Schedule A attached hereto and incorporated herein
by this reference. The Bank shall:
a) provide to Merchant communications protocols and procedures specifications
in the Rules for transferring Card Transactions to the Bank's processing
facilities;
b) accept Card Transaction data transmitted in accordance with the Rules;
c) validate Card Transactions through TSL-2000 and process all such
Transactions through TBR's Batch validation process
d) Surcharge call transactions, as an optional service, according to the
Merchant's current rate schedule of optional surcharges and/or service charges
plus applicable taxes, all as supplied by the Merchant from time to time; any of
these manipulations of the transaction amount shall constitute surcharging;
e) edit and validate the contents of the Card Transactions provided, however,
that the Bank reserves the right to reject for processing any transaction that,
in the Bank's sole judgment and experience, is invalid or will not be honored by
the Card Company;
f) format and sort Card Transactions according to the Merchant relationship
requirements and transmit data to the Card Companies;
g) accept Chargebacks from the Card Companies in the name of the Merchant,
adjust remittances, and report such transactions to the Merchant;
h) report to the Merchant no later than fifteen (15) business days after the
close of a month for transactions during said month the total amount of Card and
Chargeback Transactions, rejects, Card Company clearing fees, Service Fees, and
any other costs resulting in the net remittance to the Merchant in accordance
with this agreement and with the schedules attached herewith;
i) report on the number and volume of the Card Transactions submitted by the
Merchant to Card Companies for clearing, except that the Bank shall not be
responsible for the reconciliation of those amounts with any amounts reported by
the Card Companies; the Bank's obligation extends only to the point where data
is submitted to the Merchant's Card Companies and that submission is reported to
the Merchant by the Bank;
2
<PAGE>
j) report to the Merchant on a monthly basis the performance of its
Telecommunications System Services in dollars and volume statistics by Card
Company in a form determined by the Bank;
k) maintain a database of supporting data from various sources necessary to
perform the Services;
l) perform Merchant set up and maintenance procedures from data supplied by
the Merchant as required to perform the Services in accordance with the Rules;
m) reprocess at its own expense any Card or Chargeback Transactions with
errors resulting from the failure of the Bank's equipment or errors by the
Bank's personnel; and
n) the parties hereto understand and agree that the Bank, at its sole
discretion, will utilize TBR to perform some of the above listed
responsibilities.
3. MERCHANT RESPONSIBILITIES. Merchant shall:
-------------------------
a) not deposit transactions that it knows or should have known to be
fraudulent or not authorized by the cardholder;
b) assure the proper functioning of its Telecommunications System Services and
promptly correct any malfunction at no cost to the Bank;
c) transfer exclusively all acceptable Card Transactions other than Audiotext
Transactions (unless otherwise specifically agreed to as provided under
paragraphs 7 and 17 hereof) to the Bank from its Telecommunications System
Services;
d) maintain adequate backup data in order to be able to regenerate such data
for a period of not less than two hundred (200) days;
e) provide the Bank with the data and in the form required by the Rules;
f) provide the Bank with accurate and up-to-date local, county and state tax
rates where applicable and shall remit tax amounts to all appropriate taxing
authorities;
g) authorize the Bank to withhold amounts as provided under this agreement and
all Schedules attached hereto.
h) pay an interest payment of one and one half percent (1.5%) per month with
respect to all payments owed the Bank which are more than thirty (30) days past
due for any reason including, but not limited to a dispute of the amount of the
payment;
i) use its best efforts to resolve any disputes promptly with Card Holders, in
accordance with applicable law and the Operating Regulations and allow
Chargeback Transactions against Merchant's Accounts for all Chargebacks in
accordance with the Operating Regulations;
j) provide a means to resubmit for clearing in accordance with the Rules any
Card Transactions previously rejected by the Bank or the Card Companies; all
such reprocessing shall be subject to the Service Fees as detailed in Schedules
attached; the Bank will not provide a means to clear ad hoc Card Transactions
submitted by any means except those specified in the Rules;
k) respond to any request by the Bank for clarification or explanation of any
Card Transaction submitted to the Bank for processing, within ten (10) days of
the request;
3
<PAGE>
l) make available personnel with reasonable levels of technical expertise to
assist in the resolution of any data processing/data communications matters
arising out of the Bank's provision of the Services;
m) authorize the Bank to establish a designated non-interest bearing reserve
account domiciled at Bank to cover future chargebacks, credits and other charges
that may result from Merchant's credit card activities pursuant to this
Agreement. Merchant expressly authorizes Bank to debit from Merchant's Daily
Income, the Reserve Requirement set forth in the Schedules attached.
n) furnish to the Bank upon seven (7) days' notice such financial statements
and other information concerning Merchant or its affiliates as the Bank from
time to time may reasonably request; and
o) be responsible for the accuracy and adequacy of data transferred pursuant
to paragraph 3(b) hereof.
p) upon reasonable request by the Bank, implement additional fraud control
measures designed to increase the accuracy and validity of the data being
captured by the Bank for submission into interchange.
q) upon reasonable request by Bank, provide Bank with copies, written
statements, and/or written descriptions of the following items:
i) merchant's advertisements, sales script, promotional materials and
operating manuals;
ii) the type of service or product offered by the merchant, the terms and
conditions of such sale
or offer, including current rates, the truthfulness and accuracy of
representations made to consumers and the adequacy of disclosures;
iii) complaints made about the services or products of the merchant;
iv) whether the merchant or any of its principals have been terminated by
any other credit card processor, and if so, why such termination occurred;
v) whether the merchant or its principals have been investigated by any
applicable federal or state law enforcement agency for states in which the
merchant has its principal place of business and up to five additional
states in which the merchant transacts significant amounts of business,
including the reason for such investigation and the outcome of it.
r) with reasonable notice given, allow Bank access to premises for onsite
inspection.
4. SERVICE FEES. In consideration of the Services performed by the Bank under
-------------
this Agreement, Merchant agrees to pay to the Bank certain amounts (hereinafter
collectively, "Service Fees") as set forth in the Pricing Schedules attached
hereto as Schedules A and B. The amount of any Service Fees may be unilaterally
changed from time to time by the Bank in its sole discretion by notifying the
Merchant in writing upon thirty (30) days notice of its intent to do so. The
merchant, upon such notification may at its discretion, terminate this agreement
within 45 days from the date of the Bank's notification of increased service
fees. The Service Fees shall be withheld by the Bank from the remittance due to
the Merchant pursuant to Schedule A and B, hereof.
5. TERM OF AGREEMENT. This Agreement shall be effective on the date first
------------------
written above when executed by authorized officers of each of the parties and
shall continue thereafter for a period of twenty-four (24) months (the "initial
Period"), unless otherwise terminated as provided herein. The Agreement shall
thereafter automatically renew for consecutive additional one (1) year terms
unless either party gives written notice 30 days prior to expiration of its
intent not to renew. Termination of this Agreement shall not terminate the
Merchant's obligations to pay the Bank for all invoiced amounts under this
Agreement. In the event of termination by either party, the Bank reserves the
right to hold what it deems to be a reasonable amount of the Merchant's funds
for a period of two hundred ten (210) days to cover possible Chargebacks by the
Card Companies or to cover amounts invoiced to the Merchant all in accordance
with Schedules A and B herewith.
4
<PAGE>
6. TERMINATION FOR CAUSE. This Agreement may be terminated in its entirety:
---------------------
a) effective immediately by the Bank any time after Merchant fails to provide
access by the bank to sufficient funds in the Reserve Account or otherwise fails
to pay any sum then due and payable under this Agreement. Merchant shall have
five (5) days to cure account status after which Bank has exclusive right to
terminate Agreement. If such an event occurs, Bank reserves the right to hold
what it deems to be a reasonable amount of the Merchants' funds for a period of
two hundred ten (210) days in accordance with subparagraph 7E of Schedule A
attached.
b) effective immediately by the Bank upon 90 days written notice to Merchant
of the termination of the Bank's Third Party Servicer Agreement with TBR. Upon
such event this Agreement shall immediately cease to be in effect and all
obligations on the part of the Bank to be observed, performed, complied with
and/or kept by it hereunder shall cease and no longer be an obligation on the
part of the Bank to be performed;
c) by the Bank, without prior notice, if, in the fulfillment of its
responsibilities herein defined, the Bank determines, in its sole discretion,
that such fulfillment in some way jeopardizes its relationship with the Card
Companies and/or other merchants;
d) by any party, not in breach of this Agreement, upon thirty (30) days
written notice to the other in the event the other materially breaches its
obligations hereunder, provided that such termination shall be deemed
ineffective if the breaching party cures its breach within such thirty (30) days
notice period; or
e) by either party upon notice to the other in the event the other party shall
elect to wind up or dissolve its operation or is wound up and dissolved; becomes
insolvent, makes assignment for the benefit of creditors; files voluntary
petition in bankruptcy or for reorganization or is adjudicated as bankrupt or
insolvent; or has a liquidator or trustee appointed over its affairs and such
appointment shall not have been terminated and discharged within thirty (30)
days thereof.
7. WARRANTIES. The Bank will use reasonable care and diligence in processing
----------
the transactions received from the Merchant, and the performance by the Bank of
the Services shall be consistent with industry standards. The Bank expressly
does not warrant the accuracy or performance of any software or hardware used or
owned by the Merchant or any other third party. The Bank does not warrant the
accuracy of information originated by a third party unless materially altered by
the Bank. This warranty and the Bank's obligations and liabilities hereunder are
in lieu of and the Merchant hereby waives all other guarantees and warranties
expressed or implied, arising by law or otherwise, including without limitation
any implied warranty of fitness for a particular purpose or of merchantability.
The Merchant warrants and represents to the Bank that it shall not submit to
the Bank any Audiotext Transactions unless otherwise specifically agreed to in
writing by the parties as provided under paragraph 17 hereof. Further, the
Merchant warrants and represents to the Bank that it has written authority to
operate all Telecommunications System Services not owned by the Merchant, and
agrees to supply evidence of that authority to the Bank upon request. The
Merchant also warrants and represents to the Bank that it has authority to do
business in any state requiring such authority and agrees to supply evidence of
certification to the Bank upon request.
8. INDEMNIFICATION. The Merchant hereby agrees to indemnify and hold harmless
---------------
the Bank and TBR and their directors, officers, employees and agents from and
against any and all losses and liabilities, damages, costs, expenses, and claims
of any and every kind whatsoever (including. without limitation, court costs and
attorney's fees) which at any time or from time to time hereunder may be
5
<PAGE>
paid, incurred, or suffered by, or asserted against, the Bank or TBR for, with
respect to, or as a direct or indirect result of, any acts or omissions by
Merchant and/or any officer, employee and/or agent of Merchant in connection
with or otherwise relating to or arising out of this Agreement. The provisions
of this paragraph shall survive the termination of this Agreement.
The Bank and TBR shall indemnify the Merchant against any and all liability,
loss or damage the Merchant may suffer as a result of claims, demands, costs or
judgments against the Merchant arising out of the Bank's or TBR's negligent
performance of the Services, except that such obligation to indemnify shall be
subject to the terms of paragraph 9 hereof. The provisions of this paragraph
shall survive the termination of this Agreement.
9. LIMITATION ON LIABILITY. The Bank's and TBR's liability to the Merchant
-----------------------
for any loss, injury, damage or expense arising directly or indirectly in
connection with the Services or otherwise pursuant to this Agreement, which
cannot otherwise be corrected by the terms of paragraph 2(m) hereof shall not
exceed the amount charged to the Merchant for the Services giving rise to said
loss, injury, damage or expense. The amount charged shall be the amount set
forth on the periodic invoice or report for the period in which such loss,
injury, damage or expense was sustained. Under no circumstances shall the Bank
or TBR be liable for special, direct, punitive, exemplary or consequential
damages, including without limitation any lost profits or any third party claims
against Merchant. This limitation of liability shall apply even if the
Merchant's loss, injury, damage or expense is caused by the Bank or TBR. The
provisions of this paragraph shall survive the termination of this Agreement.
10. CONFIDENTIALITY. Both parties agree not to disclose to any other party any
---------------
proprietary information acquired about the other unless such information becomes
public knowledge subsequent to this Agreement. Both parties further agree not to
disclose without the written consent of a Card Holder any information obtained
as a result of any transaction conducted by such Card Holder. The Merchant
agrees not to disclose the terms and contents of this Agreement including any
attachments to any competitor of the Bank or the Merchant. This paragraph is
specifically enforceable, but this shall not be in lieu of any other remedies or
damages provided by law.
11. SCOPE OF AGREEMENT. The parties acknowledge that the Bank is providing
------------------
only the Services described in this Agreement; that the Bank takes no title or
interest in the Card Transactions reported to it by the Merchant nor the
resulting tax amounts charged to the Card Holder; that this Agreement is
subordinate to the terms and conditions of the agreements between the Bank and
the Card Companies and all applicable laws; and that the Merchant agrees to be
bound to the terms and conditions to which the Bank is bound in its relations
with the Card Companies, should those terms and conditions affect the Services
the Bank provides to the Merchant. Should the provisions of this Agreement
become at variance with such contractual provisions or any applicable law or
regulations, then such contractual provision law or regulation shall govern and
the Merchant agrees to be bound by such changes upon receipt of written notice.
12. FORCE MAJEURE. The Bank shall not be liable for the failure to perform
-------------
its obligations under this Agreement if such failure is due to acts beyond its
control including, without limitation, acts of God; acts of the public enemy;
acts of government; civil disobedience; lock outs; freight embargoes; errors or
defects in data supplied by the Merchant or any third party; errors caused by
any computer software or hardware used by the Merchant or any third party which
is not the property of the Bank; computer and associated equipment outages,
failures, or downtime and delays in processing information due to causes other
than the negligence of the Bank; and any other cause or condition beyond the
Bank's control.
13. ARBITRATION. If, in the event of any dispute or controversy arising out
-----------
of this Agreement, its performance, or breach and the parties to it are unable
to settle the dispute themselves, such dispute shall be submitted to arbitration
in California. Said arbitration shall be initiated by written notice by either
party to the other party and shall be settled in accordance with the Uniform
Arbitration
6
<PAGE>
Act as adopted by the State of California, by a single arbitrator selected in
accordance with the Rules of the American Arbitration Association from a panel
of arbitrators provided by the American Arbitration Association who have
knowledge of credit card processing services for financial institutions. The
decision in writing of the panel shall be binding on the parties.
14. ASSIGNABILITY. The Bank may assign its rights and duties under this
-------------
Agreement to an entity of its choosing, provided that the assignee is, in the
Bank's reasonable judgment, capable of performing such obligations under this
Agreement. The Merchant may not assign its rights and duties under this
Agreement without the expressed written approval of the Bank, such approval not
to be unreasonably withheld.
15. NOTICES. Any notices to be given by one party to the other in connection
-------
with this Agreement shall be sent by certified mail, return receipt requested,
to the parties at the following addresses:
MERCHANT:
Company Name: American Telesource International, Inc.
------------------------------------------------------------------
Address: 12500 Network Boulevard, Suite 407
-----------------------------------------------------------------------
San Antonio, Texas 78249
- -------------------------------------------------------------------------------
Attn: Cindi Smith
--------------------------------------------------------------------------
BANK. National Bank of the Redwoods
111 Santa Rosa Avenue
Santa Rosa, CA 95404
Attn: David Wattell, SVP
National Bank of the Redwoods - BankCard Services
1 Santa Rosa Avenue
Santa Rosa, CA 95404
Attn: Susan Horne, AVP/Manager
WITH A COPY TO TBR.
Transaction Billing Resources, Inc.
23 Village Court
Hazlet, New Jersey 07730
Attn: President
Either party may change the address to which notice shall be sent by notice
given in accordance with this paragraph.
16. GOVERNING LAW. This Agreement shall be governed by and interpreted
-------------
according to the laws of the State of California.
17. ENTIRE AGREEMENT:BINDING EFFECT. This Agreement sets forth the entire
-------------------------------
Agreement between the parties hereto and supercedes any prior negotiations or
understandings between the parties concerning the subject matter hereof. This
Agreement shall be binding upon and inure to the benefit of the Parties hereto
and their successors and permitted assigns. This Agreement may be amended only
in writing signed by the parties hereto.
18. INTELLECTUAL PROPERTY. All hardware, software and management procedures
---------------------
constituting TSL-2000 and otherwise utilized by the Bank in providing the
Services hereunder, and any copies thereof, are proprietary to TBR and Bank and
title thereto remains in TBR and/or Bank. All applicable rights to patents,
copyrights, trademarks and trade secrets in such materials or any modifications
thereto are and shall remain in TBR and/or Bank. To the extent that the Merchant
obtains access or otherwise becomes aware of any such material or information,
the Merchant shall not sell,
7
<PAGE>
transfer, publish, disclose, license, display or otherwise make available such
information or materials to others.
19. WAIVER: SEVERABILITY. The Bank's failure at any time to enforce any
--------------------
provisions of this Agreement or any rights with respect thereto, or to exercise
any option herein provided, shall in no way be construed to be a waiver of such
provisions, rights, or options or in any way to affect the validity of this
Agreement. The failure of the Bank to exercise any rights or options under the
terms or covenants herein shall not preclude or prejudice the exercising
thereafter of the same or any other right under this Agreement. In the event
that one or more of the provisions contained herein shall for any reason be held
to be unenforceable in any respect under the laws of the jurisdiction governing
the entire Agreement, such enforceability shall not affect any other provisions
of this Agreement, but this Agreement shall be construed as if such
unenforceable provision or provisions had never been contained herein.
20. RESTRICTION ON EMPLOYMENT. With respect to the investment TBR has in
-------------------------
providing the Services and the proprietary nature of the Services (herein
described in paragraph 18 hereof), during the entire term of this Agreement and
for a period of one (1) year subsequent to the termination of this Agreement,
neither TBR nor the Merchant, without the prior written consent of the affected
party, shall hire, seek to hire, or refer for other employment any current
employee or employee during the prior twelve-month period of such affected party
having knowledge or familiarity with TSL-2000 or any of its successor systems.
21. TAXES. It is understood and agreed that the fees paid to the Bank by the
-----
Merchant for providing the Services are exclusive of any and all applicable
taxes or assessments, whether designated as sales taxes, use taxes, ad valorem
taxes, property taxes or by some other name or designation, and including any
interest or penalties thereon, which may be levied upon or assessed by any
governmental or taxing jurisdiction in connection with the performance of the
Services and that should such taxes be levied upon or assessed, the
responsibility for payment is the sole obligation of the Merchant. It is
understood that this paragraph is in no way related to the amount of tax on the
transaction which is charged to the Card Holder.
22. AUTHORITY TO EXECUTE AGREEMENT. The Merchant, Bank and TBR, hereby agree
------------------------------
and warrant that they have full power and legal right and authority to execute,
deliver and perform under this Agreement, and that the officers executing this
Agreement on behalf of each entity, have full power and authority to do so.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
and year first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE
ENFORCED BY THE PARTIES.
MERCHANT:
By: /s/ Doug Saathoff America Telesource International, Inc.
--------------------------------------------------
Name: Doug Saathoff
------------------------------------------------
Title: Vice President Finance
-----------------------------------------------
NATIONAL BANK OF THE REDWOODS TRANSACTION BILLING RESOURCES, INC.
By:_____________________________ By: ________________________________
NAME: SUSAN HORNE NAME: ______________________________
-----------
Title: AVP/Manager
-----------
BankCard Services Title:______________________________
-----------------
8
<PAGE>
SCHEDULE A
TELEPHONY PRICING SCHEDULE FOR CREDIT CARDS
-------------------------------------------
1. BANK CARD COMPANY DISCOUNT RATES
--------------------------------
VISA - via National Bank of the Redwoods,
Santa Rosa, CA 2.00% + $0.11
Mastercard - via National Bank of the Redwoods,
Santa Rosa, CA 2.18% + $0.10
2. PROCESSING FEES
---------------
CLIENT GROSS REVENUES PER TRANSACTION
ON VALID TRANSACTIONS PROCESSING FEE
(PER MONTH) % + $.XX
First $50,000 3.3% + $0.14
Next $50,000 2.9% + 0.14
Next $100,000 2.7% + 0.13
All Over $200,000 2.5% + 0.12
Processing fees are subject to the following minimums:
Per transaction $0.12
Per month $900.00
3. BATCH VALIDATION (MANDATORY) included in Processing Fees
-------------------------------------
4. REPRESENTMENT AND CHARGEBACK FEES $2.50 per Representment
---------------------------------
$4.95 per Chargeback
5. SET-UP FEES A one-time fixed fee of $1,000
-----------
6. OPTIONAL SERVICES
-----------------
Surcharging $0.065
7. RESERVE ACCOUNT
---------------
A) Provided that Merchant's actual Chargebacks are within the limits
established by the then effective operating regulations of VISA and/or
MasterCard, (such limits currently in effect as of the date of this
agreement are shown in Paragraph 8 below) the Reserve Account
collection rate will be set by Bank at the rate of twenty percent
(20%) of each gross monthly deposit, with a holding period of six (6)
months. In the event that Merchant's actual Chargebacks exceed the
limits established by VISA and/or MasterCard, Bank retains the right
to increase the Reserve Account collection rate by a minimum of four
percent (4%) of each gross monthly deposit for every one percent (1%)
or part thereof that actual Chargebacks exceed the applicable VISA
and/or MasterCard limit, up to a maximum of one hundred percent (100%)
of each gross monthly deposit, and to increase the holding period by a
minimum of one additional month for each one percent (1%) or part
thereof that actual Chargebacks exceed the applicable VISA and/or
MasterCard limit, up to the entire period of time that any such
Chargebacks remain valid under VISA and/or MasterCard rules and
regulations then in effect.
B) Additionally, if Merchant has an extraordinary dollar amount or
number of transactions which have been or are likely to be charged
back to Bank pursuant to the then effective operating regulations of
VISA and/or MasterCard.
1
<PAGE>
SCHEDULE A
Bank reserves the right to provide Merchant with thirty (30) days
prior written notice of Bank's intent to terminate this Agreement.
If, during such thirty (30) day notice period, Merchant is successful
in reducing its chargeback ratio to a level which complies with the
then effective operating regulations of VISA and/or MasterCard, then
Bank agrees to reconsider its intent to terminate this Agreement, and
to negotiate with Merchant the terms and conditions pursuant to which
Bank would be willing to continue its contractual relationship with
Merchant under a modified agreement.
C) If, due to any action by Merchant, the Bank receives notification
from VISA or MasterCard indicating the possible imposition of fines or
fees in accordance with the then applicable operating regulations, the
Bank reserves the right to withhold an amount it deems appropriate
until such notification has been rescinded by the notifying
association.
D) If the merchant's current monthly deposit exceeds an average of the
previous four months deposit by 25%, the Bank may, at its sole
discretion, withhold an amount deemed appropriate until such time as
the bank is satisfied such increase represents a valid increase in the
merchant's business. It is incumbent upon the merchant to advise the
Bank and TBR of such increase prior to submission of records for
processing.
E) Upon Notice of Termination of this Agreement by either party,
Merchant understands that Bank cannot determine with certainty whether
a sale will be charged back to Bank until the chargeback period
expires as to that sale. Therefore, Bank shall have the right to
suspend Merchant's right to withdraw any funds from any deposit
account maintained by Merchant with Bank, including, without
limitation, merchant's designated deposit account; provided, however,
that Bank shall not suspend such right in a fashion which would
deprive Merchant of the use of its deposit account or accounts beyond
the extent required to assure Bank's ability to recover from Merchant,
all chargebacks, fees, fines and other amounts reasonably estimated by
Bank that will become due to Bank. Bank will notify the Merchant in
writing within seven (7) days after any termination notice to
Merchant, the amount, if any, and holding period of funds, not to
exceed 210 days, to be withheld under the provisions of this
subparagraph E). Bank further agrees to reinstate Merchant's right to
withdraw funds from its deposit accounts upon delivery to Bank of a
bond, letter of credit or another undertaking or collateral security
reasonably believed by Bank to protect Bank's interests relative to
such amounts reasonably estimated by Bank that will become due to
Bank. The specific rights granted Bank in this Section 7.E shall not
be deemed to limit the generality of the rights granted Bank elsewhere
in this Agreement with respect to withholding payments, the creation
of exercise of security interests or otherwise.
Funds deducted by Bank from each gross monthly deposit for the Reserve
Account shall be deposited in a non-interest bearing blocked account.
Funds shall be released by Bank from the Reserve Account to Merchant,
monthly on a first-in first-out (FIFO) basis at the expiration of the
applicable holding period.
8. MAXIMUM NUMBER OF ALLOWABLE CHARGEBACKS AS A PERCENTAGE (%)
-----------------------------------------------------------
OF MONTHLY SALES COUNT
----------------------
<TABLE>
<S> <C> <C>
Customer Dispute Chargebacks VISA 1.00%
MasterCard 2.50%
Overall Chargebacks VISA 3.00%
MasterCard 8.00%
</TABLE>
2
<PAGE>
SCHEDULE A
9. PAYMENT SCHEDULE
----------------
Demand Deposit Account - Merchant hereby acknowledges that Bank
requires Merchant to establish a designated non-interest bearing
Demand Deposit Account domiciled at Bank to clear debits and credits
owing between the parties to this Agreement. Bank shall credit
Merchant's Daily Income to Merchant's Demand Deposit Account, less the
following fees and charges (as set forth above on this Schedule A, as
such Schedule may be amended from time to time): (i) Discount and
Processing Fees; (ii) Credits, Credit and Chargeback Fees, and any
fines or penalties imposed on Bank by VISA or MasterCard and arising
from Merchant's BankCard activities; (iii) Security Deposit Reserve
requirements, as provided above, and (iv) any other amounts that
become due and payable from Merchant to Bank hereunder. Merchant
hereby acknowledges Bank's entitlement to any and all of the
aforementioned fees and charges, and expressly authorizes Bank to
deduct such fees and charges from Merchant's Daily Income, Merchant's
Demand Deposit Account, and Merchant's Reserve Account.
Merchant hereby authorizes Bank to hold the Daily Income for five (5)
business days. After the five-business day holding period, Bank will
remit the net balance in the Demand Deposit Account to Merchant via an
ACH transfer to a financial institution designated by the Merchant.
1O. The rights and obligations of National Bank of the Redwoods (Bank) under
the Credit Card Processing Service Agreement are limited to transactions
involving only Bank Cards (VISA and MasterCard) and Bank will have no
rights or obligations under this agreement with respect to transactions
involving other cards (Travel and Entertainment cards such as American
Express, Diners, Carte Blanche, Discover, etc.)
MERCHANT/COMPANY NAME [ILLEGIBLE]
---------------------------------------
Signature [SIGNATURE ILLEGIBLE]
--------------------------------------------------
By: [ILLEGIBLE]
---------------------------------------------------------
(print or type name)
Date: 2-15-95
-------------------------------------------------------
3
<PAGE>
SCHEDULE B
TELEPHONY PRICING SCHEDULE FOR CREDIT CARDS
-------------------------------------------
1. TRAVEL & ENTERTAINMENT CARD COMPANY DISCOUNT RATES
--------------------------------------------------
Diners/Carte Blanche 4.90%
American Express 4.90%
Discover Rate quoted by
Discover
2. PROCESSING FEES
---------------
CLIENT GROSS REVENUES PER TRANSACTION
ON VALID TRANSACTIONS PROCESSING FEE
(PER MONTH) % + $.XX
First $50,000 3.3% + $0.14
Next $50,000 2.9% + 0.14
Next $100,000 2.7% + 0.13
All Over $200,000 2.5% + 0.12
For the purpose of determining the above Gross Revenues to apply volume
discount calculations to the Per Transaction Processing Fee, Gross Revenues
for Bank and Travel & Entertainment Card revenues will be aggregated.
Processing fees are subject to the following minimums:
Per transaction $0.12
Per month $900.00
3. BATCH VALIDATION (MANDATORY)Included in Processing Fees
----------------------------
4. REPRESENTMENT AND CHARGEBACK FEES $2.50 per Representment
---------------------------------
$4.95 per Chargeback
5. OPTIONAL SERVICES
-----------------
Surcharging $0.065
6. RESERVE ACCOUNT - TRAVEL & ENTERTAINMENT CARDS
----------------------------------------------
A) Provided that Merchant's actual Chargebacks are within acceptable
limits for each Travel & Entertainment Card processed, the Reserve
Account collection rate will be set at the rate of twenty percent
(20%) of each gross monthly deposit, with a holding period of six (6)
months. In the event that Merchant's actual Chargebacks exceed the
limits, the Reserve Account collection rate may be increased by a
minimum of four percent (4%) of each gross monthly deposit for every
one percent (1%) or part thereof that actual Chargebacks exceed 5% of
that month's Gross Monthly Deposit, up to a maximum of one hundred
percent (100%) of each gross monthly deposit, and the holding period
may be increased by a minimum of one additional month for each one
percent (1%) or part thereof that actual Chargebacks exceed 5% of that
month's gross monthly deposit, up to the entire period of time that
any such Chargebacks remain valid under rules and regulations then in
effect.
B) Additionally, if Merchant has an extraordinary dollar amount or
number of transactions which have been or are likely to be charged
back pursuant to the then effective operating regulations of the card
companies, TBR reserves the right to provide Merchant with thirty (30)
days prior written notice of it's intent to terminate this Agreement.
1
<PAGE>
SCHEDULE B
If. during such thirty (30) day notice period, Merchant is successful
in reducing its chargeback ratio, then TBR agrees to reconsider its
intent to terminate this Agreement, and to negotiate with Merchant the
terms and conditions pursuant to which TBR would be willing to
continue its contractual relationship with Merchant under a modified
agreement.
C) If the merchant's current monthly deposit exceeds an average of the
previous four months deposit by 25%, TBR may, at its sole discretion,
withhold an amount deemed appropriate until such time as TBR is
satisfied such increase represents a valid increase in the merchant"s
business. It is incumbent upon the merchant to advise TBR of such
increase prior to submission of records for processing.
D) Upon Notice of Termination of this Agreement by either party,
Merchant understands that TBR cannot determine with certainty whether
a sale will be charged back to TBR until the chargeback period expires
as to that sale. Therefore, TBR shall have the right to suspend
Merchant's right to future payments provided, however, that TBR shall
not suspend such right in a fashion which would deprive Merchant of
the use of its funds beyond the extent required to assure TBR's
ability to recover from Merchant, all chargebacks, fees, fines and
other amounts reasonably estimated by TBR that will become due to TBR.
TBR will notify the Merchant in writing within seven (7) days after
any termination notice to Merchant, the amount, if any, and holding
period of funds to be withheld under the provisions of this
subparagraph D). TBR further agrees to reinstate Merchant's right to
withdraw funds from its accounts upon delivery to TBR of a bond,
letter of credit or another undertaking or collateral security
reasonably believed by TBR to protect TBR's interests relative to such
amounts reasonably estimated by TBR that will become due to TBR. The
specific rights granted TBR in this Section 6.D shall not be deemed to
limit the generality of the rights granted TBR elsewhere in this
Agreement with respect to withholding payments, the creation of
exercise of security interests or otherwise.
Funds deducted by TBR from each gross monthly deposit for the Reserve
Account shall be deposited in a non-interest bearing blocked account.
Funds shall be released by TBR from the Reserve Account to Merchant,
monthly on a first-in flrst-out (FIFO) basis at the expiration of the
applicable holding period.
7. PAYMENT SCHEDULE
----------------
TBR will send an estimated settlement report and remit to the Merchant
by the fifteenth (15) business day after the twentieth (20th) day of
each month an amount equal to seventy percent (70%) of the gross
amount (including surcharges, service charges and/or taxes where
applicable) of settled Card Transactions received between the first
(lst) and the twentieth (20th) day of each month less the sum of all
----
Chargebacks, Card Company clearing fees, Service Fees under Schedule A
and Schedule B, Card Company charges for fines and/or penalties, funds
necessary to maintain the Required Reserve, actual or projected, and
any other costs incurred in providing the Services (such settled Card
Transactions less offsets shall hereinafter be referred to as "Net
Card Transactions"). Notwithstanding the foregoing, such remittance
shall be made only if the remittance is greater than One Thousand
Dollars ($1,000.00). Any remittance not made In accordance with the
foregoing shall be remitted with
2
<PAGE>
SCHEDULE B
the final settlement as provided hereinafter. The remaining thirty
percent (30%) of the Net Card Transactions for the period between the
first (lst) and the twentieth (20th) of each such month and the Net
Card Transactions for the remaining days of each such month shall be
remitted to Merchant by the fifteenth (15th) business day after the
close of such month, along with a complete set of management reports
as described in Paragraph 2(h) and 2(i) of the Credit Card Processing
Service Agreement.
8. With respect to transactions involving Travel and Entertainment Cards
(American Express, Diners, Carte Blanche, Discover, etc.). National Bank of
the Redwoods (Bank) will have no rights or obligations under the Credit
Card Processing Service Agreement and TBR will have all such rights and
obligations of Bank with respect to such transactions. TBR will be deemed a
party to the agreement for Travel and Entertainment Cards by signing this
Schedule B.
[ILLEGIBLE]
- ------------------------------ TRANSACTION BILLING RESOURCES, INC.
MERCHANT/COMPANY NAME
Signature [SIGNATURE] Signature
--------------------- ________________________
By: [ILLEGIBLE] By:
-------------------------- ______________________________
(PRINT OR TYPE NAME) (PRINT OR TYPE NAME)
Date: [ILLEGIBLE] Date:
------------------------ ____________________________
3
<PAGE>
SCHEDULE B1
NATIONAL BANK OF THE REDWOODS AUTHORIZATION FOR AUTOMATIC DEPOSITS
- --------------------------------------------------------------------------------
AMERICAN TELESOURCE INTERNATIONAL, INC. 74-2690875
- --------------------------------------------------------------------------------
COMPANY NAME COMPANY TAX I.D. NUMBER
12500 NETWORK BLVD., SUITE 407
- --------------------------------------------------------------------------------
COMPANY ADDRESS
SAN ANTONIO TX 78249
- --------------------------------------------------------------------------------
CITY STATE ZIP
- --------------------------------------------------------------------------------
I HEREBY AUTHORIZE NATIONAL BANK OF THE REDWOODS TO INITIATE CREDIT ENTRIES TO
MY ACCOUNT AT THE FINANCIAL INSTITUTION INDICATED BELOW.
FIRST NATIONAL BANK, LIBERTY BRANCH 114000093
- --------------------------------------------------------------------------------
FINANCIAL INSTITUTION NAME FINANCIAL INSTITUTION ROUTING #(ABA#)
11900 BORNEO ROAD
- --------------------------------------------------------------------------------
FINANCIAL INSTITUTION ADDRESS
SAN ANTONIO TEXAS 78216
- --------------------------------------------------------------------------------
CITY STATE ZIP
LIBERTY BRANCH
- --------------------------------------------------------------------------------
BRANCH
- --------------------------------------------------------------------------------
ACCOUNT TYPE: [X] CHECKING AMOUNT:_____ ACCOUNT # EFFECTIVE DATE:
[_] SAVINGS AMOUNT:_____ 080080772 EXPIRATION DATE:
- --------------------------------------------------------------------------------
THIS AUTHORITY IS TO REMAIN IN FULL FORCE AND EFFECT UNTIL "COMPANY" HAS
RECEIVED WRITTEN NOTIFICATION FROM ME OF ITS TERMINATION IN SUCH TIME AND IN
SUCH MANNER AS TO AFFORD "COMPANY" AND NATIONAL BANK OF THE REDWOODS A
REASONABLE OPPORTUNITY TO ACT ON IT.
SIGNATURE:[SIGNATURE ILLEGIBLE] DATE: 2-14-95
--------------------- ---------
[ILLEGIBLE]
---------------------
NAME (Print Please)
PLEASE INCLUDE VOIDED
CHECK OR DEPOSIT SLIP
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DOMESTICATION
OF
AMERICAN TELESOURCE INTERNATIONAL INC.
AMERICAN TELESOURCE INTERNATIONAL INC. (the "Corporation"), a corporation
presently organized and existing under the laws of the Province of Ontario,
Canada, and which is domesticating to the State of Delaware pursuant to section
388 of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: the Corporation was first incorporated on December 17, 1993, under
the laws of the Province of Alberta, Canada.
SECOND: the name of the Corporation immediately prior to the filing of this
Certificate of Domestication was American Telesource International Inc.
THIRD: the name of the Corporation as set forth in its Certificate of
Incorporation filed in accordance with section 388(b) of the General Corporation
Law of the State of Delaware is American Telesource International Inc.
FOURTH: the principal place of business of the Corporation immediately
prior to the filing of this Certificate of Domestication was located in the
State of Texas.
FIFTH: a Certificate of Incorporation of American Telesource International,
Inc. is being filed contemporaneously with the filing of this Certificate of
Domestication.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Domestication to be signed by __________, its __________, who is authorized to
sign this Certificate of Domestication on behalf of the Corporation, on
__________, 1996.
AMERICAN TELESOURCE INTERNATIONAL INC.
By:___________________________________
Name:_________________________________
Title:________________________________
<PAGE>
EXHIBIT 3.4
ATSI MERGER CORP.
CERTIFICATE OF INCORPORATION
THE UNDERSIGNED, acting as the incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware, hereby
adopts the following Certificate of Incorporation for such corporation:
ARTICLE I.
NAME
The name of this company (the "Company") is ATSI Merger Corp.
ARTICLE II.
BUSINESS
The purpose of the Company is to engage in any lawful act or activity for
which corporations may be organized under the Delaware General Corporation Law.
ARTICLE III.
AUTHORIZED CAPITAL STOCK
A. Authorization of Shares
-----------------------
The total number of shares of capital stock which the Company shall
have the authority to issue is 55,000,000 shares, consisting of 50,000,000
shares of common stock, par value $0.001 per share ("Common Stock"), and
5,000,000 shares of preferred stock, par value $0.001 per share ("Preferred
Stock").
B. Common Stock
------------
(1) Dividends. The holders of shares of Common Stock shall be
---------
entitled to receive such dividends as from time to time may be declared by
the Board of Directors of the Company, subject to any preferential payments
to which the holders of shares of any series of Preferred Stock shall be
entitled as may be stated and expressed pursuant to the resolution
establishing any such series of Preferred Stock.
(2) Liquidation. In the event of any liquidation, dissolution or
-----------
winding up of the Company, whether voluntary or involuntary, after payment
shall have been made to any holders of shares of any series of Preferred
Stock then outstanding of the full amounts
<PAGE>
of preferential payments to which they shall respectively be entitled as
may be stated and expressed pursuant to the resolution establishing any
such series of Preferred Stock, the holders of shares of Common Stock then
outstanding shall be entitled to share ratably based upon the number of
shares of Common Stock held by them in all remaining assets of the Company
available for distribution to its shareholders.
(3) Voting Rights. All shares of Common Stock shall be identical with
-------------
each other in every respect. The shares of Common Stock shall entitle the
holders thereof to one vote for each share upon all matters upon which
shareholders have the right to vote.
C Preferred Stock
---------------
The Board of Directors is authorized to establish, from time to time,
one or more series of any class of shares, to increase or decrease the number
within each series, and to fix the designations, powers, preferences and
relative, participating, optional or other rights of such series and any
qualifications, limitations or restrictions thereof.
ARTICLE IV.
REGISTERED OFFICE
The street address of the Company's registered office in the State of
Delaware is 1013 Centre Road, Wilmington, New Castle County, Delaware 19805, and
the name of its registered agent at such address is Corporation Service
Company.
ARTICLE V.
ELECTION OF DIRECTORS
A. The business and affairs of the Company shall be conducted and managed
by, or under the direction of, the Company's Board of Directors (the "Board").
The total number of directors constituting the entire Board shall be fixed and
may be altered from time to time by or pursuant to a resolution passed by the
Board.
B. The Board shall be divided into three classes, Class A, Class B, and
Class C. Such classes shall be as nearly equal in number of directors as
possible. Each director shall serve for a term expiring at the third annual
meeting following the annual meeting at which such director was elected;
provided, however, that the directors first elected to Class A shall serve for
an initial term expiring at the annual meeting following the end of the
Company's 1996 fiscal year, the directors first elected to Class B shall serve
for an initial term expiring at the second annual meeting next following the end
of the Company's 1996 fiscal year, and the directors first elected to Class C
shall serve for an initial term expiring at the third annual meeting next
following the end of the Company's 1996 fiscal year. The foregoing
notwithstanding, except as otherwise provided in this Certificate or any
resolution or resolutions of the Board designating a series of Preferred Stock,
directors who are elected at an annual meeting of stockholders, and directors
elected in the interim to fill vacancies and newly created directorships, shall
hold office for the
2
<PAGE>
term for which elected and until their successors are elected and qualified or
until their earlier death, resignation or removal. Whenever the holders of any
class or classes of stock or any series thereof shall be entitled to elect one
or more directors pursuant to any resolution or resolutions of the Board
designating a series of Preferred Stock, and except as otherwise provided herein
or therein, vacancies and newly created directorships of such class or classes
or series thereof may be filled by a majority of the directors elected by such
class or classes or series thereof then in office, by a sole remaining director
so elected or by the unanimous written consent or the affirmative vote of a
majority of the outstanding shares of such class or classes or series entitled
to elect such director or directors.
C. Except as otherwise provided for herein, newly created directorships
resulting from any increase in the authorized number of directors, and any
vacancies on the Board resulting from death, resignation, disqualification,
removal or other cause, may be filled only by the affirmative vote of a majority
of the remaining directors then in office, even though less than a quorum of the
Board. Any director elected in accordance with the preceding sentence shall hold
office for the remainder of the full term of the newly created directorship or
for the directorship in which the vacancy occurred, and until such director's
successor shall have been duly elected and qualified, subject to his earlier
death, disqualification, resignation or removal. Subject to the provisions of
this Certificate, no decrease in the number of directors constituting the Board
shall shorten the term of any incumbent director.
D. Except as otherwise provided in any resolution or resolutions of the
Board designating a series of Preferred Stock, any director may be removed from
office only by the affirmative vote of the holders of 66 2/3% or more of the
combined voting power of the then-outstanding shares of capital stock of the
Company entitled to vote at a meeting of stockholders called for that purpose,
voting together as a single class.
ARTICLE VI.
MEETINGS OF STOCKHOLDERS
A. Meetings of stockholders of the Company ("Stockholder Meetings") may
be held within or without the State of Delaware, as the Bylaws may provide.
Except as otherwise provided in any resolution or resolutions of the Board
designating a series of Preferred Stock, special Stockholder Meetings may be
called only by (i) the President of the Company or (ii) the Board pursuant to a
resolution adopted by a majority of the then-authorized number of directors of
the Company. Special Stockholder Meetings may not be called by any other person
or persons or in any other manner. Elections of directors need not be by written
ballot unless the Bylaws of the Company (the "Bylaws") shall so provide.
B. In addition to the powers conferred on the Board by this Certificate
and by the Delaware General Corporation Law, and without limiting the generality
thereof, the Board is specifically authorized from time to time, by resolution
of the Board without additional authorization by the stockholders of the
Company, to adopt, amend or repeal the Bylaws, in such form and with such terms
as the Board may determine, including, without limiting the generality of the
foregoing, Bylaws relating to (i) regulation of the procedure for submission by
stockholders
3
<PAGE>
of nominations of persons to be elected to the Board, (ii) regulation of the
attendance at annual or special Stockholder Meetings by persons other than
holders of record or their proxies, and (iii) regulation of the business that
may properly be brought by a stockholder of the Company before an annual or
special meeting of stockholders of the Company.
ARTICLE VII.
STOCKHOLDER CONSENT
Except as otherwise provided in any resolution or resolutions of the Board
designating a series of Preferred Stock, no action that is required or permitted
to be taken by the stockholders of the Company at any annual or special meeting
of stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board.
ARTICLE VIII.
LIMITATION OF LIABILITY
A director of the Company shall not be personally liable to the Company or
its stockholders for monetary damages for breach of fiduciary duty as a
director; provided, however, that this Article shall not eliminate or limit the
liability of a director: (i) for any breach of the director's duty of loyalty to
the Company or stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
section 174 of the Delaware General Corporation Law, or (iv) for any transaction
from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is amended after the date of filing
of this Certificate to authorize corporate action further limiting or
eliminating the personal liability of a director, then the liability of the
directors of the Company shall be limited or eliminated to the fullest extent
permitted by the Delaware General Corporation Law, as so amended. Any repeal or
modification of this Article by the stockholders of the Company or otherwise
shall not adversely affect any right or protection of a director of the Company
existing at the time of such repeal or modification.
ARTICLE IX.
SECTION 203
The Company shall be governed by Section 203 of the Delaware General
Corporation Law.
4
<PAGE>
ARTICLE X.
INDEMNIFICATION
The Company shall indemnify each director and officer of the Company who
may be indemnified, to the fullest extent permitted by Section 145 of the
Delaware General Corporation Law ("Section 145"), as it may be amended from time
to time, in each and every situation where the Company is obligated to make such
indemnification pursuant to Section 145. In addition, the Company shall
indemnify each of the Company's directors and officers in each and every
situation where, under Section 145, the Company is not obligated, but is
permitted or empowered, to make such indemnification. The Company may, in the
sole discretion of the Board, indemnify any other person who may be indemnified
pursuant to Section 145 to the extent the Board deems advisable, as permitted by
such section. The Company shall promptly make or cause to be made any
determination which Section 145 requires.
ARTICLE XI.
AMENDMENT OF CORPORATE DOCUMENTS
A. Certificate. Whenever any vote of the holders of voting shares of
-----------
capital stock of the Company is required by law to amend, repeal or rescind any
provision of this Certificate, then in addition to any affirmative vote required
by applicable law and in addition to any vote of the holders of any series of
Preferred Stock, as provided in any resolution or resolutions of the Board
designating a series of Preferred Stock, such alteration, amendment, repeal or
rescission (a "Change") of any provision of this Certificate must be approved by
at least a majority of the then-authorized number of directors and by the
affirmative vote of the holders of at least a majority of the combined voting
power of the then-outstanding voting shares of capital stock of the Company,
voting together as a single class; provided, however, that if any such Change
relates to Articles III, V, VI, VII, VIII, IX, X or to this Article XI, such
Change must also be approved by the affirmative vote of the holders of at least
662/3% of the combined voting power of the then-outstanding voting shares of
capital stock of the Company, voting together as a single class; provided
further, however, that the vote(s) required by the immediately preceding clause
shall not be required if such Change has been first approved by at least two-
thirds of the then-authorized number of directors.
Subject to the provisions hereof, the Company reserves the right at
any time, and from time to time, to amend, alter, repeal or rescind any
provision contained in this Certificate in the manner now or hereafter
prescribed by law, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law; and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by and pursuant to this Certificate in its present form or as
hereafter amended are granted subject to the rights reserved in this article.
B. Bylaws. In addition to any affirmative vote required by law, any
------
Change of the Bylaws may be adopted either (i) by the Board by the affirmative
vote of at least a majority of
5
<PAGE>
the then-authorized number of directors, or (ii) by the stockholders by the
affirmative vote of the holders of at least 662/3% of the combined voting power
of the then-outstanding voting shares of capital stock of the Company, voting
together as a single class.
ARTICLE XII.
EXISTENCE
The Company is to have perpetual existence.
ARTICLE XIII.
RELATED PARTIES
A. No contract or transaction between the Company and one or more of its
directors or officers, or between the Company and any other corporation,
partnership, association, or other organization in which one or more of its
directors or officers, are directors or officers, or have a financial interest,
shall be void or voidable solely for this reason, or solely because the director
or officer is present at or participates in the meeting of the Board or
committee which authorizes the contract or transaction, or solely because his or
their votes are counted for such purpose, if:
(1) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the Board or the
committee, and the Board or committee in good faith authorizes the contract
or transaction by the affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less than a quorum;
or
(2) The material facts as to his relationship or interest and as to
the contract or transaction are disclosed or are known to the stockholders
entitled to vote thereon, and the contract or transaction is specifically
approved in good faith by a vote of the stockholders; or
(3) The contract or transaction is fair as to the Company as of the
time it is authorized, approved or ratified, by the Board, a committee or
the stockholders.
B. Common or interested directors may be counted in determining the
presence of a quorum at a meeting of the Board or of a committee which
authorizes the contract or transaction.
ARTICLE XIV.
INCORPORATOR
The name and mailing address of the incorporator of the Company is:
6
<PAGE>
Matthew R. Bair, Esq.
Akin, Grump, Strauss, Hauer & Feld, L.L.P.
1500 NationsBank Plaza
300 Covent Street
San Antonio, Texas 78205
IN WITNESS WHEREOF, this Certificate of Incorporation has been signed under
the seal of the Company on June 7, 1996.
/s/ MATT BAIR
_____________________________________
Matt Bair
7
<PAGE>
EXHIBIT 3.5
BYLAWS
OF
ATSI MERGER CORP.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C> <C>
ARTICLE I. OFFICES ................................................ 1
Section 1.1. Registered Office ...................................... 1
-----------------
Section 1.2. Additional Offices ..................................... 1
------------------
ARTICLE II. STOCKHOLDERS MEETINGS .................................. 1
Section 2.1. Annual Meetings ........................................ 1
---------------
Section 2.2. Special Meetings ....................................... 1
----------------
Section 2.3. Notices ................................................ 1
-------
Section 2.4. Quorum ................................................. 1
------
Section 2.5. Organization and Conduct of Meetings ................... 2
------------------------------------
Section 2.6. Notification of Stockholder Business ................... 2
------------------------------------
Section 2.7. Voting of Shares ....................................... 3
----------------
2.7.1. Voting Lists ................................. 3
------------
2.7.2. Voter Per Share .............................. 3
---------------
2.7.3. Proxies ...................................... 4
-------
2.7.4. Required Vote ................................ 4
-------------
2.7.5. Consents in Lieu of Meeting .................. 4
---------------------------
Section 2.8. Inspectors of Election ................................. 4
----------------------
ARTICLE III. DIRECTORS .............................................. 5
Section 3.1. Purpose ................................................ 5
-------
Section 3.2. Number and Class ....................................... 5
----------------
Section 3.3. Election ............................................... 5
--------
Section 3.4. Notification of Nominations ............................ 5
---------------------------
Section 3.5. Vacancies and Newly Created Directorships .............. 6
-----------------------------------------
3.5.1. Vacancies .................................... 6
---------
3.5.2. Newly Created Directorships .................. 6
---------------------------
Section 3.6. Removal ................................................ 7
-------
Section 3.7. Compensation ........................................... 7
------------
ARTICLE IV. BOARD MEETINGS ......................................... 7
Section 4.1. Regular Meetings ....................................... 7
----------------
Section 4.2. Special Meetings ....................................... 7
----------------
Section 4.3. Organization, Conduct of Meetings ...................... 7
---------------------------------
Section 4.4. Quorum, Required Vote .................................. 7
---------------------
Section 4.5. Consent In Lieu of Meeting ............................. 8
--------------------------
ARTICLE V. COMMITTEES OF DIRECTORS ................................ 8
Section 5.1. Establishment: Standing Committees ..................... 8
----------------------------------
5.1.1. Executive Committee .......................... 8
-------------------
5.1.2. Finance Committee ............................ 8
-----------------
5.1.3. Conflicts and Audit Committee ................ 8
-----------------------------
</TABLE>
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<TABLE>
<S> <C> <C>
5.1.4. Compensation Committee ....................... 9
----------------------
Section 5.2. Available Powers ....................................... 9
----------------
Section 5.3. Unavailable Powers ..................................... 9
------------------
Section 5.4. Alternate Members ..................................... 10
-----------------
Section 5.5. Procedures ............................................ 10
----------
ARTICLE VI. OFFICERS .............................................. 10
Section 6.1. Executive Officers; Term of Office .................... 10
----------------------------------
Section 6.2. Powers and Duties ..................................... 11
-----------------
6.2.1. President ................................... 11
---------
6.2.2. Vice Presidents ............................. 11
---------------
6.2.3. Secretary ................................... 11
---------
6.2.4. Treasurer ................................... 11
---------
6.2.5. Assistant Secretary ......................... 11
-------------------
6.2.6. Assistant Treasurer ......................... 12
-------------------
Section 6.3. Resignations and Removal .............................. 12
------------------------
Section 6.4. Vacancies ............................................. 12
---------
Section 6.5. Compensation, Vacancies ............................... 12
-----------------------
Section 6.6. Additional Powers and Duties .......................... 12
----------------------------
Section 6.7. Voting Upon Stocks .................................... 12
------------------
ARTICLE VII. SHARE CERTIFICATES .................................... 13
Section 7.1. Entitlement to Certificates ........................... 13
---------------------------
Section 7.2. Multiple Class of Stock ............................... 13
-----------------------
Section 7.3. Signatures ............................................ 13
----------
Section 7.4. Issuance and Payment .................................. 13
--------------------
Section 7.5. Lost, Stolen or Destroyed Certificates ................ 13
--------------------------------------
Section 7.6. Transfer of Stock ..................................... 14
-----------------
Section 7.7. Registered Stockholders ............................... 14
-----------------------
ARTICLE VIII. INDEMNIFICATION ....................................... 14
Section 8.1. General ............................................... 14
-------
Section 8.2. Actions by or in the Right of the Company ............. 14
-----------------------------------------
Section 8.3. Board Determinations .................................. 15
--------------------
Section 8.4. Advancement of Expenses ............................... 15
-----------------------
Section 8.5. Nonexclusive .......................................... 15
------------
Section 8.6. Indemnification of Employees and Agents of the Company 15
------------------------------------------------------
Section 8.7. Insurance ............................................. 16
---------
Section 8.8. Certain Definitions ................................... 16
-------------------
Section 8.9. Change in Governing Law ............................... 16
-----------------------
ARTICLE IX. INTERESTED DIRECTORS, OFFICERS AND
STOCKHOLDERS .......................................... 16
Section 9.1. Validity .............................................. 16
--------
Section 9.2. Disclosure, Approval .................................. 17
--------------------
Section 9.3. Nonexclusive .......................................... 17
------------
</TABLE>
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<TABLE>
<S> <C> <C>
ARTICLE X. MISCELLANEOUS ......................................... 17
Section 10.1. Place of Meetings ..................................... 17
-----------------
Section 10.2. Fixing Record Dates ................................... 17
-------------------
Section 10.3. Means of Giving Notice ................................ 18
----------------------
Section 10.4. Waiver of Notice ...................................... 18
----------------
Section 10.5. Attendance via Communications Equipment ............... 18
---------------------------------------
Section 10.6. Dividends ............................................. 18
---------
Section 10.7. Reserves .............................................. 18
--------
Section 10.8. Reports to Stockholders ............................... 18
-----------------------
Section 10.9. Checks, Notes and Contracts ........................... 18
---------------------------
Section 10.10. Loans ................................................. 19
-----
Section 10.11. Fiscal Year ........................................... 19
-----------
Section 10.12. Seal .................................................. 19
----
Section 10.13. Books and Records ..................................... 19
-----------------
Section 10.14. Resignation ........................................... 19
-----------
Section 10.15. Surety Bonds .......................................... 19
------------
Section 10.16. Amendments ............................................ 20
----------
</TABLE>
iii
<PAGE>
BYLAWS
OF
ATSI MERGER CORP.
ARTICLE I.
OFFICES
Section 1.1. Registered Office. The registered office of the Company
-----------------
within the State of Delaware shall be located at the principal place of business
in said state of such Company or individual acting as the Company's registered
agent in Delaware.
Section 1.2. Additional Offices. The Company may, in addition to its
------------------
registered office in the State of Delaware, have such other offices and places
of business, both within and without the State of Delaware, as the Board of
Directors of the Company (the Board) may from time to time determine or as the
business and affairs of the Company may require.
ARTICLE II.
STOCKHOLDERS MEETINGS
Section 2.1. Annual Meetings. Annual meetings of stockholders shall be
---------------
held at a place and time on any weekday which is not a holiday as shall be
designated by the Board and stated in the notice of the meeting, at which
meeting the stockholders shall elect the directors of the Company and transact
such other business as may properly be brought before the meeting.
Section 2.2. Special Meetings. Special meetings of the stockholders,
----------------
for any purpose or purposes, shall be called in the manner prescribed by Article
VI of the Certificate of Incorporation (the Certificate).
Section 2.3. Notices. Written notices of each stockholders meeting
-------
stating the place, date and hour of the meeting shall be given to each
stockholder entitled to vote thereat at the address of such stockholder as
reflected in the records of the Company. Such notice shall be given by or at the
direction of the party calling such meeting not less than 10 nor more than 60
days before the date of the meeting. If said notice is for a stockholders
meeting other than an annual meeting, it shall in addition state the purpose or
purposes for which said meeting is being called, and the business transacted at
such meeting shall be limited to the matters so stated in said notice and any
matters reasonably related thereto.
Section 2.4. Quorum. At any stockholders meeting, the holders present
------
in person or by proxy of a majority of the voting power of the shares of capital
stock of the Company entitled to vote thereat shall constitute a quorum of the
stockholders for all purposes (unless the representation of a larger number of
shares shall be required by law or by the Certificate, in which case the
representation of the number of shares so required shall constitute a quorum).
1
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The holders of a majority of the voting power of the Shares of capital
stock of the Company entitled to vote which are present in person or by proxy at
any meeting (whether or not constituting a quorum of the outstanding shares) may
adjourn the meeting from time to time without notice other than by announcement
thereat; and at any adjourned meeting at which a quorum shall be present, any
business may be transacted which might have been transacted at the meeting as
originally called, but only those stockholders entitled to vote at the meeting
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof. However, if the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed, notice of the adjourned meeting shall be
given to each stockholder of record entitled to vote at the meeting.
Section 2.5. Organization and Conduct of Meetings. Such person as the
------------------------------------
Board of Directors may have designated or, in the absence of such a person, the
President of the Corporation or, in his absence, such person as may be chosen by
the holders of shares representing a majority of the votes which could be cast
by those present, in person or by proxy and entitled to vote, shall call to
order any meeting of the stockholders and act as chairman of the meeting.
The Secretary shall act as secretary of all stockholders meetings; but, in
the absence of the Secretary, the Chairman may appoint any person to act as
secretary of the meeting.
The date and time of the opening and the closing of the polls for each
matter upon which the stockholders will vote at a meeting shall be announced at
the meeting by the chairman of the meeting. The Board may, to the extent not
prohibited by law, adopt by resolution such rules and regulations for the
conduct of the meeting of stockholders as it shall deem appropriate. Except to
the extent inconsistent with such rules and regulations as adopted by the Board,
the chairman of any meeting of stockholders shall have the right and authority
to prescribe such rules, regulations and procedures and to do all such acts as,
in the judgment of such chairman, are appropriate for the proper conduct of the
meeting. Such rules, regulations or procedures, whether adopted by the Board or
prescribed by the chairman of the meeting, may to the extent not prohibited by
law include, without limitation, the following: (i) the establishment of an
agenda or order of business for the meeting; (ii) rules and procedures for
maintaining order at the meeting and for the safety of those present; (iii)
limitations on attendance at or participation in the meeting to stockholders of
record of the Company, their duly authorized and constituted proxies or such
other persons as the chairman of the meeting shall determine; (iv) restrictions
on entry to the meeting after the time fixed for the commencement thereof; and
(v) limitation on the time allotted to questions or comments by participants.
Unless and to the extent determined by the Board or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with the
rules of parliamentary procedure.
Proceedings at every stockholders meeting shall, at the election of the
chairman, comply with Robert's Rules of Order (latest published edition).
Section 2.6. Notification of Stockholder Business. All business properly
------------------------------------
brought before an annual meeting shall be transacted at such meeting. Subject to
the right of stockholders to elect a chairman of the meeting, as set forth in
Section 2.5, business shall be deemed properly brought only if it is (i)
specified in the notice of meeting (or any supplement thereto) given by
2
<PAGE>
or at the direction of the Board, (ii) otherwise properly brought before the
meeting by or at the direction of the Board or (iii) brought before the meeting
by a stockholder of record entitled to vote at such meeting if written notice of
such stockholder's intent to bring such business before such meeting is
delivered to, or mailed, postage prepaid, and received by, the Secretary at the
principal executive offices of the Company not later than the close of business
on the tenth day following the date on which the Company first makes public
disclosure of the date of the annual meeting; provided, however, that if the
annual meeting is adjourned, and the Company is required by Delaware law to give
notice to stockholders of the adjourned meeting date, written notice of such
stockholder's intent to bring such business before the meeting must be delivered
to or received by the Secretary no later than the close of business on the fifth
day following the earlier of (1) the date the Company makes public, disclosure
of the date of the adjourned meeting or (2) the date on which notice of such
adjourned meeting is first given to stockholders. Each notice given by such
stockholder shall set forth: (A) a brief description of the business desired to
be brought before the meeting and the reasons for conducting such business at
the meeting; (B) the name and address of the stockholder who intends to propose
such business; (C) a representation that the stockholder is a holder of record
of stock of the Company entitled to vote at such meeting (or if the record date
for such meeting is subsequent to the date required for such stockholder notice,
a representation that the stockholder is a holder of record at the time of such
notice and intends to be a holder of record on the record date for such meeting)
and intends to appear in person or by proxy at such meeting to propose such
business; and (D) any material interest of the stockholder, if any, in such
business. The chairman of the meeting may refuse to transact any business at any
meeting made without compliance with the foregoing procedure. For this Section
2.6, public disclosure shall be deemed to first be given to stockholders when
disclosure of such date of the meeting of stockholders is first made in a press
release reported by the Dow Jones News Services, Associated Press or comparable
national news service, or in a document publicly filed by the Company with the
Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d) of the
Securities Exchange Act of 1934, as amended.
Section 2.7. Voting of Shares.
----------------
Section 2.7.1 Voting Lists. The officer or agent who has charge of
------------
the stock ledger of the Company shall prepare, at least 10 days before every
meeting of stockholders, a complete list of the stockholders entitled to vote
thereat arranged in alphabetical order and showing the address and the number of
shares registered in the name of each stockholder. Such list shall be open to
the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours for a period of at least 10 days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof, and may be inspected by any stockholder who is present. The original
stock transfer books shall be prima facie evidence as to who are the
stockholders entitled to examine such list or transfer books or to vote at any
meeting of stockholders. Failure to comply with the requirements of this Section
shall not affect the validity of any action taken at said meeting.
Section 2.7.2 Votes Per Share. Each outstanding share of capital
---------------
stock shall be entitled to vote in accordance with the provisions for voting
included in the Certificate. In determining the number of shares of stock
required by law, by the Certificate or by the Bylaws
3
<PAGE>
to be represented for any purpose, or to determine the outcome of any matter
submitted to stockholders for approval or consent, the number of shares
represented or voted shall be weighted in accordance with the provisions of the
Certificate regarding voting powers of each class of stock. Any reference in
these Bylaws to a majority or a particular percentage of the voting stock or a
majority or a particular percentage of the capital stock shall be deemed to
refer to a majority or a particular percentage, respectively, of the voting
power of such stock. Issues shall be determined by a class vote only when a
class vote is required by law or the Certificate.
Section 2.7.3. Proxies. Every Stockholder entitled to vote at a
-------
meeting or to express consent or dissent without a meeting or a stockholder's
duly authorized attorney-in-fact may authorize another person or persons to act
for him by proxy. Each proxy shall be in writing, executed by the stockholder
giving the proxy or by his duly authorized attorney. No proxy shall be voted on
or after three years from its date, unless the proxy provides for a longer
period. Unless and until voted, every proxy shall be revocable at the pleasure
of the person who executed it, or his legal representatives or assigns, except
in those cases where an irrevocable proxy permitted by statute has been given.
Section 2.7.4. Required Vote. When a quorum is present at any
-------------
meeting, the vote of the holders, present in person or represented by proxy, of
capital stock of the Company representing a majority of the votes of all capital
stock of the Company entitled to vote thereat shall decide any question brought
before such meeting, unless the question is one upon which, by express provision
of law or the Certificate or these Bylaws, a different vote is required, in
which case such express provision shall govern and control the decision of such
question.
Section 2.7.5. Consents in Lieu of Meeting. Pursuant to Article VII
---------------------------
of the Company's Certificate, no action that is required or permitted to be
taken by the stockholders of the Company at any annual or special meeting of
stockholders may be effected by written consent of stockholders in lieu of a
meeting of stockholders, unless, subject to certain exceptions contained in the
Certificate, the action to be effected by written consent of stockholders and
the taking of such action by such written consent have expressly been approved
in advance by the Board.
Section 2.8. Inspectors of Election. The Company shall, in advance of any
----------------------
meeting of stockholders, appoint one or more inspectors of election, who may be
employees of the Company, to act at the meeting or any adjournment thereof and
to make a written report thereof. The Company may designate one or more persons
as alternate inspectors to replace any inspector who fails to act. If no
inspector so appointed or designated is able to act at a meeting of
stockholders, the chairman or the person presiding at the meeting shall appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to execute
faithfully the duties of inspector with strict impartiality and according to the
best of his or her ability.
The inspector or inspectors so appointed or designated shall: (a) ascertain
the number of shares of capital stock of the Company outstanding and the voting
power of each such share; (b) determine the shares of capital stock of the
Company represented at the meeting and the validity of proxies and ballots; (c)
count all votes and ballots; (d) determine and retain for a reasonable period a
record of the disposition of any challenges made to any determination by the
inspectors;
4
<PAGE>
and (e) certify their determination of the number of shares of capital stock of
the Company represented at the meeting and such inspectors' count of all votes
and ballots. Such certification and report shall specify such other information
as may be required by law. In determining the validity and counting of proxies
and ballots cast at any meeting of stockholders of the Company, the inspectors
may consider such information as is permitted by applicable law. No person who
is a candidate for an office at an election may serve as an inspector at such
election.
ARTICLE III.
DIRECTORS
Section 3.1. Purpose. The business and affairs of the Company shall be
-------
managed by or under the direction of the Board acting by not less than a
majority of the directors then in office. The Board shall exercise all such
powers of the Company and do all such lawful acts and things as are not by law,
the Certificate or these Bylaws directed or required to be exercised or done by
the stockholders. Directors need not be stockholders or residents of the State
of Delaware.
Section 3.2. Number and Class. The number of directors constituting the
----------------
Board shall never be less than one (1), and shall be determined by resolution of
the Board. At each election held after the initial elections, directors elected
to succeed such directors whose terms expire shall be elected for a term of
office which shall expire at the third succeeding annual meeting of stockholders
after their election. The foregoing notwithstanding, except as otherwise
provided in the Certificate or any resolution or resolutions of the Board
designating a series of preferred stock of the Company, directors who are
elected at an annual meeting of stockholders, and directors elected in the
interim to fill vacancies and newly created directorships, shall hold office for
the term for which elected and until their successors are elected and qualified
or until their earlier death, resignation or removal. Whenever the holders of
any class or classes of stock or any series thereof shall be entitled to elect
one or more directors pursuant to the provisions of the Certificate or any
resolution or resolutions of the Board designating a series of preferred stock
of the Company, and except as otherwise provided herein or therein, vacancies
and newly created directorships of such class or classes or series thereof may
be filled by a majority of the directors elected by such class or classes or
series thereof then in office, by a sole remaining director so elected or by the
unanimous written consent or the affirmative vote of a majority of the
outstanding shares of such class or classes or series entitled to elect such
director or directors. Except as otherwise provided in the Certificate,
directors need not be stockholders.
Section 3.3. Election. Directors shall be elected by the stockholders by
--------
plurality vote at a stockholders meeting as provided in the Certificate and
these Bylaws, and each director shall hold office until his successor has been
duly elected and qualified or until the earlier of his death, resignation or
removal from office.
Section 3.4. Notification of Nominations. Subject to the rights of the
---------------------------
holders of any one or more series of Preferred Stock then outstanding,
nominations for the election of directors may be made by the Board or by any
stockholder entitled to vote for the election of directors. Any stockholder
entitled to vote for the election of directors at an annual meeting or a special
5
<PAGE>
meeting called for the purpose of electing directors may nominate persons for
election as directors at such meeting only if written notice of such
stockholder's intent to make such nomination is delivered to, or mailed, postage
prepaid, and received by, the Secretary at the principal executive offices of
the Company not later than the close of business on the tenth day following the
date on which the Company first makes public disclosure of the date of the
meeting; provided, however,that if the meeting is adjourned, and the Company is
required by Delaware law to give notice to stockholders of the adjourned meeting
date, written notice of such stockholder's intent to make such nomination at
such adjourned meeting must be delivered to or received by the Secretary no
later than the close of business on the fifth day following the earlier of (1)
the date the Company makes public disclosure of the date of the adjourned
meeting or (2) the date on which notice of such adjourned meeting is first given
to stockholders. Each notice given by such stockholder shall set forth: (A) the
name and address of the stockholder who intends to make the nomination and of
the person or persons to be nominated; (B) a representation that the stockholder
is a holder of record of stock of the Company entitled to vote at such meeting
(or if the record date for such meeting is subsequent to the date required for
such stockholder notice, a representation that the stockholder is a holder of
record at the time of such notice and intends to be a holder of record on the
record date for such meeting) and intends to appear in person or by proxy at the
meeting to nominate the person or persons specified in the notice; (C) a
description of all arrangements or understandings between the stockholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nomination or nominations are to be made by the
stockholder; (D) such other information regarding each nominee proposed by such
stockholder as would have been required to be included in a proxy statement
filed pursuant to the proxy rules of the Securities and Exchange Commission had
each nominee been nominated, or intended to be nominated, by the Board; and (E)
the written consent of each nominee to serve as a director of the Company if so
elected. The chairman of the meeting may refuse to acknowledge the nomination of
any person made without compliance with the foregoing procedure. For this
Section 3.4, public disclosure shall be deemed to be first given to stockholders
when disclosure of such date of the meeting of stockholders is first made in a
press release reported by the Dow Jones News Services, Associated Press or
comparable national news service, or in a document publicly filed by the Company
with the Securities and Exchange Commission pursuant to Sections 13, 14 or 15(d)
of the Securities Exchange Act of 1934, as amended.
Section 3.5. Vacancies and Newly Created Directorships.
-----------------------------------------
Section 3.5.1. Vacancies. Any vacancy occurring in the Board shall
---------
be filled in accordance with Article V of the Certificate. A director elected to
fill a vacancy shall hold office until his successor has been duly elected and
qualified or until his earlier death, resignation or removal from office.
Section 3.5.2. Newly Created Directorships. A directorship to be
filled because an increase in the number of directors shall be filled in
accordance with Article V of the Certificate. A director elected to fill a
newly-created directorship shall hold office until his successor has been duly
elected and qualified or until his earlier death, resignation or removal from
office.
6
<PAGE>
Section 3.6. Removal. Any director or the entire Board may be removed in
-------
accordance with the procedures set forth in Article V of the Certificate.
Section 3.7. Compensation. Unless otherwise restricted by law, the
------------
Certificate or these Bylaws, the Board shall have the authority to fix
compensation of directors. The directors may be reimbursed for their expenses,
if any, of attendance at each meeting of the Board and may be paid either a
fixed sum for attendance at each meeting of the Board and/or a stated salary as
director. No such payment shall preclude any director from serving the Company
in any other capacity and receiving compensation therefor. Members of committees
of the Board may be allowed like compensation.
ARTICLE IV.
BOARD MEETINGS
Section 4.1. Regular Meetings. Regular meetings of the Board shall be
----------------
held at such times and places as the Board shall determine. No notice shall be
required for any regular meeting of the Board; but a notice of the fixing or
changing of the time or place of regular meetings shall be mailed to every
director at least five days before the first meeting held pursuant to the
notice.
Section 4.2. Special Meetings. Special meetings of the Board (i) may be
----------------
called by the President and (ii) shall be called by the President or Secretary
on the written request of two or more directors. Notice of each special meeting
of the Board shall be given to each director at least 24 hours before the
meeting if such notice is delivered personally or by means of telephone,
telegram, telex or facsimile transmission and delivery; two days before the
meeting if such notice is delivered by a recognized express delivery service;
and three days before the meeting if such notice is delivered through the United
States mail. Any and all business may be transacted at a special meeting which
may be transacted at a regular meeting of the Board. Except as may be otherwise
expressly provided by law, the Certificate or these Bylaws, neither the business
to be transacted at, nor the purpose of, any special meeting need be specified
in the notice or waiver of notice of such meeting.
Section 4.3. Organization, Conduct of Meetings. The Board of Directors
---------------------------------
may, if it chooses, elect a Chairman of the Board and a Vice Chairman of the
Board from its members. Meetings of the Board of Directors shall be presided
over by the Chairman of the Board, if any, or in his absence the Vice Chairman
of the Board, if any, or in his absence by the President, or in their absence by
a chairman chosen at the meeting. The Secretary of the Corporation, if present,
shall act as secretary of the meeting; but in his absence the secretary of the
meeting shall be such person as the chairman of the meeting appoints.
Section 4.4. Quorum, Required Vote. A majority of the directors shall
---------------------
constitute a quorum for the transaction of business at any meeting of the Board,
and the act of a majority of the directors present at any meeting at which there
is a quorum shall be the act of the Board, except as may be otherwise
specifically provided by law, the Certificate or these Bylaws. If a quorum shall
not be present at any meeting, a majority of the directors present may adjourn
the
7
<PAGE>
meeting from time to time, without notice other than announcement at the
meeting, until a quorum is present.
Section 4.5. Consent In Lieu of Meeting. Unless otherwise restricted by
--------------------------
the Certificate or these Bylaws, any action required or permitted to be taken at
any meeting of the Board or any committee thereof may be taken by written
consent in lieu of a meeting in accordance with applicable provisions of law.
ARTICLE V.
COMMITTEES OF DIRECTORS
Section 5.1. Establishment; Standing Committees. The Board may by
----------------------------------
resolution establish, name or dissolve one or more committees, each committee to
consist of one or more of the directors. Each committee shall keep regular
minutes of its meetings and report the same to the Board when required. Such
committees may include the following standing committees, which committees, if
established, shall have and may exercise the following powers and authority
Section 5.1.1. Executive Committee. The Executive Committee shall
-------------------
have and may exercise all the powers of the Board delegable, by law in the
management of the business and affairs of the Company, unless the resolution
creating such committee or further defining its powers provides otherwise, in
which case the Executive Committee shall have and exercise the powers so
provided in such resolution or resolutions. The Executive Committee shall be
comprised of the Chairman of the Board and such other director or directors as
the Board by resolution shall appoint thereto. In addition to the foregoing, the
Executive Committee shall have such other powers and duties as shall be
specified by the Board in a resolution or resolutions.
Section 5.1.2. Finance Committee. The Finance Committee shall, from
-----------------
time to time, meet to review the Company's consolidated operating and financial
affairs, both with respect to the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Finance Committee shall not be empowered to approve any corporate action, of
whatever kind or nature, and the recommendations of the Finance Committee shall
not be binding on the Board, except when, pursuant to Section 5.2, such power
and authority have been specifically delegated to such committee by the Board by
resolution. In addition to the foregoing, the specific duties of the Finance
Committee shall be determined by the Board by resolution.
Section 5.1.3. Conflicts and Audit Committee. The Conflicts and
-----------------------------
Audit Committee shall, from time to time, but no less than two times per year,
meet to review and monitor the financial and cost accounting practices and
procedures of the Company and its subsidiaries, if any, and to report its
findings and recommendations to the Board for final action. In addition, the
Conflicts and Audit Committee shall recommend an independent public accountant
to audit the Company's financial statements and perform other accounting
services for the Company to the Board for submission to the stockholders for
approval. Furthermore, the Conflicts and Audit Committee will, at the request
of the Board by resolution, review specific matters as to which the Board
believes there may be a conflict of interest between the Company
8
<PAGE>
and an affiliate, officer and/or director of the Company to determine if the
resolution of such conflict proposed by the Board or management of the Company,
as the case may be, is fair and reasonable. The composition of the Conflicts and
Audit Committee shall meet the requirements of any national securities exchange
or national market system on which the Company lists any of its capital stock.
The Conflicts and Audit Committee shall not be empowered to approve any
corporate action, of whatever kind or nature, and the recommendations of the
Conflicts and Audit Committee shall not be binding on the Board, except when,
pursuant to Section 5.2, such power and authority have been specifically
delegated to such committee by the Board by resolution. In addition to the
foregoing, the specific duties of the Conflicts and Audit Committee shall be
determined by the Board by resolution. In addition to the foregoing, the
specific duties of the Conflicts and Audit Committee shall be determined by the
Board by resolution. For this Section, "affiliate" shall include (i) any entity
that is an "affiliate" within the meaning set forth in Section 12b-2 of
Regulation 12B promulgated under the Securities Exchange Act of 1934, as
amended, and (ii) any officer or director of an "affiliate" as defined therein.
Section 5.1.4. Compensation Committee. The Compensation Committee
----------------------
shall, from time to time, meet to review the various compensation plans,
policies and practices of the Company and its subsidiaries, if any, and to
report its findings and recommendations to the Board for final action. The
Compensation Committee shall not be empowered to approve any corporate action,
of whatever kind or nature, and the recommendations of the Compensation
Committee shall not be binding on the Board, except when, pursuant to Section
5.2, such power and authority have been specifically delegated to such committee
by the Board by resolution. In addition to the foregoing, the specific duties of
the Compensation Committee shall be determined by the Board by resolution.
Section 5.2. Available Powers. Any committee established pursuant to
----------------
Section 5.1, including the Executive Committee, the Finance Committee, the
Conflicts and Audit Committee and the Compensation Committee, but only to the
extent provided in the resolution of the Board establishing such committee or
otherwise delegating specific power and authority to such committee, and as
limited by law, the Certificate, and these Bylaws, shall have and may exercise
all the powers and authority of the Board in the management of the business and
affairs of the Company, and may authorize the seal of the Company to be affixed
to all papers which may require it. Without limiting the foregoing, such
committee may, but only to the extent authorized in the resolution or
resolutions providing for the issuance of shares of stock adopted by the Board
as provided in Section 151(a) of the General Corporation Law of Delaware (the
DGCL), fix any of the preferences or rights of such shares relating to
dividends, redemption, dissolution, any distribution of assets of the Company or
the conversion into, or the exchange of such shares for, shares of any other
class or classes or any other series of the same or any other class or classes
of stock of the company.
Section 5.3. Unavailable Powers. No committee of the Board shall have the
------------------
power or authority to amend the Certificate (except in connection with the
issuance of capital stock as provided in the previous Section); adopt an
agreement of merger or consolidation; recommend to the stockholders the sale,
lease or exchange of all or substantially all of the Company's property gad
assets, a dissolution of the Company or a revocation of such a dissolution;
amend the Bylaws of the Company; or, unless the resolution establishing such
committee or the
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Certificate expressly so provides, declare a dividend, authorize the issuance of
stock or adopt a certificate of ownership and merger.
Section 5.4. Alternate Members. In the absence or disqualification of a
-----------------
member of a committee, (i) the Board may designate one or more directors as
alternate members of any such committee or (ii) the member or members of the
committee present at any meeting and not disqualified from voting, whether or
not he or they constitute a quorum may unanimously appoint another member of the
Board to act at the meeting in the place of any such absent or disqualified
member; provided, however, that any person or persons appointed pursuant to
subparagraph (i) or (ii) are qualified to serve on such committee in accordance
with these Bylaws and/or the resolutions establishing the same.
Section 5.5. Procedures. Time, place and notice, if any, of meetings of a
----------
committee shall be determined by such committee. At meetings of a committee, a
majority of the number of members designated by the Board to serve on such
committee shall constitute a quorum for the transaction of business. The act of
a majority of the members present at any meeting at which a quorum is present
shall be the act of the committee, except as otherwise specifically provided by
law, the Certificate, these Bylaws or the resolution or resolutions establishing
such committee. If a quorum is not present at a meeting of a committee, the
members present may adjourn the meeting from time to time, without notice other
than an announcement at the meeting, until a quorum is present. Any member of
any committee established pursuant to Section 5.1 shall serve until his
successor is duly elected by the Board and qualified or until the earlier of his
death or his resignation or removal from such committee or the Board. The Board
by resolution shall have at any time and from time to time the power to change
the membership of, fill any vacancies in, or dissolve any, committee established
pursuant to Section 5.1; provided, however, that in no event shall the Audit and
Conflicts Committee be dissolved once it is established nor shall the membership
of any committee, including, without limitations the Audit and Conflicts
Committee and the Executive Committee, be altered in any way if such alteration
would cause such committee to fail to meet its membership standards as set forth
in the resolutions or resolutions of the Board creating such committee.
ARTICLE VI.
OFFICERS
Section 6.1. Executive Officers; Term of Office. The Board shall elect a
----------------------------------
President, Secretary and Treasurer. The Board may elect one or more Vice
Presidents (with such descriptive titles, if any, as the Board shall deem
appropriate), one or more Assistant Secretaries, one or more Assistant
Treasurers, and such other officers as the Board may determine. Vice Presidents,
Assistant Secretaries and Assistant Treasurers may also be appointed by the
President as provided in Section 6.2.1. Each officer shall hold office until his
--------------
successor is elected and qualified or until his earlier death, resignation or
removal in the manner provided in these Bylaws. Any number of offices may be
held by the same person. The Board may require any officer to give bond or other
security for the faithful performance of his duties, in such amount and with
such sureties as the Board may determine.
10
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Section 6.2. Powers and Duties. The officers of the Company shall have
-----------------
such powers and duties in the management of the Company as may be provided by
applicable laws, the Certificate and these Bylaws, and as may be prescribed by
the Board and, to the extent not so provided, as generally pertain and are
incident to their respective offices, subject to the control of the Board.
Without limiting the generality of the foregoing, the following officers shall
have the respective duties and powers enumerated below:
Section 6.2.1. President. The President shall be the chief executive
---------
officer of the Company. He shall have the responsibility for the general
management and control of the business and affairs of the Company and shall
perform all duties and have all powers which are commonly incident to the office
of chief executive. The President may sign and execute, in the name of the
Company, stock certificates, deeds, mortgages, bonds, contracts or other
instruments authorized by the Board, except when signing and execution thereof
shall be expressly and exclusively delegated by the Board or the Bylaws to some
other person, or shall be required by law to be signed otherwise. The President
shall also have the power to appoint Vice Presidents, Assistant Secretaries and
Assistant Treasurers as he deems necessary from time to time. The President may
remove such appointed officers at any time for or without cause. The President
shall have general supervision and direction of all other officers, employees
and agents of the Company.
Section 6.2.2. Vice Presidents. The Vice President, or if there be
---------------
more than one, the Vice Presidents in the order determined by the Board (or if
there be no such determination, then in the order of their election or
appointment) shall, in the absence of the President or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
President and shall perform such other duties and have such other powers as the
President or the Board may from time to time prescribe. The Vice President may
sign certificates evidencing shares of stock of the Company.
Section 6.2.3. Secretary. The Secretary shall issue all authorized
---------
notices for, and shall keep minutes of, all meetings of stockholders and the
Board. He may sign certificates evidencing shares of stock of the Company. He
shall have custody of the corporate seal and shall have authority to affix the
seal to any instrument requiring it, and when so affixed, it may be attested by
his signature or by the signature of an Assistant Secretary. The Secretary shall
keep and account for all books, documents, papers and records of the Company
except those for which some other officer or agent is properly accountable.
Section 6.2.4. Treasurer. The Treasurer shall be the chief
---------
accounting and financial officer of the Company. He shall have the custody of
the corporate funds and securities, and shall disburse the funds of the Company
as are authorized. He shall keep full and accurate accounts of receipts and
disbursements in books belonging to the Company, and, when requested by the
President or Board, shall render from time to time an accounting of all such
transactions and of the financial condition of the Company. The Treasurer may
sign certificates evidencing shares of stock of the Company.
Section 6.2.5. Assistant Secretary. The Assistant Secretary, or if
-------------------
there be more than one, the Assistant Secretaries in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the
11
<PAGE>
Secretary or in the event of his inability or refusal to act, perform the duties
and exercise the powers of the Secretary and shall perform such other duties and
have such other powers as the President, Secretary or Board may from time to
time prescribe.
Section 6.2.6. Assistant Treasurer. The Assistant Treasurer, or if
-------------------
there be more than one, the Assistant Treasurers in the order determined by the
Board (or if there be no such determination, then in the order of their election
or appointment) shall, in the absence of the Treasurer or in the event of his
inability or refusal to act, perform the duties and exercise the powers of the
Treasurer and shall perform such other duties and have such other powers as the
President, Treasurer or Board may from time to time prescribe.
Section 6.3. Resignations and Removal. Any officer may resign at any time
------------------------
by giving written notice to the Board or, if the President is not resigning, to
the President of the Company. Such resignation shall take effect at the time
therein specified, or if no time is specified, upon receipt. Unless otherwise
specified, the acceptance of such resignation shall not be necessary to make it
effective. All officers serve at the pleasure of the Board; any elected or
appointed officer may be removed at any time for or without cause by the Board.
Officers appointed by the President may also be removed at any time for or
without cause by the President.
Section 6.4. Vacancies. Any vacancy in any office because of death,
---------
resignation, removal, disqualification or any other cause shall be filled for
the unexpired term in the manner prescribed in these Bylaws for the regular
election or appointment to such office.
Section 6.5. Compensation, Vacancies. The Board shall have the power to
-----------------------
establish the compensation of officers of the Company or authorize the Company
to enter into an agreement with an affiliate whereby the services of such
officers, along with certain other services specified therein, are provided to
the Company for a fee. To the extent not governed by such an agreement, the
Board shall fill any vacancy in an office. Any of the powers granted in this
Section may be delegated to a committee established pursuant to Section 5.1. No
officer shall be prevented from receiving a salary or other compensation by
reason of the fact that he is also a director. For this Section, "affiliate"
shall include (i) any entity that is an "affiliate" within the meaning set forth
in Section 12b-2 of Regulation 12B promulgated under the Securities Exchange Act
of 1934, as amended, and (ii) any officer or director of an "affiliate" as
defined therein.
Section 6.6. Additional Powers and Duties. In addition to the foregoing
----------------------------
especially enumerated powers and duties, the several officers of the Company
shall perform such other duties and exercise such further powers as may be
provided by law, the Certificate or these Bylaws or as the Board may from time
to time determine or as may be assigned to them by any competent committee or
superior officer.
Section 6.7. Voting Upon Stocks. Unless otherwise ordered by the Board,
------------------
the President or any other officer of the Company designated by the President
shall have full power and authority on behalf of the Company to attend and to
act and to vote in person or by proxy at any meeting of the holders of
securities of any corporation or entity in which the Company may own or hold
stock or other securities, and at any such meeting shall possess and may
exercise in person or by proxy any and all rights, powers and privileges
incident to the ownership of such stock or other securities which the Company,
as the owner or holder thereof, might have
12
<PAGE>
possessed and exercised if present. The President or any other officer of the
Company designated by the President may also execute and deliver on behalf of
the Company powers of attorney, proxies, waivers of notice and other instruments
relating to the stocks or securities owned or held by the Company. The Board
may, from time to time, by resolution confer like powers upon any other person
or persons.
ARTICLE VII.
SHARE CERTIFICATES
Section 7.1. Entitlement to Certificates. Every holder of the capital
---------------------------
stock of the Company, unless and to the extent the Board by resolution provides
that any or all classes or series of stock shall be uncertificated, shall be
entitled to have a certificate, in such form as is approved by the Board and
conforms with applicable law, certifying the number of shares owned by him.
Section 7.2. Multiple Classes of Stock. If the Company shall be
-------------------------
authorized to issue more than one class of capital stock or more than one series
of any class, a statement of the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualification, limitations or restrictions of such preferences
and/or rights shall, unless the Board shall by resolution provide that such
class or series of stock shall be uncertificated, be set forth in full or
summarized on the face or back of the certificate which the Company shall issue
to represent such class or series of stock; provided that, to the extent allowed
by law, in lieu of such statement, the face or back of such certificate may
state that the Company will furnish a copy of such statement without charge to
each requesting stockholder.
Section 7.3. Signatures. Each certificate representing capital stock of
----------
the Company shall be signed by or in the name of, the Company by (1) the
President or a Vice President; and (2) the Treasurer, an Assistant Treasurer,
the Secretary or an Assistant Secretary. The signatures of the officers of the
Company may be facsimiles. In case any officer who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to hold such
office before such certificate is issued, it may be issued by the Company with
the same effect as if he held such office on the date of issue.
Section 7.4. Issuance and Payment. Subject to any provision of applicable
--------------------
law, the Certificate or these Bylaws, shares of capital stock of the Company may
be issued for such consideration and to such persons as the Board may determine
from time to time. Shares may not be issued until the full amount of the
consideration has been paid, unless upon the face or back of each certificate
issued to represent any partly paid shares of capital stock there shall have
been set forth the total amount of the consideration to be paid.
Section 7.5. Lost, Stolen or Destroyed Certificates. The Board may direct
--------------------------------------
a new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Company alleged to have been lost, stolen
or destroyed upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When
13
<PAGE>
authorizing such issue of a new certificate or certificates, the Board may, in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
and/or to give the Company a bond in such sum as it may direct as indemnity
against any claim that may be made against the Company with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.6. Transfer of Stock. Upon surrender to the Company or its
-----------------
transfer agent, if any, of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignation or authority to transfer and of
the payment of all taxes applicable to the transfer of said shares, the Company
shall be obligated to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books; provided,
however, that the Company shall not be so obligated unless such transfer was
made in compliance with applicable state and federal securities laws.
Section 7.7. Registered Stockholders. The Company shall be entitled to
-----------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, vote and be held liable for calls and
assessments and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any person other than such
registered owner, whether or not it shall have express or other notice thereof,
except as otherwise provided by law.
ARTICLE VIII.
INDEMNIFICATION
Section 8.1. General. The Company shall indemnify any person who was or
-------
is party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the Company), because
he is or was a director or officer of the Company, or, while a director or
officer of the Company, is or was serving at the written request of the Company
as a director, officer, trustee, employee or agent of or in any other capacity
with another corporation, partnership, joint venture, trust or other enterprise,
against expenses (including attorneys, fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, have reasonable
cause to believe that his conduct was unlawful.
Section 8.2. Actions by or in the Right of the Company. The Company shall
-----------------------------------------
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action or suit by or in the right of the
Company to procure a judgment in its favor
14
<PAGE>
because he is or was a director or officer of the Company, or, while a director
or officer of the Company, is or was serving at the written request of the
Company as a director, officer, trustee, employee or agent of or in any other
capacity with another corporation, partnership, joint venture or trust or other
enterprise, against expenses (including attorneys' fees) actually and reasonably
incurred by him in connection with the defense or settlement of such action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the Company and except that no
indemnification shall be made in respect to any claim, issue or matter as to
which such person shall have been adjudged to be liable to the Company unless
and only to the extent that the Court of Chancery or the court in which such
action or suit was brought shall determine upon application that, despite the
adjudication of liability but in view of all the circumstances of the case, such
person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
Section 8.3. Board Determinations. Any indemnification under Sections 8.1
--------------------
and 8.2 (unless ordered by a court) shall be made by the Company only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because he
has met the applicable standard of conduct set forth in Sections 8.1 and 8.2.
Such determination shall be made (1) by the Board by a majority vote of a quorum
consisting of directors who were not parties to such action, suit or proceeding,
or (2) if such a quorum is not obtainable, or, even if obtainable, a quorum of
disinterested directors so directs, by independent legal counsel (which may be
counsel ordinarily used by, the Company) in a written opinion, or (3) by the
holders of a majority of the outstanding shares of capital stock of the Company
entitled to vote thereon.
Section 8.4. Advancement of Expenses. Expenses incurred by a director or
-----------------------
officer of the Company in defending a civil or criminal action, suit or
proceeding shall (in the case of any action, suit or proceeding against a
director of the Company) or may (in the case of any pending threatened action,
suit or proceeding against an officer) be paid by the Company in advance of the
final disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such amount if
it shall ultimately be determined that he is not entitled to be indemnified by
the Company as authorized by law or in this Article VIII.
Section 8.5. Nonexclusive. The indemnification and advancement of
------------
expenses provided by, or granted pursuant to, this Article VIII shall not be
deemed exclusive of any other rights to which any director, officer, employee or
agent of the Company seeking indemnification or advancement of expenses may be
entitled under any other provision of there Bylaws or by the Certificate, an
agreement, a vote of stockholders or disinterested directors or otherwise, both
as to action in his official capacity and as to action in another capacity while
holding such office, and shall, unless otherwise provided when authorized or
ratified, continue as to a person who has ceased to be a director, officer,
employee or agent of the Company and shall inure to the benefit of the heirs,
executors and administrators of such a person.
Section 8.6 Indemnification of Employees and Agents of the Company. The
------------------------------------------------------
Company may, to the extent authorized from time to time by the Board, grant
rights to indemnification and to the advancement of expenses, to any employee or
agent of the Company to the fullest extent of the provisions of this section
with respect to the indemnification and advancement of expenses of directors and
officers of the Company.
15
<PAGE>
Section 8.7. Insurance. The Company may purchase and maintain insurance
---------
on behalf of any person who is or was a director, officer, employee or agent of
the Company, or is or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust, or other enterprise, against any liability asserted against him and
incurred by him in any such capacity or arising out of his status as such,
whether or not the Company would have the power to indemnify him against such
liability under provisions of applicable law, the Certificate or this Article
VIII.
Section 8.8. Certain Definitions. For this Article VIII, (a) references
-------------------
to the "Company" shall include, in addition to the resulting corporation, any
constituent corporation (including any constituent of a constituent) absorbed in
a consolidation or merger, which, if its separate existence had continued, would
have the power and authority to indemnify its directors, officers, employees or
agents, so that any person who is or was a director, officer, employee, or agent
of such constituent corporation, or is serving at the request of such
constituent corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, shall stand
in the same position under this Article VIII with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued; (b) references to "other
enterprises" shall include employee benefit plans; (c) references to "fines"
shall include any excise taxes assessed on a person with, respect to an employee
benefit plan; and (d) references to "serving at the request of the Company"
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee, or agent with respect to any employee benefit plan, its
participants, or beneficiaries; and a person who acted in good faith and in a
manner he reasonably believed to be in the interest of the participants and
beneficiaries of an employee benefit plan shall be deemed to have acted in a
manner "not opposed to the best interests of the Company" as referred to in this
Article VIII.
Section 8.9. Change in Governing Law. Upon any amendment or addition to
-----------------------
Section 145 of the DGCL or the addition of any other section to such law which
shall limit indemnification rights thereunder, the Company shall, to the extent
permitted by the DGCL, indemnify to the fullest extent authorized or permitted
hereunder, any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (including an action by or in
the right of the Company) because he is or was a director or officer of the
Company or, while a director or officer of the Company, is or was serving at the
request of the Company as a director, officer, employee, trustee or agent of
another corporation, partnership, joint venture, trust, or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts paid
in settlement actually and reasonably incurred by him in connection with such
action, suit or proceeding.
ARTICLE IX.
INTERESTED DIRECTORS, OFFICERS AND STOCKHOLDERS
Section 9.1. Validity. Any contract or other transaction between the
Company and any of its directors, officers or stockholders (or any corporation
or firm in which any of them are
16
<PAGE>
directly or indirectly interested) shall be valid for all purposes
notwithstanding the presence of such director, officer, or stockholder at the
meeting authorizing such contract or transaction, or his participation or vote
in such meeting or authorization.
Section 9.2. Disclosure, Approval. The foregoing shall, however, apply
--------------------
only if the material facts of the relationship or the interest of each such
director, officer or stockholder is known or disclosed:
(1) to the Board and it nevertheless in good faith authorizes or
ratifies the contract or transaction by a majority of the directors
present, each such interested director to be counted in determining whether
a quorum is present but not in calculating the majority to carry the vote;
or
(2) to the stockholders and they nevertheless in good faith authorize
or ratify the contract or transaction by a majority of the shares present,
each such interested stockholder to be counted for quorum and voting
purposes.
Section 9.3. Nonexclusive. This provision shall not be construed to
invalidate any contract or transaction which would be valid in the absence of
this provision.
ARTICLE X.
MISCELLANEOUS
Section 10.1 Place of Meetings. All stockholders, directors and committee
-----------------
meetings shall be held at such place or places, within or without the State of
Delaware, as shall be designated from time to time by the Board or such
committee and stated in the notices thereof. If no such place is so designated,
said meetings shall be held at the principal business office of the Company.
Section 10.2. Fixing Record Dates. So that the Company may determine the
-------------------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, to receive payment of any dividend or other
distribution or allotment of any rights, to exercise any rights in respect of
any change, conversion or exchange of stock or to effect any other lawful
action, or to make a determination of stockholders for any other proper purpose,
the Board may fix, in advance, a record date for any such determination of
stockholders, which shall not be more than 60 nor less than 10 days prior to the
date on which the particular action requiring such determination of stockholders
is to be taken. In the absence of any action by the Board, the date on which a
notice of meeting is given, or the date the Board adopts the resolution
declaring a dividend or other distribution or allotment or approving any change,
conversion or exchange, as the case may be, shall be the record date. A record
date validly fixed for any meeting of stockholders and the determination of
stockholders entitled to vote at such meeting shall be valid for any adjournment
of said meeting except where such determination has been made through the
closing of stock transfer books and the stated period of closing has expired.
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Section 10.3. Means of Giving Notice. Except as expressly provided
----------------------
elsewhere herein, whenever under law, the Certificate or these Bylaws, notice is
required to be given to any director or stockholder, such notice may be given in
writing and delivered personally, through the United States mail, by a
recognized express delivery service (such as Federal Express) or by means of
telegraph, telex, or facsimile transmission, addressed to such director or
stockholder at his address, telex or facsimile transmission number, as the case
may be, appearing on the records of the Company, with postage and fees thereon
prepaid. Such notice shall be deemed to be given at the time when the same shall
be deposited in the United States mail or with an express delivery service or
when transmitted, as the case may be.
Section 10.4. Waiver of Notice. Whenever notice is required to be given
----------------
under any provision of law or of the Certificate or of these Bylaws, a written
waiver thereof, signed by the person entitled to notice, whether before or after
the time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting of stockholders or of directors or of a committee shall
constitute waiver of notice of such meeting, except where otherwise provided by
law.
Section 10.5. Attendance via Communications Equipment. Unless
---------------------------------------
otherwise restricted by law, the Certificate or these Bylaws, members of the
Board or any committee thereof or the stockholders may hold a meeting by means
of conference telephone or other communications equipment by means of which all
persons participating in the meeting can effectively communicate with each
other. Such participation in a meeting shall constitute presence in person at
the meeting, except where a person participates in the meeting for the express
purpose of objecting to the transaction of any business on the ground that the
meeting is not lawfully called or convened.
Section 10.6. Dividends. Dividends on the capital stock of the Company,
---------
paid in cash, property, or securities of the Company and as may be limited by
applicable law and applicable provisions of the Certificate (if any), may be
declared by the Board at any regular or special meeting.
Section 10.7. Reserves. Before payment of any dividends, there may be set
--------
aside out of any funds of the Company available for dividends such sum or sums
as the Board from time to time, in its absolute discretion, think proper as a
reserve or reserves to meet contingencies, for equalizing dividends, for
repairing or maintaining any property of the Company to be distributed to
stockholders, or for such other purpose as the Board shall determine to be in
the best interest of the Company; and the Board may modify or abolish any such
reserve in the manner in which it was created.
Section 10.8. Reports to Stockholders. The Board shall present at each
-----------------------
annual meeting of stockholders, and at any special meeting of stockholders when
called for by vote of the stockholders, a statement of the business and
condition of the Company.
Section 10.9. Checks, Notes and Contracts. Checks and other orders for
---------------------------
the payment of money shall be signed by such person or persons as the Board
shall from time to time by resolution determine. Contracts and other instruments
or documents may be signed in the name of the Company by the President or by any
other officer authorized to sign such contract,
18
<PAGE>
instrument or document by the Board, and such authority may be general or
confined to specific instances.
Checks and other orders for the payment of money made payable to the
Company may be endorsed for deposit to the credit of the Company, with a
depositary authorized by resolution of the Board, by the President or Treasurer
or such other persons as the Board may from time to time by resolution
determine.
Section 10.10. Loans. No loans and no renewals of any loans shall be
-----
contracted on behalf of the Company except as authorized by the Board. When
authorized so to do by the Board, any officer or agent of the Company may effect
loans and advances for the Company from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Company. When authorized so to do by the Board,
any officer or agent of the Company may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Company, any and all stocks, securities and other personal
property at any time held by the Company, and to that end may endorse, assign
and deliver the same. Such authority may be general or confined to specific
instances.
Section 10.11. Fiscal Year. The fiscal year of the Company shall begin on
-----------
the first day of August in each year and terminate on the final day of July in
the succeeding calendar year.
Section 10.12. Seal. The seal of the Company shall be in such form as
----
shall from time to time be adopted by the Board. The seal may be used by causing
it or a facsimile thereof to be impressed, affixed or otherwise reproduced.
Section 10.13. Books and Records. The Company shall keep correct and
-----------------
complete books and records of account and shall keep minutes of the proceedings
of its stockholders, Board and committees and shall keep at its registered
office or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
Section 10.14. Resignation. Any director, committee member, officer or
-----------
agent may resign by giving written notice to the President or the Secretary. The
resignation shall take effect at the time specified therein, or immediately if
no time is specified. Unless otherwise specified therein, the acceptance of such
resignation shall not be necessary to make it effective.
Section 10.15. Surety Bonds. Such officers and agents of the Company (if
------------
any) as the President or the Board may direct, from time to time, shall be
bonded for the faithful performance of their duties and for the restoration to
the Company, in case of their death, resignation, retirement, disqualification
or removal from office, of all books, papers, vouchers, money and other property
of whatever kind in their possession or under their control belonging to the
Company, in such amounts and by such surety companies as the President or the
Board may determine. The premiums on such bonds shall be paid by the Company and
the bonds so furnished shall be in the custody of the Secretary.
19
<PAGE>
Section 10.16. Amendments. These Bylaws may from time to time be altered,
----------
amended or repealed and new Bylaws may be adopted, as provided in the
Certificate.
[NEXT PAGE IS ADOPTION PAGE]
20
<PAGE>
EXHIBIT 10.2
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
CUSTOMER SERVICES AGREEMENT
---------------------------
CONTRACT FOR PROVISION OF TELECOMMUNICATION-RELATED SERVICES EXECUTED BETWEEN
AMERICAN TELESOURCE INTERNATIONAL, INC. (THE "COMPANY"), REPRESENTED BY ARTHUR
L. SMITH, PRESIDENT, AND_____________________________________("CUSTOMER"),
REPRESENTED BY ________, ITS ________________,ACCORDING TO THE FOLLOWING
RECITALS, CLAUSES AND ADDENDA:
RECITALS
I. THE COMPANY STATES:
I.1 That it is a corporation duly formed in accordance with the laws
of the State of Texas in the United States of America.
I.2 That its purpose, among others, is the provision of services
related to telecommunications systems including, but not limited
to, the construction, installation and maintenance of such
systems.
I.3 That the Company possesses all necessary authority from the
Mexican government and the United States of America government to
deliver telecommunication signals between the United States of
America and the United States of Mexico.
I.4 That its legal representative is the president and has all
necessary legal authority to bind the Company to this Agreement.
I.5 That it desires to enter into this Agreement with the Customer.
II. THE CUSTOMER STATES:
II.1 That it is a duly organized corporation pursuant to the laws of
_________________.
II.2 That this Agreement is executed by a representative of Customer
possessing all necessary legal authority to bind Customer to
this Agreement.
II.3 That it desires to enter into this Agreement with the Company.
Page 1
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
II.4 That its use of the Services provided pursuant to this
Agreement will be limited to those private communications
necessary to the conduct of Customer's commercial activities.
CLAUSES
1. The Customer agrees to install and maintain the Equipment as part of
the "turn-key" telecommunications services (the "Services"), specified in
Addendum 1, to be provided to Customer, whose address and service locations are
listed on Addendum 1. Upon execution by Customer and acceptance by Company, this
document becomes a binding contract between them. The term "Customer" shall
include all subsidiaries of Customer.
2. TERM. This Agreement shall terminate sixty (60) months from the date
Customer accepts the Services per paragraph 4, except as provided otherwise
herein.
3. CUSTOMER'S COMMITMENT. Customer hereby agrees to pay the amounts
specified in Addendum 2 for the Services for the term of this Agreement and to
perform the obligations specified in Paragraph 11 below.
4. INSTALLATION SERVICES. The Company will install the Equipment at the
Customer sites designated in Addendum 1, will perform site surveys and will make
all necessary filings required in connection with the installation of the
Equipment and operation of the Services, including those with the Mexican
government. Prior to the installation by the Company, Customer shall have
completed its obligations specified in Paragraph 11 below, and shall have
notified the Company in writing of such completion. Upon completion of
installation, Company and Customer shall conduct all such tests as either
reasonably deems necessary to confirm operation of the Equipment and Services.
Acceptance by Customer shall mark the beginning of the term established by
paragraph 2, and billing of the Base Monthly Service Charges shall commence as
of that date.
5. SERVICE PERFORMANCE. The Services shall have a digital bit error rate
of 10/7/ or better, per circuit ("Service Performance Standards"). The Company
states, and Customer acknowledges, that satellite signal transmission services
within the United States of Mexico are, by Mexican law, provided exclusively by
a dependency of the Mexican government. Notwithstanding this, however, the
Company shall be responsible for managing the satellite spectrum allocated to
Customer and for ensuring that such signal transmission services (as well as
other Services provided hereunder) are provided in accordance with the Service
Performance Standards. A "Service Interruption" shall occur for the period of
time that the Services fail to meet the Service Performance Standards. A Service
Interruption begins when the Company independently becomes aware of a Service
Interruption or when the Company acknowledges Customer's notification of
Page 2
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
Service Interruption and ends at the time that the Services have been restored
to applicable Service Performance Standards. Company shall immediately
acknowledge notification of a Service Interruption upon receipt of notice from
Customer. If a Service Interruption occurs of greater than four (4) continuous
hours during the normal business hours, Customer shall be credited against its
Base Monthly Service Charge for the month next following for each hour the
Service Interruption continues based on a 720-hour month. A failure to meet the
applicable Service Performance Standards will not constitute a Service
---
Interruption when that failure is the result of any of the following causes:
(a) The failure or non-performance of any Customer-provided facilities or
equipment;
(b) An act or failure to act of Customer, its employees, or agents;
(c) Customer-requested Service or Equipment modification;
(d) Suspensions or terminations of Service made in accordance with these
standard terms and conditions;
6. MAINTENANCE; OUTAGE RESPONSE PROCEDURE. The Company shall provide all
necessary and required maintenance, including regular, scheduled maintenance for
the Equipment pursuant to this Agreement and in consideration for the Base
Monthly Service Charge specified in Addendum 2. When the Company receives
notification or independently becomes aware of a service problem, Company shall
immediately begin diagnostic efforts to isolate the source of the service
outage. If dispatch of service personnel is required, such personnel shall be
dispatched within a reasonable period of time and in accordance with commercial
transportation schedules. The Company shall use all commercially reasonable
efforts to remedy the service problems as soon as possible. Unless approved in
writing by Company, no party other than Company or its designee shall provide
any maintenance, installation or repair services in connection with the
Equipment or Services.
7. RENEWAL. This Agreement will be renewed automatically at the end of
the initial sixty (60) months for additional terms of twelve (12) months
unless, not less than ninety (90) days before the expiration of the then-
effective term, either party notifies the other in writing of its intention not
to renew.
8. CHARGES AND PAYMENT.
The Base Monthly Service Charge specified in Addendum 2 is payable in
advance each month during the Term of this Agreement. The Base Monthly Service
Charge for less than a full month will be prorated on a thirty (30) day month
basis. Company shall invoice Customer at the beginning of each month for
charges due for such month and Customer
Page 3
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
shall pay the Company all charges due within ten (10) days of billing date.
Customer shall have the option of payment via wire transfer as specified in
Addendum 2. In the event that any charges are not paid by the Customer when due,
the Company reserves the right, consistent with Paragraphs 15 and 16 below, to
terminate this Agreement for cause, or, in the alternative, to charge Customer a
late payment charge calculated on the outstanding balance then due, with such
late payment charge equal to the maximum late-payment charge allowable under
Texas law, up to 1.5 percent per month on the unpaid balance.
9. ASSIGNMENT. Neither party shall assign this Agreement without the
prior written consent of the other party, which consent will not be withheld or
delayed unreasonably. Any party to whom the rights and obligations under this
Agreement are assigned shall assume all such assigned rights and obligations in
full, and all performance standards and customer remedies for performance
failures shall remain in force.
10. TITLE. Title to the Equipment shall remain at all times in the
Company.
11. RESPONSIBILITIES.
a) The Company shall be responsible, at its expense, for:
(i) obtaining all necessary licenses and permits to provide the
Services to Customer;
(ii) ensuring that the Services comply with all applicable federal,
state and local laws, rules and regulations;
(iii) ensuring that the Services do not infringe upon the rights of
any third party; and
(iv) taking all actions necessary to provide the Services to
Customer, excepting only those actions which Customer agrees to perform at
its own expense.
b) Customer will meet the following Customer obligations and the Customer
will reimburse all costs incurred as a result of the Customer's failure to meet
such obligations:
(i) Customer shall provide on-site electrical power, site security
and site modifications, as well as obtaining necessary rights of access to
the site, and owner consents, governmental approvals and authorizations for
the facilities to be placed on the site including applicable zoning
approvals.
(ii) Unless otherwise agreed in writing between the parties,
Customer shall be responsible for any modifications to Customer's on-premises
telecommunications facilities (e.g., PBX, telephone handsets) required to
interface
Page 4
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
with the Equipment.
(iii) Customer shall permit Company personnel to inspect the
Equipment and any associated equipment installed at Customer's facilities
from time to time as required for the Company to perform its obligations
hereunder. Customer hereby grants the Company and the Company's authorized
representatives safe access to all Equipment in Customer's premises, and
will arrange permitted access to areas of third-party facilities and
premises. The Company will comply with Customer's standard rules and
regulations for access.
(iv) Customer shall provide the Company service representatives
with access to electrical power, water and other utilities as well as
telephone access to the public switched network, as required by the Company
for its performance under the Agreement.
(v) Customer shall assist in performing fault isolation and, in
case of service problems, Customer facility personnel shall cooperate with
and assist the Company service representatives, as required, with
installation, troubleshooting and fault isolation. Customer facilities
shall be staffed adequately to assist the Company in the troubleshooting
and fault isolation of remote sites.
(vi) Customer will maintain site environment conditions (e.g.,
ambient temperature and humidity) necessary for efficient operation of the
Equipment.
12. INDEMNIFICATION. Each party shall indemnify and hold the other party
harmless from and against any claim or damages relating to property damage or
personal injury where such property damage or personal injury is the result of
the indemnifying party or its agents, employees or representatives. Such
indemnification shall include all court costs and attorneys' fees.
13. LIMITATION OF LIABILITY. The Company's sole liability hereunder is
limited to installing the Equipment and to providing Services in accordance with
the terms of this Agreement, as well as to its liability to indemnify the
Customer per paragraph 12 above. THE FOREGOING UNDERTAKING IS IN LIEU OF ALL
OTHER OBLIGATIONS, WARRANTIES, OR UNDERTAKINGS, EXPRESS OR IMPLIED, INCLUDING,
BUT NOT LIMITED TO, ANY IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. NOTWITHSTANDING THE FOREGOING, THE COMPANY SHALL BE LIABLE
AS FOLLOWS: (a) TO INDEMNIFY CUSTOMER AS PROVIDED IN PARAGRAPH 12, (b) TO
INDEMNIFY AND HOLD CUSTOMER HARMLESS FOR BREACHES OF THE COMPANY'S OBLIGATIONS
UNDER PARAGRAPH 11, AND (c) FOR BREACHES OF THE COMPANY'S OBLIGATION UNDER
PARAGRAPH 17. In no event shall either party be liable for consequential,
------------
indirect, incidental or special damages.
Page 5
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
14. FORCE MAJEURE. Neither party shall be liable to the other if
-------------
performance of any part of this Agreement is delayed or rendered impossible
because of causes beyond such party's control (hereinafter referred to as a
"Force Majeure Event"), provided that the party who has been so affected shall
immediately give notice to the other party of the nature of any such conditions
and the extent of delay and shall do everything possible to resume performance.
Upon occurrence of a Force Majeure Event, all obligations under this Agreement
shall immediately be suspended and extended. If the period of nonperformance
exceeds ten (10) days, the party whose ability to perform has not been so
affected may by giving written notice to the other party terminate this
Agreement.
15. DEFAULT.
(a) Any of the following occurrences will be an event of default by
Customer under the Agreement:
(i) If Customer breaches any of the terms of, or defaults in the
performance of any of its obligations under this Agreement (except its
obligations to make payments under this Agreement), and such default
continues for a period of thirty (30) days after receipt by Customer of
written notice from the Company of such default;
(ii) If Customer defaults in the payment of any sum due Company and
such default continues for a period of ten (10) days after receipt of
written notice from the Company of such default;
(iii) If Customer becomes the subject of any voluntary or involuntary
bankruptcy, insolvency, reorganization or liquidation proceeding, makes an
assignment for the benefit of creditors, convenes a meeting of its
creditors, admits in writing its insolvency or inability to pay its debts
when they become due, or is unable to pay or is generally not paying its
debts as they become due;
(iv) If any substantial portion of Customers assets are seized or
levied upon by writ of attachment, garnishment, execution or otherwise, and
such seizure or levy is not released within five (5) days thereof.
(b) Any of the following occurrences will be an event of default by
Company under the Agreement:
(i) If Company fails to provide Services materially conforming to
the Service Performance Standards applicable to this Agreement, which failure
continues for the longer period of ten (10) days after receipt by the Company
100494 Page 6 ATI
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
of Customer's written notice of said failure, or after the expiration of a
longer cure period granted to the Company in writing by Customer (in
Customer's sole discretion), shall be a Default of this Agreement.
(ii) If Company becomes the subject of any voluntary or involuntary
bankruptcy, insolvency, reorganization or liquidation proceeding, makes an
assignment for the benefit of creditors, convenes a meeting of its
creditors, admits in writing its insolvency or inability to pay its debts
when they become due, or is unable to pay or is generally not paying its
debts as they become due;
(iii) If any substantial portion of Company's assets are seized or
levied upon by writ of attachment, garnishment, execution or otherwise, and
such seizure or levy is not released within five (5) days thereof.
16. TERMINATION AND SUSPENSION.
(a) Either party may terminate this Agreement in the event of Default by
the other party if such Default continues beyond the period for cure provided
for in Paragraph 15 above.
(b) If this Agreement is terminated because of Customer Default, or if
Customer terminates this Agreement for its own convenience, the Company shall
cease providing Services to Customer, including maintenance services, and
satellite spectrum. Customer shall be liable to the Company for its resulting
damages, not to exceed any unpaid amounts owed by Customer to the Company under
this Agreement. The Company shall be obligated to mitigate its damages to the
extent possible.
(c) If this Agreement is terminated because of a Default by Company or for
Company's convenience, the Company shall be responsible for the payment of
monthly charges hereunder only up to the date of termination.
17. CONFIDENTIALITY. Information and data that is delivered or disclosed
under this Agreement shall be held in confidence by the receiving party, and
shall never be disclosed or used except by those employees or authorized
representative(s) of the receiving party who have a need to know, are subject to
a confidentiality covenant equivalent to this covenant, and agree only to use
such information for the purpose of performing this Agreement. The receiving
party will use the same level of care in safeguarding such confidential
information as it normally takes to preserve and safeguard its own confidential
information. The receiving party shall not be liable for the disclosure of such
information or data if such information or data:
(a) is, or becomes, publicly known, other than by breach of this
Agreement;
Page 7
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
(b) is obtained from a third party without restriction;
(c) is previously known by the receiving party;
(d) is, at any time, developed by the receiving party completely
independently of any disclosure hereunder; or
(e) is required to be released by law.
18. SEVERABILITY. In the event any one or more of the provisions of this
Agreement for any reason shall be held to be invalid or unenforceable, the
remaining provisions of this Agreement shall be unimpaired and shall remain in
full force and effect as though the invalid provision had never been a part
hereof.
19. NON-WAIVER. The failure of either party to insist upon strict
adherence to any term or condition of this Agreement on any occasion shall not
be considered a waiver by either party of any right thereafter to insist upon
strict adherence to that or any other term or condition of this Agreement. No
waiver shall be of any force or effect unless in writing.
20. GOVERNING LAW. For the interpretation and enforcement of this
Agreement, the parties expressly submit hereby to the jurisdiction and
applicable laws in Texas, hereby expressly waiving any other jurisdiction which
may correspond to them for reason of their present or future domiciles or for
any other reason whatsoever.
21. RELATIONSHIP OF PARTIES. This Agreement is not intended by the
parties to constitute or create a joint venture, pooling arrangement, employment
arrangement, partnership, agency or formal business organization of any kind.
The Company shall be an independent contractor of Customer's for all purposes at
all times, and neither party shall act as or hold itself out as agent for the
other or create or attempt to create liabilities for the other party, unless
specifically authorized to do so by separate agreement.
22. INVOICES. Invoices shall be addressed to Customer at the address set
forth in Addendum 1. Customer shall pay all amounts owing to the Company under
this Agreement by forwarding payment as is set forth in Addendum 1.
23. NOTICES. Any and all notices given under this Agreement shall be in
writing and shall be transmitted to the appropriate party by hand delivery or by
Certified Mail, return receipt requested, postage prepaid, or transmitted by
telegram, telex or facsimile, addressed as set forth in Addendum 1. Each party
may designate by notice in writing a new address or person to which any notice
may thereafter be given, served or sent. Unless otherwise provided in this
Agreement, each notice shall be deemed received when delivered to the
addressee(s) (with return receipt, the delivery receipt, the affidavit of
Page 8
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407 SAN ANTONIO, TEXAS 78249
- --------------------------------------------------------------------------------
messenger or, with respect to a telex, the answerback being deemed conclusive
evidence of such delivery), or at such time as delivery is refused by the
addressee(s).
24. ENTIRE AGREEMENT; MODIFICATION. This Agreement, together with all
Addendums referred to and incorporated herein by reference, comprises the entire
agreement of the parties with respect to the subject matter hereof, and cancels
and supersedes any and all prior or contemporaneous agreements, understandings,
arrangements or representations made between the parties and relating to this
subject matter. In case of conflict between this Agreement and any documents
incorporated herein by reference, or between the incorporated documents
themselves, the Agreement shall take precedence over the incorporated documents,
and the incorporated documents shall take precedence in the order listed on the
face of the documents.
This Agreement may be modified, changed or amended only by an express
written amendment signed by duly authorized representatives of both parties to
this Agreement, stating that the written document is an amendment to this
Agreement.
ACCEPTED BY:
___________________________ AMERICAN TELESOURCE
"CUSTOMER" INTERNATIONAL, INC.
BY:________________________ BY:___________________________
TITLE:_____________________ TITLE:________________________
DATE:______________________ DATE:_________________________
100494 Page 9 ATI
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407, SAN ANTONIO, TX 78249
- --------------------------------------------------------------------------------
ADDENDUM 1
This Addendum is hereby incorporated into the underlying Agreement as
though an original part thereof.
1. The Company shall provide the following Service:
2. Invoices shall be sent to Customer at the following address:
_________________________
_________________________
_________________________
Attention:_______________
3. Customer shall forward all payments to Company at the following address:
American Telesource International, Inc.
12500 Network Blvd., Suite 407
San Antonio, TX 78249
OR
via wire transfer to Company's designated bank account.
All billing inquiries shall be made by calling the following telephone number:
(210) 558-6090.
4. Notices shall be sent to Customer at the following address:
--------
_________________________
_________________________
_________________________
Attention:_________________________
5. Notices shall be sent to Company at the following address:
-------
American Telesource International, Inc.
12500 Network Blvd., Suite 407
San Antonio, TX 78249
AMERICAN TELESOURCE
INTERNATIONAL, INC.
BY:______________________________ BY:______________________________
TITLE:___________________________ TITLE:___________________________
DATE:____________________________ DATE:____________________________
Page 1
<PAGE>
AMERICAN TELESOURCE INTERNATIONAL, INC.
12500 NETWORK BLVD., SUITE 407, SAN ANTONIO, TX 78249
- --------------------------------------------------------------------------------
ADDENDUM 2
This addendum is incorporated into the underlying Agreement as though an
original part thereof.
BASIC AGREEMENT CHARGES:
Service Commencement Fee: $
----------------
Total Monthly Service Charge: $
----------------
Total SCT/Telcomm Tariff: $
----------------
The Service Commencement Fee and Base Monthly Service Charge include all
charges, taxes, assessments, surcharges, fees and tariffs imposed by the Mexican
Government or the United States Government. The Customer shall be responsible
for any and all charges imposed by Telecommunicaciones de Mexico ("Telecomm").
The tariff imposed by Telecomm is always subject to change at any time. The
amount quoted above is an estimate as of this date and is only for budgetary
purposes. Any documentation pertaining to changes in tariffs imposed by Telecomm
will be forwarded to Customer as soon as it is available. The Company shall be
responsible to provide and maintain a "turn-key" system to Customer which
provides the Services for the term of this Agreement in exchange for the
payments provided for herein. Customer shall not be subject to any other charges
of any nature whatsoever unless specifically provided for herein. The Company
may pass through to Customer, and Customer shall pay, any increases or
adjustments in the Company's costs from service providers to the Company upon
satisfactory approval from the Customer.
AMERICAN TELESOURCE
INTERNATIONAL, INC.
BY:______________________________ BY:______________________________
TITLE:___________________________ TITLE:___________________________
DATE:____________________________ DATE:____________________________
<PAGE>
EXHIBIT 3.1
-----------
[ILLEGIBLE]
1082734
----------
For Ministry Use Only
a Passage excused du Ministere
[LOGO APPEARS HERE] Ministry of Ministere de
Consumer and
Commercial la Consommation
???? et du Commerce
CERTIFICATE CERTIFICAT
This is to certify that these Ceci certifie qun los presents
articles are effective on status entrent on vigueur le
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
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- - - - - -
MAY 26 MAI, 1994 [ A ] [ D ] [ O ] [ A ] [ 3 ] [ 5 ]
--------------------------- - - - - - -
18 20 28 28 55 31-
???? ????
- -------------------- -
[ N ] [ONTARIO ] [ A ]
-------------------- -
32 33 37 37
[SIGNATURE ILLEGIBLE]
Director/Directeur
Business Corporations ACI/Lot de sur los compagnies
- --------------------------------------------------------------------------------------------------------------------
ARTICLES OF AMALGAMATION
STATUS DE FUSION
1. The name of the amalgamted corporation is: Denamination sociale os la compagnie issue de la
Form fusion
Business
Corporations ----------------------------------------------------------------------------------------------------
Act A M E R I C A N T E L E S O U R C E
----------------------------------------------------------------------------------------------------
Formule I N T E R N A T I O N A L I N C .
Numero 4 ----------------------------------------------------------------------------------------------------
Los ----------------------------------------------------------------------------------------------------
sur les ----------------------------------------------------------------------------------------------------
compagnies 2. The address of the registered office is: Adresse au siege sociale:
c/o JOHN F. O' DONNELL, 95 WELLINGTON STREET WEST, SUITE 906
------------------------------------------------------------------------------------------------------------
(Street & Number ???? ???? ???? ???? ???? ??? ??? ??? ?? ??? ??? ???.)
Rue et ???? ???? ??? ????. ???? ???? ??? ??? ??? ??? ??? ??? ???? ???? ?????
---------------------
TORONTO, ONTARIO M 5 J 2 N 7
-----------------------------------------------------------------------------------------------------------
???? ???? ??? ???? ??? ??? (???? ???
???? ??? ??? ??? ??? ??? ??? ??? ???? ??? ??? ???)
MUNCIPALITY OF
CITY OF TORONTO in METROPOLITAN TORONTO
---------------------------------------------- ---------------------------------------
(???? ???? ??? ??? ???) (???? ??? ??? ??? ???)
(???? ???? ???? ???? ???? ????) ???? ????/???? (???? ???? ???? ????)
3. Number for minimum and maximum number?? of Nombre (ou nombres minimal el maxima)
directors ??: d'administrateurs:
minimum: three
maximum: ten
4. The director(s) is/are Administrateur(s): Resident
Canadian
Residence address, giving Street & No. or R.R. No., State
First name, initials and last name Municipality and Postal Code Yes or No
Prenom, initales et nom de familie Adresse personnelle y compria la rue et ie numero, le Canadian
postal Out/Non
------------------------------------------------------------------------------------------------------------
MURRAY R. NYE 280 McLEAN STREET YES
WINNIPEG, MANITOBA R3R 0V7
JOHN R. MOSES R.R. # 1, YES
PORT CARLING, ONTARIO POB 1JO
ARTHUR L. SMITH 7710 CROOKED BROOK NO
SAN ANTONIO, TEXAS 78250
</TABLE>
<PAGE>
5. A) The amalgamation agreement has been A) Les actionnaires de chaque
duly adopted by the shareholders compagnie qui fusions ont
of each of the amalgamating dument adopte la convention
corporations as required by de fusion conformement au
subsection 176 (a) of the Business [X] paragrahe 176 (a) de la Loi
Corporations Act on the date set sur les compagnies e la date
out below. mentionnee ci-dessous.
------------------
Check Cocher
A or B A ou B
------------------
B) The amalgamation has been approved B) Les administrateurs de chaque
by the directors of each compagnie qui fusionne ont
amalgamating corporation by a [_] approuve la fusion par voie
resolution as required by section de resolution conformement a
177 of the Business Corporations l'article 177 de la Loi sur
Act on the date set out below. les compagnies a la date
The articles of amalgamation in mentionnee ci-dessous. Les
substance contain the provisions status de fusion reprennent
of the articles of incorporation of essentiellement les
dispositions des status
????? de
- --------------------------------------------------------------------------------
and are more particularly set out - et sont enonces
in these articles. textuellement aux presents
status.
<TABLE>
<CAPTION>
Names of amalgamating Ontario Corporation Number Date of Adoption/Approval
corporations Numero de la compagnie en Date d'adoption ou d'approbation
Denomination socials des Ontario
compagnies qui fusionnent
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
WILLINGDON RESOURCES 293491 April 19, 1994
LIMITED
LATCOM INTERNATIONAL 1082560 April 19, 1994
INC.
</TABLE>
<PAGE>
5. Restrictions, if any, on business Limites s'il y a lieu, imposees aux
the corporation may carry on or on activities commerciales on aux pouvoirs
powers the corporation exercise. de la compagnie.
None.
7. The classes and any maximum number Categories et nombre maximal, s'il y
of shares that the corporation is a lieu, d'actions que la compagnie est
authorized to issue: autionees a amettre:
The Corporation is authorized to issue an unlimited number of Common shares.
<PAGE>
8. Rights, privileges, restrictions and Droits, privileges, restrictions et
conditions (if any) attaching to each conditions, s'il y s lieu rattaches a
class of shares and directors a chaque categorie o'actions et
authority with respect to any class pouvoirs des administrateurs ??? a
of shares which may be issued in chaque categorie d'actions qui peut
series: etra ????? en series:
NOT APPLICABLE.
<PAGE>
9. The issue, transfer or ownership L'emission, le transfort ou la propriete
of shares is/is not restricted d'actions est/n'est pas restreinte. Les
and the restrictions (if any are restrictions, s'il y a lieu, sont les
as follows: suivantes:
Not applicable.
10. Other provisions (if any): Autres dispositions, s'il y a lieu:
Not applicable.
11. The statements required by Les declarations exigees aux termes du
subsection 178(2) of the Business paragraphe 178(2) de le Loi sur les
Corporations Act are attached as compagnies constituent l'annexe "A".
Schedule "A".
12. A copy of the amalgamation Une copie de le convention de fusion ou
agreement or directors les resolutions des administrateurs
resolutions (as the case may be) (selon le cas) constitute(nt l'annexe
is/are attached as Schedule "B". "B".
<PAGE>
These article are signed in duplicate. Les presents statuts sont signee en
double exampisire.
Names of the amalgamating corporations Denomination sociale des compagnies qui
and signatures and descriptions of fusionnent, signature et fonction de
office of their proper officers leurs dirigeants regulierement designee.
WILLINGDON RESOURCES LIMITED LATCOMM INTERNATIONAL INC.
By:/s/ JOHN R. MOSES By:/s/ MURRAY R. NYE
--------------------- ----------------------
JOHN R. MOSES MURRAY R. NYE
President President
<PAGE>
SCHEDULE "A"
IN THE MATTER Of THE BUSINESS CORPORATIONS ACT, 1982
AND IN THE MATTER OF THE PROPOSED AMALGAMATION OF
WILLINGDON RESOURCES LIMITED AND LATCOMM INTERNATIONAL INC.
I, JOHN R. MOSES, hereby make the following statement in support of the
above-mentioned amalgamation agreement pursuant to subsection 177(2) of the
Business Corporations Act, 1982 (the "Act"):
1. I am the President of Willingdon Resources Limited ("Willingdon")
and as such have personal knowledge of the following matters;
2. There are reasonable grounds for believing that Willingdon is and the
amalgamated corporation resulting from the amalgation of Willingdon
and LatComm International Inc. will be able to pay their respective
liabilities as they become due and that the realizable value of the
said amalgamated corporation's assets will not be less than the
aggregate of its liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgation;
4. No creditors have notified Willingdon that they object to the
amalgamation and accordingly clause (c) of subsection 177(2) of the
Act has no application; and
5. Since Willingdon has not received any notices pursuant to clause (c)
of subsection 177(2) of the Act, clause (d) of subsection 177(2) of
the Act has no application in the present circumstances.
DATED the 29th day of April, 1994.
/s/ John R. Moses
-------------------------------
JOHN R. MOSES, President
<PAGE>
IN THE HATTER OF THE BUSINESS CORPORATIONS ACT, 1982
AND IN THE MATTER OF THE PROPOSED AMALGAMATION OF
WILLINGDON RESOURCES LIMITED AND LATCOMM INTERNATIONAL INC.
I, MURRAY R. NYE, hereby make the following statements in support of the
above-mentioned amalgamation pursuant to subsection 177(2) of the Business
Corporations Act, 1982 (THE "ACT"):
1. I am the President of LatComm International Inc. ("LATCOMM") and as
such have personal knowledge of the following matters;
2. There are reasonable grounds for believing that Latcomm is and the
amalgamated corporation resulting from the amalgamation of LatComm and
Willingdon Resources Limited will be able to pay their respective
liabilities as they become due and that the realizable value of the
said amalgamated corporation's assets will not be less than the
aggregate of its liabilities and stated capital of all classes;
3. There are reasonable grounds for believing that no creditor will be
prejudiced by the amalgamation;
4. No creditors have notified LatComm that they object to the
amalgamation and, accordingly, clause (c) of subsection 177(2) of
the Act has no application; and
5. Since LatComm has not received any notices pursuant to clause (c) of
subsection 177(2) of the Act, clause (d) of subsection 177(2) of the
Act has no application in the present circumstances.
DATED the 29th day of April, 1994.
/s/ Murray R. Nye
-------------------------------------------
MURRAY R. NYE, President
<PAGE>
SCHEDULE "B"
THIS AMALGAMATION AGREEMENT dated as of March 14, 1994.
B E T W E E N:
WILLINGDON RESOURCES LTD., a corporation
incorporated under the laws of Ontario.
(hcreinafter called "Willingdon") OF THE FIRST PART
- and -
LATCOMM INTERNATIONAL INC., a corporation
incorporated under the laws of Alberta,
(hereinafter called "LatComm") OF THE SECOND PART
WHEREAS Willingdon and LatComm have agreed to complete an amalgamation
under the Business Corporations Act (Ontario) whereby they will amalgamate and
-----------------------------------
continue under the name LatComm International Inc.;
AND WHEREAS upon the amalgamation being effective, shares of each of the
Amalgamating Corporations (as defined below) will be exchanged for shares of
Amalco;
NOW THEREFORE THIS AGREEMENT WITNESSETH AS FOLLOWS:
ARTICLE ONE - Definitions
1.1 In this Agreement:
"AFFILIATE" has the meaning ascribed thereto in the Securities Act
--------------
(Ontario);
---------
"AGREEMENT" means this Amalgamation Agreement;
"ALBERTA ACT" means the Business Corporations Act (Alberta);
-----------------------------------
"AMALCO" means the continuing corporation constituted upon the Amalgamation
becoming effective;
"AMALCO SHARES" means the common shares without nominal or par value in the
capital of Amalco;
"AMALGAMATING CORPORATIONS" means Willingdon and LatComm;
"AMALGAMATION" means the amalgamation of Willingdon and LatComm pursuant to
the Ontario Act as contemplated by this Agreement;
"BUSINESS DAY" means a day on which securities may be quoted for trading
through the Canadian Dealing Network ("CDN"):
"DISSENTING SHAREHOLDERS" means holders of Willingdon Shares or LatComm
Shares who exercise rights of dissent under the Alberta Act or Ontario Act
with respect to the Continuance or Amalgamation, as the case may be;
<PAGE>
2
"JOINT SPECIAL MEETING OF SHAREHOLDERS" means the joint special meeting of
the shareholders of Willingdon and LatComm to be held for the purpose of
considering a special resolution relating to the Amalgamation;
"EFFECTIVE DATE" means the effective date set forth in the Certificate of
Amalgamation issued pursuant to the Ontario Act with respect to the
Amalgamation;
"LatComm Shares" means the common shares without nominal or par value in
the capital of LatComm as constituted on the date hereof;
"INFORMATION CIRCULAR" means a joint managemeat information circular which
will accompany the notices of shareholders meetings of Willingdon and
LatComm called, among other things, to approve and adopt this Agreement:
"TRANSFER AGENT" means the transfer agent for the Amalco Shares;
"WILLINGDON SHARES" means the common shares without nominal or par value in
the capital of Willingdon as constituted on the date hereof.
I.2 Unless the context otherwise requires, words and phrases used herein that
are defined in the Ontario Act and Alberta Act shall have the same respective
meaning herein as in such Act.
ARTICLE TWO - Representations and Warranties
2.1 Willingdon represents and warrants to and agree with LatComm that:
(a) Willingdon is a corporation duly incorporated and organized and
validly subsisting under the Ontario Act and has the corporate power
and authority to own or lease its assets as now owned or leased and to
carry on its business as now carried on and holds all necessary
federal, provincial and municipal governmental licences, permits and
authorizations in connection therwith;
(b) the authorized capital of Willingdon consists of an unlimited number
of common shares, herein denoted as "Willingdon Shares" of which
4,693,470 Willingdon Shares are validly issued and outstanding at the
date hereof as fully paid and non-assessable shares;
(c) Willingdon has the corporate power and authority to enter into this
Agreement;
(d) no person, firm or corporation has any agreement, warrant or option,
or any right capable of becoming an agreement, warrant or option, for
the purpose of any unissued shares in the capital of Willingdon,
except as disclosed herein;
(e) the audited financial statements of Willingdon for the fiscal year
ended July 31, 1993, which include the compensation figures for the
fiscal year ended July 31, 1992, together with the notes thereto and
the interim statements for the 6 month period ended January 31, 1994
(collectively the Willingdon Statements), present fairly the financial
position of Willingdon and have been prepared in accordance with
generally accepted accounting principles applied on a consistent
basis;
(f) there have been no changes since January 31, 1994 in the condition,
financial or otherwise, or in the results of operations of Willingdon
as shown on or reflected in the Willingdon Statements which have had
or may reasonably be expected to have a materially adverse effect on
the business, prospects, property, financial conditions or results of
operations of Willingdon taken as a whole;
<PAGE>
3
(g) none of the execution and delivery of this Agreement, the consummation
of the Amalgation and the fulfilment of and compliance with the terms
and provisions hereof will (i) result in or constitute a default
under, the articles or by-laws of Willingdon or any agreement to which
Willingdon is a party or any Willingdon assets are bound, (ii)
constitute an event which would permit any party to any agreement with
Willingdon to terminate such agreement or to accelerate the maturity
of any indebtedness of Willingdon or other obligation of Willingdon,
or (iii) result in the creation of imposition of any encumbrance upon
the Willingdon Shares or any assets of Willingdon;
(h) there is no legal, arbitrable, governmental or other action,
proceeding or investigation pending or threatened against or otherwise
affecting any of its assets and, to the best of its knowledge,
Willingdon is not aware of any event or events which have occurred
that could give rise to any such action, proceeding or investigation;
(i) Willingdon has not declared or paid any dividend or otherwise made any
distribution of any kind to shareholders and Willingdon has not
disposed of or entered into any agreement to dispose of any of its
assets or incurred indebtedness, except as disclosed herein;
(j) to the best of its knowledge, information and belief, is in compliance
with all applicable governmental laws, by-laws, regulations and orders
relevant to Willingdon's corporate existence, operations or
properties;
(k) Willingdon is a "reporting issuer" as defined in the securities
legislation of Ontario and is not in default of any filings required
to be made pursuant thereto or the regulations made thereunder;
(l) the Willingdon Shares are quoted for trading on the CDN but are
presently suspended from trading until the completion of the
Amalgamation;
(m) the information in the Information Circular relating to Willingdon
will be true, correct and complete in all material respects and will
not contain any untrue statement of any material fact or omit to
state any material fact required to be stated therein or necessary in
order to make the statement therein not misleading in light of the
circumstances in which they were made.
2.2 LatComm represents and warrants to and agrees with Willingdon that:
(a) LatComm is a corporation duly incorporated and organized and validly
subsisting under the Alberta Act and has the corporate power and
authority to own or lease its assets as now owned or leased and to
carry on its business as now carried on and holds all necessary
federal, provincial or state and municipal governmental licenses,
permits and authorizations in connection therewith;
(b) the authorized capital of LatComm consists of an unlimited number of
common shares, herein denoted as LatComm shares, of which 10,610,307
Shares are validly issued and outstanding at the date hereof as fully
paid and non-assessable shares;
(c) LatComm has the corporate power and authority to enter into this
Agreement;
(d) no person, firm or corporation has any agreement, warrant or option,
or any right capable of becoming an agreement, warrant or option, for
the purchase of any unissued shares in the capital of LatComm, except
as disclosed in the Information Circular;
(e) the audited financial statements of LatComm for the period ending July
31, 1993, together with the notes thereto (collectively, the LatComm
of Statements), present fairly the financial position of
<PAGE>
4
LatComm and have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis;
(f) there have been no changes since February 28, 1994 in the condition,
financial or otherwise, or in the results of operations of LatComm as
shown on or reflected in the LatComm Statements which have had or
may reasonably be expected to have a materially adverse effect on the
business, prospects, property, financial condition or results of
operations of LatComm taken as a whole;
(g) none of the execution and delivery of this agreement, the consummation
of the Amalgamation and the fulfilment of and compliance with the
terms and provisions hereof will (i) result in or constitute a default
under, the articles or by-laws of LatComm or any agreement to which
LatComm is a party or any LatComm assets are bound, (ii) constitute an
event which would permit any party to any agreement with LatComm to
terminate such agreement or to accelerate the maturity of indebtedness
of LatComm or other obligations of LatComm, or (iii) result in the
creation of imposition of any encumbrances upon the LatComm Shares or
any assets of LatComm;
(h) there is no legal, arbitrable, governmental or other action,
proceeding or investigation pending or threatened against or otherwise
affecting LatComm or any of its assets and, to the best of its
knowledge, LatComm is not aware of any event or events which have
occurred that could give rise to any such action, proceeding or
investigation;
(i) LatComm has not declared or paid any dividend or otherwise made any
distribution of any kind to shareholders and LatComm has not disposed
of or entered into any agreement to dispose of any of its assets or
incurred indebtedness, except as disclosed herein;
(j) to the best of its knowledge, information and belief, LatComm is in
compliance with all applicable governmental laws, by-laws, regulations
and orders relevant to LatComm's corporate existence, operations or
properties;
(k) LatComm is a "private company" as defined in the securities
legislation of Alberta; and
(l) the information in the Information Circular relating to LatComm will
be true, correct and complete in all material respect and will not
contain any untrue statement of any material fact or omit to state any
material fact required to be stated therein or necessary in order to
make the statements therein not misleading in light of the
circumstances in which they were made;
ARTICLE THREE - Conditions Precedent
3.1 Subject to section 3.2 hereof, this Agreement shall have no force and
effect whatsoever and shall be null and void unless:
(a) the shareholders of each of Willingdon and LatComm shall have approved
this Agreement as required by the Ontario Act;
(b) the shareholders of LatComm shall have approved the Continuance of
LatComm under the Ontario Act pursuant to the Alberta Act:
(c) Willingdon or LatComm shall not have received prior to the Effective
Date written objections to the Continuance or Amalgamation, as the
case may be pursuant to the dissent rights provided in the Alberta Act
or Ontario Act from the holders of that number of Willingdon Shares or
LatComm Shares (excluding objections which have been withdrawn) which
objections in the opinion of the
<PAGE>
5
directors of Willingdon or LatComm are material to the transaction;
(d) all representations and warranties of Willingdon and LatComm contained
herein are true and correct on the Effective Date; and
(e) all necessary regulatory approvals have been obtained.
3.2 If any condition set out in section 3.1 (other than 3.l(a), (b) or (e))
shall not be fulfilled or performed, the party entitled to the benefit of such
condition shall be entitled to terminate this Agreement or to waive that
condition.
ARTICLE FOUR - Covenants
4.1 Each party hereto agrees with the other that:
(a) Willingdon, LatComm or Amalco will not prior to or on the Effective
Date allot or issue any shares of its capital or enter into any
agreement except this Agreement providing for either the certain or
contingent or contemplation of the issue of shares of its capital.
ARTICLE FIVE - Amalgamation
5.1 The Amalgamating Corporations hereby agree to amalgamate pursuant to the
provisions of the Ontario Act and to continue as one corporation on the terms
and conditions set forth in this Agreement.
5.2 Each of Willingdon and LatComm shall call and hold a meeting of
shareholders in accordance with the Ontario Act and Alberta Act, respectively,
and applicable securities laws for the purpose of approving the Agreement and
the Continuance as required by the Ontario Act and Alberta Act.
----------- -----------
5.3 On the Effective Date, the Amalgamation of the Amalgamating Corporations
and their Continuance as one corporation shall become effective; the property of
each Amalgamating Corporations shall continue to be the property of Amalco,
except as noted otherwise herein; Amalco shall continue to be liable for the
obligations of each Amalgamating Corporation; any existing cause of action,
claim or liability to prosecution shall be unaffected; any civil, criminal or
administrative action or proceeding pending by or against an Amalgamating
Corporation may be continued to be prosecuted by or against Amalco; any
conviction against, or ruling under a judgment in favor of or against, an
Amalgamating Corporation may be enforced by or against Amalco; and the Articles
of Amendment with respect to the Amalgamation shall be deemed to be the Articles
of Incorporation of Amalco;
5.4 Prior to the Effective Date, Willingdon shall create a wholly-owned
subsidiary (hereinafter referred to as "Subco"). Willingdon will pay all
outstanding liabilities, including the costs of the forthcoming annual and
special meeting of shareholders at which the approval of the shareholders is
being sought for this transaction, but with the exception of the liability
referred to in the next paragraph ("the Outstanding Liability"). The remaining
assets, including its mining property in Northern Ontario will be transferred to
Subco. The shares of Subco will be distributed to the shareholders of Willingdon
as a return of stated or paid up capital and the deficiency will be reduced, if
approved by the shareholders.
5.5 There is an outstanding liability (the "Outstanding Liability") of
Willingdon in the amount of approximately $75,000, which shall remain a
liability of Amalco and will be paid by Amalco following completion of this
transaction.
5.6 John Moses, the President of Willingdon, will be retained as a consultant
to Amalco. His remuneration shall be determined by the directors of Amalco in
their complete discretion. He shall have the use at no cost to him of the
company automobile for the balance of the term of the prepaid lease.
<PAGE>
6
ARTICLE SIX - Amalco
6.1 The name of Amalco shall be LatComm International Inc.
6.2 There shall be no restriction on the business which Amalco is authorized to
carry on.
6.3 The registered office of Amalco until changed by the Board of Directors,
shall be Suite 906, 95 Wellington Street West, Toronto, Ontario M5J 2N7.
6.4 Amalco shall be authorized to issue an unlimited number of common shares,
herein defined as "Amalco Shares".
6.5 The rights, privileges, restrictions and conditions attaching to the Amalco
Shares as a class are as follows:
(a) one vote for each Amalco Share held at all meetings of shareholders of
Amalco, other than meetings at which the holders of another specified
class or series of shares are entitled to vote separately as a class
or series;
(b) receive any dividend declared by the Board of Directors of Amalco in
respect of the Amalco Shares; and
(c) subject to the prior rights of the holders of any class of shares
ranking senior to the Amalco Shares, to receive the remaining property
of Amalco in the event of liquidation, dissolution or winding-up of
Amalco, whether voluntarily or involuntarily, or any other
distribution of the assets of Amalco among its shareholders for the
purpose of winding up its affairs.
6.6 There shall be no restrictions on the issue, transfer or ownership of
shares in the capital of Amalco.
6.7 The Board of Directors of Amalco shall, until otherwise changed in
accordance with the Act, consist of a minimum of three and a maximum of ten
directors, the number of which shall be fixed from time to time by the
directors.
6.8 On the Effective Date, the number of directors shall be 3. The first
directors of Amalco shall be the persons whose names and addresses appear below.
Name and Proposed Office (if any) Address Residency
- --------------------------------- ------------------ ---------
Arthur L. Smith - President & San Antonio, Texas
Chief Operating Officer (C.O.O) American
Murray Nye - Chairman & Chief Winnipeg, Manitoba
Executive Officer (CEO) Canadian
John R. Moses - Secretary - Port Carling, Ontario
Treasurer Canadian
6.9 The by-laws of Amalco, until repealed, amended or altered shall be as set
out in the Information Circular. The by-laws may be examined at the registered
office of Amalco.
6.10 Without limiting the borrowing powers of Amalco as set forth in the Ontario
Act, as amended from time to time, with or without the authority of any by-lws
or the authorizations of the shareholders:
<PAGE>
7
(a) borrow money upon the credit of Amalco including by way of overdraft;
(b) issue, reissue, sell of pledge bonds, debentures, notes or other
evidences of indebtedness or guarantees of Amalco whether secured or
unsecured;
(c) charge, mortgage, hypothecate, pledge or otherwise create a security
interest in the undertaking or in all or any currently owned or
subsequently acquired real or personal, movable or immovable property
of Amalco, including book debts, rights, powers and franchises, to
secure any such bonds, debentures, notes or other evidences of
indebtedness or guarantees or any other present or future indetedness
or liability of Amalco; and
6.11 The Auditors of Amalco shall be Price Waterhouse or such other auditors
as Willingdon and LatComm mutually designate prior to the Effective Date.
6.12 The Registrar and Transfer Agent of Amalco shall be The R-M Trust Company,
P.O Box 7010, Adelaide Street Postal Station, Toronto, Ontario, M5C 2W9
ARTICLE SEVEN - Exchange of Shares
7.1 Subject to section 8.1, the shares in the capital of Willingdon and LatComm
which are issued and outstanding prior to the Effective Date shall, on and from
the Effective Date, be converted into issued and Outstanding shares in the
capital of Amalco as follows:
(a) each four (4) issued and outstanding Willingdon Shares shall be
converted into one (1) issued, fully paid and non-assessable Amalco
Share; and
(b) each issued and outstanding LatComm Shares shall be converted into one
(1) issued, fully-paid and non-assessable Amalco Share.
In accordance with the terms of the options and warrants issued by
Willingdon and LatComm which are outstanding on the date hereof, upon the
Amalgamation becoming effective such outstanding options and warrants will
become outstanding options and warrants to purchase Amalco Shares upon the same
terms and subject to appropriate adjustments.
ARTICLE EIGHT - Fractional Shares
8.1 Fractional Amalco Shares will not be issued. A holder of Willingdon Shares
or LatComm Shares who would otherwise be entitled to receive a fraction of an
Amalco Share shall be issued a whole Amalco share.
ARTICLE NINE - Dissenting Shareholders
9.1 Dissenting Shareholders who:
(a) ultimately are entitled to be paid fair value for their Willingdon
Shares or LatComm Shares shall be deemed to have had their Willingdon
Shares or LatComm Shares, as the case may be, cancelled on the
Effective Date and Amalco shall not be required to recognize such
holders as shareholders of Amalco from and after the Effective Date
and the names of such holders shall be deleted from the register of
holders of Amalco Shares from and after the Effective Date; and
(b) ultimately are not entitled to be paid fair value, for any reason, for
their Willingdon Shares or LatComm Shares, shall be deemed to have had
their Willingdon Shares or LatComm Shares
<PAGE>
8.
cancelled on the Effective Date, shall be deemed to have been issued
Amalco Shares for their shares on the Effective Date as provided in
sections 7.1 and 8.1 hereof.
ARTICLE TEN - Articles of Amalgamation
10.1 After this Agreement has been approved in accordance with the Ontario Act
and Alberta Act, and all other terms and conditions contained in section 3.1
hereof have been fulfilled or waived pursuant to section 3.2 hereof, the
Amalgamating Corporations shall, on such day as the directors of Willingdon and
LatComm may select, jointly file with the Director under the Ontario Act,
Articles of Amalgamation and such other documents as may be required to complete
the Amalgamation.
10.2 All representations, warranties and covenants herein contained shall
survive and remain in full force and effect for a period of one (1) year after
the Effective Date.
ARTICLE ELEVEN - General
11.1 This Agreement shall be governed by and construed in accordance with the
laws of the Province of Ontario and the federal laws of Canada applicable
herein.
11.2 Willingdon shall be responsible for all reasonable costs and expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
11.3 In the event any one or more of the provisions of this Agreement is invalid
or otherwise unenforceable, the enforceability of the remaining provisions shall
be unimpaired.
11.4 This Agreement may be executed in several counterparts, each of which when
so executed shall be deemed to be an original and such counterparts together
constitute one and the same instrument and notwithstanding the date of execution
shall be deemed to bear date as of the date written in the beginning of this
Agreement.
IN WITNESS WHEREOF this Agreement has been executed by the parties hereto.
WILLINGDON RESOURCES LTD.
/s/ John F. O'Donnell /s/ George S. Cross
- ------------------------------ by:-----------------------------------
Witness GEORGE S. CROSS - SECRETARY
JOHN F. O'DONNELL
LATCOMM INTERNATIONAL, INC.
/s/ Max Polinsky by: /s/ Murray Nye
- ------------------------------ ----------------------------------
Witness
MAX POLINSKY MURRAY R. NYE - PRESIDENT
<PAGE>
Exhibit 3.2
BY-LAW 1
--------
ARTICLE ONE
INTERPRETATION
1.01 Definitions: In this by-law and all other by-laws of the Corporation,
-----------
unless the context otherwise requires:
(a) "Act" means the Business Corporations Act, 1982 (Ontario) or any
successor statute, as amended from time to time, and the regulations
thereunder;
(b) "Corporation" means American Telesource International Inc;
(c) "holiday" means Sunday and any other day that is a holiday as defined
in the Interpretation Act (Ontario) or any successor statute, as
amended from time to time;
(d) "person" includes individuals, bodies corporate, sole proprietorships,
partnerships, syndicates, unincorporated associations and
organizations, joint ventures, trusts, employee benefit plans,
governments or agencies or political subdivisions thereof, and a
natural person acting as trustee, executor, administrator or other
legal representative;
(e) "recorded address" means, with respect to a single shareholder, his
latest address as recorded in the securities register of the
Corporation; with respect to joint shareholders, the first address
appearing in the securities register in respect of their joint
holding; and with respect to any other person, but subject to the Act,
his latest address as recorded in the records of the Corporation or
otherwise known to the secretary;
(f) subject to the foregoing, words and expressions that are defined in
the Act have the same meanings when used in the by-laws; and
(g) words importing the singular include the plural and vice-versa, words
importing any gender include the masculine, feminine and neuter
genders, and headings are for convenience of reference only and shall
not, affect the interpretation of the by-laws.
ARTICLE TWO
MEETINGS OF SHAREHOLDERS
2.01 Annual Meeting: The annual meeting (of the shareholders shall be held
--------------
on such day and such time as the)
<PAGE>
2.
Act, determine from time to time, for the purpose of receiving the annual
financial statements of the Corporation and the auditor's report thereon,
electing directors, appointing the auditor and authorizing the board to fix his
remuneration, and transacting such other business as may properly be brought
before the meeting.
2.02. Special Meeting: From time to time the board may call a special
---------------
meeting of the shareholders to be held on such day and at such time as the board
may determine. The holders of not less than 5% of the issued shares of the
Corporation carrying the right to vote at the meeting sought to be held may
requisition a special meeting of shareholders. Any special meeting of
shareholders may be combined with an annual meeting.
2.03. Place of Meetinqs: Meetings of shareholders shall be held at the
-----------------
registered office of the Corporation or at such other place within Canada as the
board may determine from time to time.
2.04. Record Date: The board may fix in advance a record date, preceding
-----------
the date of any meeting of shareholders by not more than 50 clear days nor less
than 21 clear days, for the determination of the shareholders entitled to notice
of the meeting, and where no such record date for notice is fixed by the board,
the record date for notice shall be the close of business on the day immediately
preceding the day on which notice is given, or if no notice is given, shall be
the day on which the meeting is held. Notice of any such record date fixed by
the board shall be given in the manner required by the Act.
2.05. Shareholder List: For each meeting of shareholders the secretary
----------------
shall prepare an alphabetical list of shareholders entitled to receive notice of
the meeting showing the number of shares entitled to be voted at the meeting and
held by each such shareholder. The list shall be prepared (i) if a record date
for such notice is fixed by the board, not later than 10 clear days thereafter,
or (ii) if no such record date is fixed by the board, at the close of business
on the day immediately preceding the day on which notice of the meeting is
given.
2.06. Notice: Notice in writing of the time, place and purpose for holding
------
each meeting of shareholders shall be sent not less than 21 clear days nor more
than 50 clear days before the date on which the meeting is to be held, to each
director, the auditor of the Corporation and each person who on the record date
for notice appears in the securities register of the Corporation as the holder
of one or more shares carrying the right to vote at the meeting or as the holder
of one or more shares the holders of which are otherwise entitled to receive
notice of the meeting. Notice of a meeting of shareholders shall state or be
accompanied by the text of any special resolution or by-law to be submitted to
the meeting and a statement in accordance with the Act of the nature of all
special business to be transacted at the meeting. Reference is made to sections
6.07 to 6.11.
- ---- ----
2.07. Proxy and Management Information Circular: The secretary shall,
-----------------------------------------
concurrently with sending notice of a meeting of shareholders, (i) send a form
of proxy and management information circular in accordance
<PAGE>
3.
with the Act to each shareholder who is entitled to receive notice of and
appears entitled to vote at the meeting,(ii) send such management information
circular to any other shareholder who is entitled to receive notice of the
meeting, to any director who is not a shareholder entitled thereto and to the
auditor, and (iii) file with the Ontario Securities Commission and any other
agencies entitled thereto a copy of all documents sent in connection with the
meeting.
2.08 Financial Statements: Not less than 21 clear days before each annual
--------------------
meeting of shareholders the secretary shall send to each shareholder a copy of
the annual financial statements of the Corporation and the auditor's report
thereon.
2.09 Persons Entitled to be Present: The only persons entitled to attend a
------------------------------
meeting of shareholders shall be those persons entitled to notice thereof and
others who although not entitled to notice are entitled or required under any
provision of the Act or the by-laws to be present at the meeting. Any other
person may be admitted only on the invitation of the chairman of the meeting or
with the consent of the meeting.
2.10 Chairman, Secretary, and Scrutineer: The chairman of the board or in
-----------------------------------
his absence a person designated by the board shall be chairman of any meeting of
shareholders. If no such person is present within 15 minutes after the time
appointed for the holding of the meeting, the persons present and entitled to
vote shall choose one of their number to be chairman. If the secretary is
absent, the chairman shall appoint some person, who need not be a shareholder,
to act as secretary of the meeting. One or more scrutineers, who need not be
shareholders, may be appointed by the chairman or by a resolution of the
shareholders.
2.11 Ouorum: The quorum for the transaction of business at any meeting of
------
shareholders shall be two (2) persons present at the opening of the meeting each
being a shareholder entitled to vote at the meeting or a duly appointed
proxyholder or representative for a shareholder so entitled. If a quorum is
present at the opening of any meeting of shareholders, the shareholders present
or represented may proceed with the business of the meeting even though a quorum
is not present throughout the meeting.
2.12 Persons Entitled to Vote: Without prejudice to any other right to
------------------------
vote, every shareholder recorded on the shareholder list prepared in accordance
with section 2.05 is entitled, at the meeting to which the list relates, to vote
----
the shares shown thereon opposite his name, except to the extent that the
shareholder transfers ownership of any such shares after the record date for
notice of the meeting and the transferee establishes that he owns the shares and
requests not later than 48 hours (excluding Saturdays and holidays) before the
meeting that his name be included in the list, in which case the transferee is
entitled to vote such shares at the meeting. However, where two or more persons
hold the same shares jointly, any one of them may in the absence of the others
vote in respect of such shares but if more than one of such persons are
<PAGE>
4.
present or represented and vote, they shall vote together as one on the shares
Jointly held by them or not at all.
2.13. Proxies: Every shareholder, including a shareholder that is a body
-------
corporate, entitled to vote at a meeting of shareholders may by means of a proxy
appoint a proxyholder or alternate proxyholders, who need not be shareholders,
as his nominee to attend and act at the meeting in the manner, to the extent and
with the authority conferred by the proxy. The board may specify in the notice
calling a meeting of shareholders a time, not exceeding 48 hours (excluding
Saturdays and holidays) preceding the meeting or any adjournment thereof, before
which proxies must be deposited with the Corporation or its agent. A proxy shall
be acted upon only if, prior to the time so specified, it shall have been
deposited with the Corporation or an agent thereof specified in such notice or,
where no such time is specified in such notice, if it has been received by the
secretary of the Corporation or the chairman of the meeting or any adjournment
thereof before the time of voting.
2.14. Voting: At each meeting of shareholders every question proposed for
------
consideration by the shareholders shall be decided by a majority of the votes
duly cast thereon, unless otherwise required by the articles or by-laws of the
Corporation or by law. In case of an equality of votes the chairman of the
meeting shall be entitled to a casting vote.
2.15 Show of Hands: At each meeting of shareholders voting shall be by
-------------
show of hands unless a ballot is required or demanded as hereinafter provided.
Upon a show of hands every person present and entitled to vote on the show of
hands shall have one vote. Whenever a vote by show of hands has been taken upon
a question, unless a ballot thereon be so required or demanded and such
requirement or demand is not withdrawn, a declaration by the chairman of the
meeting that the vote upon the question was carried or carried by a particular
majority or carried, and an entry to that effect in the minutes of the meeting,
shall be prima facie evidence of the result of the vote without proof of the
number or proportion of votes cast for or against.
2.16 Ballots: On any question proposed for consideration at a meeting of
-------
shareholders a ballot may be required by the chairman or demanded by any person
present and entitled to vote, either before or after any vote by show of hands.
If a ballot is so required or demanded and such requirement or demand is not
withdrawn, a poll upon the question shall be taken in such manner as the
chairman of the meeting shall direct. Subject to the articles, upon a ballot
each person present shall be entitled to one vote in respect of each share which
he is entitled to vote at the meeting on the question.
<PAGE>
5.
ARTICLE THREE
DIRECTORS
3.01. Powers of the Board of Directors: The board of directors shall manage
--------------------------------
or supervise the management of the business and affairs of the Corporation.
3.02. Qualifications: A majority of the directors shall be resident
--------------
Canadians, at least one-third of the directors shall not be officers or
employees of the Corporation or of any affiliate of the Corporation, and no
person may be a director who is disqualified under the Act.
3.03. Number and Quorum of Directors: The shareholders shall by
------------------------------
special resolution determine from time to time or authorize the board to so
determine the number of directors, including the number to be elected at the
annual meeting, within the minimum and maximum number of directors from time to
time provided for in the articles. The number of directors required from time to
time to constitute a quorum for the transaction of business at a meeting of the
board shall be 51% of the number of directors so determined at that time (or, if
that is a fraction,the next larger whole number of directors). However, in no
case shall the quorum be less than 40% of the minimum number of directors then
provided for in the articles, or two directors, whichever is greater. Reference
is made to section 3.10.
----
3.04. Election and Term: The directors shall be elected to hold office for
-----------------
a term expiring not later than the close of the third annual meeting of
shareholders following their election or when their successors are duly
elected.
3.05. Vacancies: Notwithstanding vacancies, the remaining directors
---------
may exercise all the powers of the board as long as a quorum of the
board remains in office. Vacancies in the board may be filled in accordance
with the Act.
3.06. Calling Meetings: Meetings of the board shall be held from time to
----------------
time at such places within or outside Ontario on such days and at such times as
any two directors or the chief executive officer or any other officer
designated by the board may determine. In any financial year of the Corporation
a majority of the meetings of the board may be held within or outside Canada.
3.07. Notice: Notice of the time and place of every meeting of the board
------
shall be sent to each director not less than 48 hours (excluding Saturdays and
holidays) if the meeting is held in Ontario, or 96 hours (excluding Saturdays
and holidays) otherwise, before the time of the meeting. Reference is made to
sections 6.07 to 6.11.
---- ----
3.08. First Meeting of New Board: Each newly constituted board may hold its
--------------------------
first meeting without notice on the same day as the meeting of shareholders at
which such board is elected.
<PAGE>
6.
3.09 Regular Meetings: The board may appoint a day or days in any months
----------------
for regular meetings of the board at a place and hour to be named. A copy of any
resolution of the board fixing the place and time of such regular meetings shall
be sent to each director forthwith after being passed and to each director
elected or appointed thereafter, but no other notice shall be required for any
such regular meeting.
3.10. Canadian Majority: No business other than the filling of a vacancy on
-----------------
the board shall be transacted at a meeting of the board unless a majority of the
directors present are resident Canadians, except where a resident Canadian
director who is unable to be present approves in writing or by telephone or
other communication facilities the business transacted at the meeting and a
majority of resident Canadian directors would have been present had that
director been present at the meeting.
3.11. Meetinqs by Telephone: If all the directors present at or
---------------------
participating in the meeting consent (which consent may be given at any time) a
meeting of the board may be held by means of such telephone, electronic or other
communication facilities as permit all persons participating in the meeting to
communicate with each other simultaneously and instantaneously, and each
director participating in such a meeting by such means shall be deemed to be
present at the meeting.
3.12 Chairman: The chairman of the board or in his absence a director
--------
designated by the board or in his absence a director designated by the meeting
shall be chairman of any meeting of the board.
3.13. Voting: At all meetings of the board every question shall be decided
------
by a majority of the votes cast on the question. In case of an equality of votes
the chairman of the meeting shall be entitled to a casting vote.
3.14. Signed Resolutions: When there is a quorum of directors in office, a
-------------------
resolution in writing signed by all the directors entitled to vote thereon at a
meeting of the board or any committee thereof is as valid as if passed at such
meeting. Any such resolution may be signed in counterparts and if signed as of
any date shall be deemed to have been passed on such date.
3.15. Remuneration: Directors may be paid such remuneration for acting as
-------------
directors and such sums in respect of their out-of-pocket expenses incurred in
performing their duties as the board may determine from time to time. Any
remuneration or expenses so payable shall be in addition to any other amount
payable to any director acting in another capacity.
3.16. Committees: The board shall appoint an audit committee and from time
----------
to time may appoint other committees of directors. The composition of each
committee shall meet the requirements of the Act. Each committee shall have
those powers and duties lawfully delegated to it by the board or provided by the
Act. Unless otherwise determined by the board, each committee may fix its
quorum, elect its chairman and
<PAGE>
7.
adopt rules to regulate its procedure. Subject to the foregoing, the procedure
of each committee shall be governed by the provisions of this by-law, which
govern proceedings of the board so far as the same can, apply except that a
meeting of a committee may be called by any member thereof (or by any member or
the auditor, in the case of the audit committee)notice of any such meeting shall
be given to each member of the committee (or each member and the auditor, in the
case of the audit committee) and the meeting shall be chaired by the chairman of
the committee or, in his absence, some other member of the committee. Each
committee shall keep records of its proceedings and transactions and shall
report all such proceedings and transactions to the board in a timely manner.
ARTICLE FOUR
OFFICERS AND EMPLOYEES
4.01. Appointment of Officers: The board may from time to time appoint a
-----------------------
chairman of the board, a vice-chairman of the board, a president, one or more
senior vice-presidents and vice-presidents, a treasurer, a secretary, a
controller and such other officers as the board may determine, including one or
more assistants to any of the officers so appointed. One person may hold more
than one office. Except for the chairman of the board and the vice-chairman of
the board, the officers so appointed need not be directors.
4.02. Appointment of Non-Officers: The board may also appoint+ other
---------------------------
persons to serve the Corporation in such other positions and with such titles,
powers and duties as the board may determine from time to time.
4.03. Terms of Employment: The board may settle from time to time the
-------------------
terms of employment of the officers and other persons appointed by it and may
remove at its pleasure any such person without prejudice to his rights under any
employment contract.
4.04. Powers and Duties of Officers: The board may from time to time
-----------------------------
specify the duties of each officer, delegate to him powers to manage the
business and affairs of the Corporation (including the power to sub-delegate)
and change such duties and powers, all insofar as not prohibited by the Act. To
the extent not otherwise so specified or delegated, and subject to the Act, the
duties and powers of the officers of the Corporation shall be those usually
pertaining to their respective offices.
4.05. Incentive Plans: For the purposes of enabling key officers and
---------------
employees of the Corporation and its affiliates to participate in the growth of
the Corporation and of providing effective incentives to such officers and
employees, the board may establish such plans (including stock option plans and
stock purchase plans) and make such rules and regulations with respect thereto,
and such changes in such plans, rules
<PAGE>
8.
and regulations, as the board may deem advisable from time to time. From time
to time the board may designate the key officers and employees entitled to
participate in any such plan. For the purposes of any such plan the Corporation
may provide such financial assistance by means of loan, guarantee or otherwise
to key officers and employees as is Permitted by the Act.
ARTICLE FIVE
CONDUCT OF DIRECTORS AND OFFICERS AND INDEMNITY
5.01. Standard of Care: Every director and officer of the Corporation in
----------------
exercising his powers and discharging his duties shall act honestly and in good
faith with a view to the best interests of the Corporation and shall exercise
the care, diligence and skill that a reasonable prudent person would exercise in
comparable circumstances.
5.02. Disclosure of Interest: A director or officer who now or in future is
----------------------
a party to, or is a director or officer of or has a material interest in another
person who is a party to, any existing or proposed material contract or
transaction with the Corporation shall in accordance with the Act disclose in
writing to the Corporation or request to have entered in the minutes of meetings
of the board the nature and extent of his interest. Except as permitted by the
Act a director so interested shall not vote on any resolution to approve such
contract or transaction. A general notice to the board by a director or officer
that he is a director or officer of or has a material interest in a person and
is to be regarded as interested in any contract made or transaction entered into
with that person is a sufficient disclosure of interest in relation to any
contract or transaction so made or entered into.
5.03. Indemnity: Every person who at any time is or has been a director or
---------
officer of the Corporation or who at any time acts or has acted at the
Corporation's request as a director or officer of a body corporate of which the
Corporation is or was a shareholder or creditor, and the heirs and legal
representatives of every such person, shall at all times be indemnified by the
Corporation in every circumstance where the Act so permits or requires. In
addition and without prejudice to the foregoing and subject to the limitations
in the Act regarding indemnities in respect of derivative actions, every person
who at any time is or has been a director, officer or employee of the
Corporation or properly incurs or has properly incurred any liability on behalf
of the Corporation or who at any time acts or has acted at the Corporation's
request (in respect of the Corporation or any other person), and his heirs and
legal representatives, shall at all times be indemnified by the Corporation
against all costs, charges and expenses, including an amount paid to settle an
action or satisfy a fine or judgment, reasonably incurred by him in respect of
or in connection with any civil, criminal or administrative action, proceeding
or investigation (apprehended, threatened, pending, under way or completed) to
which he is or may be made a party or in which he is or may become otherwise
involved by
<PAGE>
9.
reason of being or having been such a director, officer or employee or by
reason of so incurring or having so incurred such liability or by reason of so
acting or having so acted (or by reason of anything alleged to have been done,
omitted or acquiesced in by him in any such capacity or otherwise in respect of
any of the foregoing), and all appeals therefrom, if:
(a) he acted honestly and in good faith with a view to the best interests
of the Corporation; and
(b) in the case of a criminal or administrative action or proceeding that
is enforced by a monetary penalty, he had reasonable grounds for
believing his conduct was lawful.
Nothing in this section shall affect any other right to indemnity to which any
person may be or become entitled by contract or otherwise, and no settlement or
plea of guilty in any action or proceeding shall alone constitute evidence that
a person did not meet a condition set out in clause (a) or (b) of this section
or any corresponding condition in the Act.
5.04. Limitation of Liability: So long as he acts honestly and in good
-----------------------
faith with a view to the best interests of the Corporation, no person referred
to in the preceding section shall be liable for any damage, loss, cost or
liability sustained or incurred by the Corporation. However, nothing in this
section shall relieve any director or officer of the Corporation from the duty
to act in accordance with the Act and the regulations thereunder or from
liability for any breach of such duty.
5.05. Insurance: Subject to the Act, the Corporation may purchase insurance
---------
or the benefit of any person referred to in section 5.03 against such
----
liabilities and in such amounts as the board may determine from time to time.
ARTICLE SIX
MISCELLANEOUS
6.01. Execution of Documents: Any contracts and documents to be executed by
----------------------
the Corporation may be signed by any two of the chairman of the board, the vice-
chairman of the board, the president, a senior vice-president, a vice-president,
the secretary, the treasurer or the controller or by any one of the foregoing
persons and a director, an assistant secretary, an assistant treasurer or an
assistant controller. In addition, the board may from time to time indicate who
may or shall sign any particular contract or document or class of contracts or
documents. Any officer of the Corporation may affix the corporate seal to any
contract or document and may certify a copy of any resolution or of any by-law
or contract or document of the Corporation to be a true copy thereof. Subject to
the Act, and if authorized by the board, the corporate seal of the Corporation
and the signature of any signing
<PAGE>
10.
officer may be mechanically or electronically reproduced upon any contracts or
documents of the Corporation. Any such facsimile signature shall bind the
Corporation notwithstanding that any signing officer whose signature is so
reproduced may have ceased to hold office at the date of delivery or issue of
such contracts or documents.
6.02. Share Certificates: Every shareholder is entitled at his option to a
------------------
share certificate stating the number, class and series designation, if any, of
shares held by him as appears on the records of the Corporation, or a non-
transferable written acknowledgement of his right to obtain such a share
certificate. However, the Corporation is not bound to issue more than one share
certificate or acknowledgement in respect of shares held jointly by several
persons, and delivery of such certificate or acknowledgment to one of such
persons is sufficient delivery to all of them. Share certificates and
acknowledgements shall be in such forms as the board shall approve from time to
time and, unless otherwise ordered by the board, shall be signed in accordance
with section 6.01 and need not be under corporate seal. However, certificates
----
representing shares in respect of which a transfer agent has been appointed
shall be signed manually by or on behalf of such transfer agent and other share
certificates and acknowledgements shall be signed manually by at least one
signing officer.
6.03. Replacement of Share Certificates: The board may prescribe either
---------------------------------
generally or in a particular case the conditions, in addition to those provided
in the Act, upon which a new share certificate may be issued in place of any
share certificate which is claimed to have been lost, destroyed or wrongfully
taken, or which has become defaced.
6.04. Registration of Transfer: No transfer of shares need be recorded in
------------------------
tie register of transfers except upon presentation of the certificate
representing such shares endorsed by the appropriate person under the Act,
together with reasonable assurance that the endorsement is genuine and
effective, and upon compliance with all other conditions set out in the Act.
6.05. Dividends: Subject to the Act and the articles the board may from
---------
time to time declare dividends payable to the shareholders according to their
respective rights and interests in the Corporation. A dividend payable to any
shareholder in money may be paid by cheque payable to the order of the
shareholder and shall be mailed to the shareholder by prepaid mail addressed to
him at his recorded address unless he @irects otherwise. In the case of joint
holders the cheque shall be made payable to the order of all of them, unless
such joint holders direct otherwise in writing. The mailing of a cheque as
aforesaid, unless it is not paid on due presentation, shall discharge the
Corporation's liability for the dividend to the extent of the amount of the
cheque plus the amount of any tax thereon which the Corporation has properly
withheld. If any dividend cheque sent is not received by the payee, the
Corporation shall issue to such person a replacement cheque for a like amount on
such reasonable terms as to indemnity, reimbursement of expenses and evidence of
non-receipt and of title as the board or any person designated by it may
require.
<PAGE>
11.
6.06. Dealings with Registered Shareholder: Subject to the Act, the
------------------------------------
Corporation may treat the registered owner of a share as the person exclusively
entitled to vote, to receive notices, to receive any dividend or other payment
in respect of the share and otherwise to exercise all the rights and powers of a
holder of the share. The Corporation may, however, treat as the registered
shareholder any executor, administrator, heir, legal representative, guardian,
committee, trustee, curator, tutor, liquidator or trustee in bankruptcy who
furnishes appropriate evidence to the Corporation establishing his authority to
exercise the rights relating to a share of the Corporation.
6.07. Method of Giving Notice: Any notice or document required or permitted
-----------------------
to be sent by the Corporation to any person, may be mailed by prepaid Canadian
mail in' a sealed envelope addressed to, or may be delivered personally to, such
person at his recorded address, or may be sent by any other means permitted
under the Act. If so mailed, the notice or document shall be deemed to have been
received by the addressee on the fifth clear day after mailing. The secretary
may change the recorded address of any person in accordance with any information
the secretary believes to be reliable.
6.08. Undelivered Notices: If notices or documents mailed to a shareholder
-------------------
pursuant to section 6.07 are returned on three consecutive occasions because he
----
cannot be found, the Corporation need not send any further notices or documents
to such shareholder until he informs the Corporation in writing of his new
address.
6.09. Computation of Days: In computing any period of days or clear days
-----------
under the articles or by-laws or the Act, the period shall be deemed to commence
on the day following the event that begins the period and shall be deemed to end
at midnight on the last day of the period except that if the last day of the
period falls on a holiday, the period shall and at midnight of the day next
following that is not a holiday.
6.10. Omissions and Errors: The accidental omission to give any notice to
--------------------
any person, or the non-receipt of any notice by any person or any immaterial
error in any notice shall not invalidate any action taken at any meeting held
pursuant to such notice or otherwise founded thereon.
6.11. Waiver of Notice: Any person entitled to attend a meeting of
----------------
shareholders or directors or a committee thereof may in any manner and at any
time waive notice thereof, and attendance of any shareholder or his proxyholder
or authorized representative or of any other person at any meeting is a waiver
of notice thereof by such shareholder or other person except where the
attendance is for the express purpose of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called. In addition,
where any notice or document is required to be given under the articles or by-
laws or the Act, the notice may be waived or the time for sending the notice or
document may be waived or abridged at any time with the consent in writing of
the person entitled thereto. Any meeting may be held without
<PAGE>
12.
notice or on shorter notice than that provided for in the by-laws if all persons
not receiving the notice to which they are entitled waive notice of or accept
short notice of the holding of such meeting.
ARTICLE SEVEN
TRANSITIONAL
7.01. Repeal of By-laws: By-law Nos. 1-6 are repealed without affecting
-----------------
their operation to date or the validity of any act done. Contract made, right or
privilege acquired or liability or obligation incurred thereunder and without
prejudice to any authority exercisable by the board of directors hereafter. All
directors, officers and other persons holding office or appointment under such
repealed by-laws immediately prior to the coming into force of this by-law shall
continue to act as if appointed under this by-law by the board or any committee
thereof or by the shareholders or the holders of any class or series of shares
and having continuing effect immediately prior to the coming into force of this
by-law shall continue in effect except to the extent inconsistent with this by-
law and until amended or repealed.
7.02. Effective Date: This by-law shall come into force as soon as
--------------
the articles of amendment removing the private company restrictions are obtained
by the Corporation.
