<PAGE>
As filed with the Securities and Exchange Commission on August 18, 1999
Registration Number 333-84115
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN TELESOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
74-2690895
(I.R.S. Employer Identification Number)
12500 Network Boulevard, Suite 407, San Antonio, Texas 78249
(210) 558-6090
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Arthur L. Smith, Chief Executive Officer
12500 Network Boulevard, Suite 407, San Antonio, Texas 78249
(210) 558-6090
(Name, address, including zip code and telephone number, including area code, of
agent for service)
Approximate date of commencement of proposed sale to the public: From time to
time after the effective date of this Registration Statement.
If only the securities being registered on this Form are being offered pursuant
to a dividend or interest reinvestment plans, please check the following box.
[_]
If any of the securities being registered on this Form are to be offered on a
delayed or continuos basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under
the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- ------------------------------------------------------------------------------------------------------
Proposed Proposed
Title of Amount Maximum Maximum Amount of
Securities to be Offering Price Aggregate Registration
To be Registered Registered Per Share Offering Price Fee (4)
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issuable upon conversion of
convertible preferred stock (1) 2,694,691 $1.16 $3,125,842 $8,689.84
-------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------
Common Stock to be paid as dividend on
convertible preferred (1) 323,363 $1.16 $ 375,101 $1,042.78
- --------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
warrants (2) 100,000 $1.16 $ 116,000 $ 322.48
- --------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
warrants (3) 80,000 $1.06 $ 84,800 $ 235.74
========================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457 (c), using the average of the high and low
prices reported on August 16, 1999, solely for the purpose of calculating
the Registration Fee.
(2) Calculated pursuant to Rule 457 (g) (3), using the average of the high and
low prices reported on August 16, 1999, solely for the purpose of
calculating the Registration Fee.
(3) Calculated pursuant to Rule 457 (g) (1) using a fixed exercise price of
$1.06 per share for the Common Stock, solely for the purpose of calculating
the Registration Fee.
(4) A fee of $11,677.75 has been previously paid. No additional monies are due.
This Registration Statement shall become effective on August 19, 1999.
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PROSPECTUS
Issued August 18, 1999
3,198,054 Shares of Common Stock
AMERICAN TELESOURCE INTERNATIONAL, INC.
Investing in our common stock involves a high degree of risk. See "Risk
Factors" beginning on page 3.
The selling shareholders identified on page 12 of this prospectus are
offering these shares of common stock. For additional information on the
methods of sale, you should refer to the section entitled "Plan of Distribution"
on page 13. We will not receive any of the proceeds from the sale of the common
stock by the selling shareholders.
Our common stock is traded on the National Association of Securities
Dealers, Inc. Over-the-Counter Bulletin Board under the symbol "AMTI." On
August 16, 1999, the last reported bid price of our common stock was $1.1875 per
share.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved these securities or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
The date of this prospectus is August 18, 1999.
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TABLE OF CONTENTS
FORWARD LOOKING STATEMENTS 1
RELY ONLY ON THIS PROSPECTUS 2
THE COMPANY 2
RISK FACTORS 3
USE OF PROCEEDS 9
COMMON STOCK ISSUED 9
SELLING SHAREHOLDERS 12
PLAN OF DISTRIBUTION 13
LEGAL MATTERS 14
EXPERTS 15
WHERE YOU CAN FIND MORE INFORMATION 16
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FORWARD-LOOKING STATEMENTS
This prospectus and the documents incorporated by reference in this
prospectus contain "forward-looking statements." "Forward looking statements"
are those statements which describe management's beliefs and expectations about
the future. We have identified forward-looking statements in this prospectus by
using words such as "anticipate," "believe," "could," "estimate," "may,"
"could," "expect," and "intend." Although we believe these expectations are
reasonable, our operations involve a number of risks and uncertainties,
including those described in the Risk Factors section of this prospectus.
Therefore, these types of statements may prove to be incorrect. We do not
promise to update any forward-looking statements, even if new information or
future events indicate that these statements will prove to be incorrect.
RELY ONLY ON THIS PROSPECTUS
You should rely only on the information provided or incorporated by
reference in this prospectus or any supplement. We have not authorized anyone
to provide you with different information. This prospectus may be used only in
states and other jurisdictions where it is legal to sell the common stock. The
information contained in this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this prospectus or the sale of
any shares.
THE COMPANY
American TeleSource International, Inc. ("ATSI(SM)") is a communications
company, focusing on the market for wholesale and retail services between the
United States and Latin America, and within Latin America. In 1993, we began
assembling a framework of licenses, interconnection and service agreements,
network facilities and distribution channels so that we would be in a position
to take advantage of the de-monopolization of the Latin American
telecommunications market, as well as the increasing demand for services in this
market. Most of our current operations involve services between the U.S. and
Mexico or within Mexico. We have some operations in Central America as well,
and may expand our operations in the rest of Latin America as the regulatory
environment permits.
We originate retail traffic in Mexico through our captive distribution
channels of public payphones and casetas. (Casetas are indoor calling centers
where travelers or the large portion of the Mexican population that does not
have a telephone may place or receive calls or faxes.) We originate retail
traffic in the U.S. with our MEXICOnnect(SM) service (1010-624) and One Plus
residential and commercial long distance services. We carry wholesale traffic
into Mexico for other U.S. carriers who lack transmission facilities or require
additional capacity. We also provide private network services to companies
needing reliable private communications within Mexico and Central America and
between Mexico or Central America and the United States.
We also own a subsidiary, GlobalSCAPE, Inc., ("GlobalSCAPE") which sells,
markets and distributes its proprietary Internet productivity software,
CuteFTP(TM) and CuteHTML(TM).
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The company began operations in 1994 as a Canadian holding company, Latcomm
International, Inc. with a Texas operating subsidiary, Latin America Telecomm,
Inc. Both corporations were renamed "American TeleSource International, Inc."
in 1994. In May, 1998, the Canadian corporation completed a share exchange
with a newly-formed Delaware corporation, also called American TeleSource
International, Inc., which resulted in the Canadian corporation becoming the
wholly-owned subsidiary of the Delaware corporation. Our principal operating
subsidiaries are:
. American TeleSource International de Mexico, S.A. de C.V., which we formed
in 1995 to further position ourselves in the Mexican and Latin American
market;
. Sistema de Telefonia Computarizada, S.A. de C.V., which we acquired in
August, 1997; this subsidiary owns 127 casetas in 66 cities in Mexico;
. Servicios de Infraestructura, S.A. de C.V., which we acquired in June,
1997; this subsidiary owns certain transmission equipment and valuable long
term licenses in Mexico;
. TeleSpan, Inc., which we formed in February, 1998 to carry our wholesale
and private network services traffic between the U.S. and Latin America;
and
. GlobalSCAPE, Inc., which we formed in April, 1996 to implement Internet
strategies, which are not currently consistent with our core business. We
are currently investigating various options to divest ourselves of this
business, or to distribute some of the ownership of this business to our
shareholders, in a effort to maximize shareholder value.
Our strategy for the future is to maximize the use of our current
infrastructure between Mexico and the United States, while focusing on expanding
our retail customer base in Mexico and the United States. We also want to
expand our network infrastructure in Mexico to reduce costs. We want to
increase the ratio of retail traffic vs. wholesale traffic, because we believe
that retail traffic is less volatile than wholesale traffic, and retail
customers pay more for our services than wholesale customers. Retail traffic
should therefore produce greater profit margins than wholesale traffic. Our
defined retail target market will be the underserved and underdeveloped Latino
markets in the Mexico and the United States, where we plan to offer "borderless"
services, such as enhanced prepaid calling services which will function
regardless of the user's location north or south of the U.S./Mexico border.
We have applied for a long distance concession from the Mexican government
which, if obtained, could permit us to reduce our costs and expand our network
in Mexico. Currently we must rely on Mexican-licensed long distance carriers to
transport our traffic between our facilities in Mexico and the local telephone
company. If we obtain this license and are able to interconnect directly with
the local telephone company in Mexico, we expect to reduce our costs
significantly. This would also allow us to implement our retail strategy more
effectively.
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RISK FACTORS
The purchase of our common stock is very risky. You should not invest any
money that you cannot afford to lose. Before you buy our stock, you should
carefully read this entire prospectus. We have highlighted for you what we
think are the major risks which could most affect our business.
. We expect to incur losses
We have never been profitable and do not expect to become profitable in the
near future. We have invested and will continue to invest significant
amounts of money in our network and personnel in order to maintain and
develop the infrastructure we need to compete in the markets for our
services. We must improve our cash flow from operations to generate a
profit, either by increasing our sales or decreasing our expenses, or both.
. We may not achieve anticipated sales
We have made a substantial investment in our network and personnel to
position ourself in our target markets and will continue to do so. We may
not be able to achieve the sales volume needed to make this investment
profitable.
. If we do not raise additional capital we may go out of business
In the past we have financed our operations almost exclusively through the
private sales of securities. Since we are losing money, we must raise the
money we need to continue operations and expand our network either by
selling more securities or borrowing money. We may not be able to sell
additional securities or borrow money on acceptable terms. If we are not
able to raise additional money, we will not be able to implement our
strategy for the future, and we will either have to scale back our
operations or stop operations. If we sell more common stock the interest of
our existing shareholders will be diluted, meaning that their percentage of
ownership of ATSI will be reduced, and the price of our common stock may go
down.
. Our auditors have questioned our viability
Our auditors' opinion on our financial statements as of July 31, 1998 calls
attention to substantial doubts as to our ability to continue as a going
concern. This means that they question whether we can continue in business.
If we cannot continue in business, our common stockholders would likely
lose their entire investment. Our financial statements are prepared on the
assumption that we will continue in business. They do not contain any
adjustments to reflect the uncertainty over our continuing in business.
. We do not expect to pay dividends
We have no plan to pay dividends in the near future.
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. Our stock has been a penny stock which is more difficult to sell
Our common stock is a "penny stock." It is relatively difficult for an
investor to sell shares of a penny stock.
A "penny stock" is any stock which falls below a selling price of $5.00 per
share in the public market. Our common stock has traded below $5.00 per
share since it began trading on the NASD Over-the-Counter Bulletin Board in
January, 1998. It is much more difficult to sell a penny stock than stock
that trades on a national market or stock exchange because of the extra
steps the broker/dealer must take before selling the stock. A sale of penny
stock does not usually take place as quickly as a sale of shares that trade
on a national market or stock exchange. You may decide to sell your stock
when the price is high enough for you to make a profit on your investment,
but by the time the sale is complete, the price of the stock may have
fallen to the point that you have a loss on your investment. Also, because
of the difficulty in dealing in penny stock, many broker/dealers are
unwilling to participate in buying and selling our shares.
. Our common stock price is volatile
Our stock price has historically been volatile. Volatility makes it more
difficult for you to sell shares when you choose, at prices you find
attractive.
. Our stock price may fall if we fail to spin off GlobalSCAPE
We have announced that we are considering a spin off or public offering (or
combination of the two) of our subsidiary, GlobalSCAPE, and that we have
retained an investment banking firm to help us evaluate the alternatives in
achieving the appropriate value for GlobalSCAPE. If we do not complete this
type of transaction (or if we take too long to complete this transaction)
our stock price could fall. This transaction could be delayed or cancelled
if we are unable to find an underwriter, are unable to negotiate a
favorable offering price for the stock of GlobalSCAPE, there is a lack of
public interest in such a transaction, or management and the Board
determine that this transaction involves excessive operational and economic
risk.
. We may not successfully compete with others in our industry
The market for all of our services is very competitive.
The market for wholesale network services is particularly competitive
on the basis of price. We currently have seven customers for this service.
The volume of business sent by each customer fluctuates, but this traffic
is often heavily concentrated among three or four customers. In the past,
two of these customers have been responsible for 50% of this traffic. If we
are not able to continue to offer competitive prices, these customers will
find some other supplier and we will lose a substantial portion of our
revenue very quickly. Many of our competitors in this market have more
extensive networks than we do, as well as substantially greater financial,
technical and marketing resources. For example, we compete
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with American Telephone and Telegraph Company ("AT&T"), MCI/WorldCom, Inc.
("MCI/WorldCom") and Sprint Communications Company, L.P. ("Sprint") in this
market, as well as numerous other large and small companies. Our large
competitors are able to take advantage of their established customer base
to generate economies of scale, substantially lowering their costs. In
addition, industry capacity along the routes serviced by ATSI is generally
growing as fiber optic cable is activated. If industry capacity exceeds
demand along these routes, severe pricing pressure could develop.
There have been and we expect there will continue to be, mergers,
acquisitions, and joint ventures in our industry that create more large and
well-positioned competitors, and reduce the number of potential customers
for our wholesale network services.
The market for retail services is also extremely competitive. ATSI competes
with many other companies in this market, including AT&T, MCI/WorldCom and
Sprint. These companies have stronger name recognition and brand loyalty,
as well as a broader portfolio of services. We believe we can successfully
compete by targeting the Latino population in the U.S. and by introducing
innovative services. However, certain larger companies have announced that
they intend to enter the Latino market in the U.S. as well, and in Mexico,
we will compete with the former Mexican telephone monopoly, Telefonos de
Mexico ("Telmex"), which has substantially greater resources than we do.
The telecommunications industry has been characterized by steady
technological change. We may not be able to raise the money we need to
acquire the new technology necessary to keep our services competitive.
. We may not be able to collect large receivables
Our wholesale network customers generate large receivable balances, often
over $500,000 for a two week period. We incur substantial direct costs to
provide this service since we must pay our carrier in Mexico to terminate
these calls. If a customer fails to pay a large balance on time, we will
have difficulty paying our carrier in Mexico on time. If our carrier
suspends services to us, it will affect all our customers.
. Reliance on key personnel
We depend on a small number of key technical and managerial personnel. We
may not be able to retain these personnel or attract the new personnel that
we need to attain profitability.
. We may not be able to lease transmission facilities we need
We do not own all of the transmission facilities we need to complete calls.
Therefore, we depend on contractual arrangements with other
telecommunications companies to complete our network. For example, although
we own the switching and transport equipment needed to receive and transmit
calls via satellite and fiber optic cable, we do not own a satellite or any
fiber optic cable and must therefore lease transmission capacity from other
companies.
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We may not be able to lease facilities at cost-effective rates in the
future or enter into contractual arrangements necessary to expand our
network or improve our network as necessary to keep up with technological
change.
There are a limited number of suppliers for the products and services we
need to complete our network. We may have difficulty finding alternate
suppliers if any of our suppliers go out of business or are acquired by our
competitors.
Also if certain current suppliers fail to honor their contractual
commitments, we could be very seriously affected.
. We may not be able to pay our suppliers on time
We have not always paid all of our suppliers on time due to temporary cash
shortfalls. These suppliers have given us payment extensions in the past,
but critical suppliers may discontinue service if we are not able to make
payments on time in the future. In addition, equipment vendors may refuse
to provide critical technical support for their products if they are not
paid on time under the terms of support arrangements. Our ability to make
payments on time depends on our ability to raise additional capital or
improve our cash flow from operations.
. We may not be able to make our debt payments on time
We purchased some of our significant equipment with borrowed money. The
lenders have a security interest in the equipment to secure repayment of
the debt. This means that the lenders may take possession of the equipment
and sell it to repay the debt if we do not make our payments on time. We
have not always paid all of our equipment lenders on time due to temporary
cash shortfalls. These lenders have given us payment extensions in the
past, but they may exercise their right to take possession of certain
critical equipment if we are not able to make payments on time in the
future. Our ability to make our payments on time depends on our ability to
raise additional capital or improve our cash flow from operations.
. We may have service interruptions and problems with the quality of
transmission
To retain and attract customers, we must keep our network operational 24
hours per day, 365 days per year. We have experienced service interruptions
and other problems that affect the quality of voice and data transmission.
To date, these problems have been temporary. We may experience more serious
problems. In addition to the normal risks that any telecommunications
company faces (such fire, flood, power failure, equipment failure), we may
have a serious problem if a meteor or space debris strikes the satellite
that transmits our traffic, or a volcanic eruption or earthquake interferes
with our operations in Mexico City. We have the ability to transmit calls
via either the satellite or fiber optic portion of our network, and this
redundancy should protect us if there is a problem with one portion of our
network. However, a significant amount of time could pass before we could
re-route traffic from one portion of our network to the other, and there
may not be sufficient capacity on only one portion of the network to carry
all of our traffic at any given time.
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To stay competitive, we will continue to integrate the latest technologies
into our network. We are currently implementing "packet switching"
transport capabilities such as Asynchronous Transfer Mode and we will
continue to explore new technologies as they are developed. The risk of
network problems increases during periods of expansion and transition to
new technologies.
. Changes in telecommunications regulations may harm our competitive
position
The telecommunications industry in the United States is regulated by the
Federal Communications Commission (the "FCC") and by the public utilities
commissions in the various states. As a result of the deregulation required
by the Telecommunications Act of 1996, the FCC has issued, and continues to
issue, major changes to their regulations. These new regulations have
significantly changed and will continue to change the competitive
environment. For example, FCC regulations now permit the regional Bell
operating companies (former local telephone monopolies such as Southwestern
Bell) to enter the long distance market if certain conditions are met. The
entry of these formidable competitors into the long distance market will
make it more difficult for us to establish a retail customer base. Other
new regulations affect the pricing for services that we purchase from
others. Pricing changes could put us at a relative disadvantage to larger
competitors. We cannot predict what other changes there may be in the
regulations or what effect these changes will have on our business.
The Mexican telecommunications industry is also going through the process
of de-monopolization and regulatory change, and new laws and regulations
there could affect our business. These regulatory changes may not continue
to improve market conditions for us and, even if they do, we may not have
the opportunity to provide additional telecommunications services within
Mexico and between Mexico and other countries.
The international telecommunications industry is also governed by foreign
laws and treaties between the United States and other countries. Changes in
these laws or treaties may also affect the competitive environment.
. Our compliance with laws and regulations could be challenged
We believe that we are in compliance with all domestic and foreign
telecommunications laws that govern our current business. However,
government enforcement and interpretation of the telecommunications laws
and licenses is unpredictable and is often based on informal views of
government officials and ministries. This is particularly true in Mexico
and certain of our target Latin American markets, where government
officials and ministries may be subject to influence by the former
telecommunications monopoly, such as Telmex. This means that our compliance
with the laws may be challenged. It could be very expensive to defend this
type of challenge and we might not win. If we were found to have violated
the laws that govern our business, we could be fined or denied to right to
offer services. To our knowledge, we are not currently subject to any
regulatory inquiry or investigation.
. We may not be able to obtain new licenses we need to reduce costs and
expand our network
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Our strategy for the future depends on obtaining a long distance concession
from the Mexican government. We may not be able to obtain this license, and
if we do not obtain this license, we may not be able to implement our
strategy for the future or continue to offer services at competitive
prices. Our strategy is to expand into other Latin American countries as
regulatory conditions in those countries in permit. We may not be able to
obtain the licenses we need for this expansion.
. Our operations may be interrupted by the Year 2000 problem
The Year 2000 problem is the result of computer programs that were designed
to use two digits rather than four to specify the applicable year. As a
result, date-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in miscalculations or
major system failures which could cause disruptions in our operations,
including the inability to process call billing records. We have
implemented a comprehensive Year 2000 plan to assess our internal readiness
and the readiness of our suppliers. We have identified some software
applications that must be upgraded to avoid a disruption in our operations,
but we expect to have those upgrades installed prior to the end of the
year. Although we have received satisfactory responses from our suppliers
regarding their Year 2000 readiness, we do not control them. Their systems
may be affected by the Year 2000 problem. If any of our critical suppliers
fails to perform because of the Year 2000 problem, we could suffer a
serious interruption in service.
. Our operations may be affected by political changes in Mexico and other
Latin American countries
The majority of our foreign operations are in Mexico. The political and
economic climate in Mexico and other Latin American countries is more
uncertain than in the United States and unfavorable changes could have a
direct impact on our operations in Mexico. For example, a newly elected set
of government officials could decide to quickly reverse the deregulation of
the Mexican telecommunications industry economy and take steps such as
seizing our property, revoking our licenses, or modifying our contracts
with Mexican suppliers. A period of poor economic performance could reduce
the demand for our services in Mexico. There might be trade disputes
between the United States and Mexico which result in trade barriers such as
additional taxes on our services. The Mexican government might also decide
to restrict the conversion of pesos into dollars or restrict the transfer
of dollars out of Mexico.
These types of changes, whether they occur or are only threatened, would
also make it more difficult for us to obtain financing in the United
States.
. If the value of the Mexican Peso declines relative to the Dollar, we will
have decreased earnings as stated Dollars
Approximately 20% of ATSI's revenue is collected in Mexican Pesos. If the
value of the Peso relative to the Dollar declines, that is, if Pesos are
convertible into fewer Dollars, then
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our earnings, which are stated in dollars, will decline. We do not engage
in any type of hedging transactions to minimize this risk and do not intend
to do so.
USE OF PROCEEDS
The selling shareholders will receive the proceeds from the shares of
common stock. We will not receive any of the proceeds.
COMMON STOCK ISSUED
The common stock offered by this prospectus may be issued pursuant to
the terms of (i) shares of 6% Series B Cumulative Convertible Preferred
Stock issued to The Shaar Fund on July 2, 1999 (the "Series B Preferred
Stock"), (ii) a Common Stock Warrant issued to The Shaar Fund on July 2,
1999, (iii) a Common Stock Purchase Warrant that may be issued to The Shaar
Fund if ATSI elects to redeem the Series B Preferred Stock, (iv) a Warrant
issued to Gary Wright on November 6, 1998, and (v) a Warrant issued to
Rocky Dazzo on November 6, 1998.
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Series B Preferred Stock
The Shaar Fund purchased 2000 shares of Series B Preferred Stock for $1000 per
share on July 2, 1999. The Shaar Fund may convert each share of Series B
Preferred Stock into that number of shares of common stock that is equal to 1000
divided by the lesser of: (i) $1.375 (the closing bid price of the common stock
on the NASD Over-the-Counter Bulletin Board on July 1, 1999), and (ii) seventy-
eight percent (78%) of the average of the five lowest closing bid prices of the
common stock on the NASD Over-the-Counter Bulletin Board during the ten trading
day period immediately preceding the date of conversion (the "Conversion
Price"). Therefore, the number of shares of common stock that The Shaar Fund may
acquire increases if the price of the common stock decreases. Although there is
no ceiling on the maximum number of shares of common stock that The Shaar Fund
may acquire, if the closing bid price for the common stock falls to $.85 or less
on any trading day, The Shaar Fund may not convert any Series B Preferred Stock
for a single period of forty-five days from that day. The Series B Preferred
Stock will never be convertible into fewer than 1,454,545 shares of common stock
(i.e., the number of shares that may be acquired if the Conversion Price is
$1.375). Here are some examples of the number of shares of common stock that The
Shaar Fund may acquire, assuming different prices of the common stock:
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<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
78% of Avg. of 5 Closing Bid on Formula Number of Shares of
Lowest Bid Prices July 1, 1999 Common Stock
During 10 Trading
Days Preceding
Conversion
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1.00 1.375 2,000,000 divided by 2,000,000
1.00
- --------------------------------------------------------------------------------------------
1.36 1.375 2,000,000 divided by 1,470,588
1.36
- --------------------------------------------------------------------------------------------
1.39 1.375 2,000,000 divided by 1,454,545
1.375
- --------------------------------------------------------------------------------------------
2.00 1.375 2,000,000 divided by 1,454,545
1.375
- --------------------------------------------------------------------------------------------
2.50 1.375 2,000,000 divided by 1,454,545
1.375
- --------------------------------------------------------------------------------------------
</TABLE>
The Shaar Fund may convert any of its shares of Series B Preferred Stock at any
time it elects after October 1, 1999, but any shares not converted by July 2,
2001 must be converted by ATSI at the Conversion Price on that day.
The Registration Rights Agreement signed by ATSI and The Shaar Fund at the time
of the sale of the Series B Preferred Stock requires ATSI to register that
number of common shares into which all of the shares of the Series B Preferred
Stock would be convertible at a Conversion Price of $.7422 (one-half of the
closing bid price of the common stock on the NASD Over-the-Counter Bulletin
Board on July 2, 1999). If the closing bid price for the common stock falls
below .80, ATSI is required to register additional shares of its common stock
based on an assumed Conversion Price of .30 per share.
ATSI must pay quarterly dividends on the Series B Preferred Stock at the rate of
6% per annum calculated on a value of $1000 per share. ATSI may elect to pay the
dividends in either cash or in shares of its registered common stock, valued at
the Conversion Price on each dividend payment date. We have included 323,362
shares of common stock in this prospectus and Registration Statement for the
payment of dividends on the Series B Preferred Stock.
The Registration Rights Agreement provides that we will indemnify The Shaar Fund
and its assignees against certain liabilities, including civil liabilities under
the Securities Act of 1933, as amended.
The Shaar Fund Warrants
The Shaar Fund may elect to acquire up to 50,000 additional shares of common
stock at an exercise price of $1.25 per share under the terms of a Common Stock
Purchase Warrant issued on July 2, 1999. If ATSI elects to redeem the Series B
Preferred Stock, part of the redemption price is an additional warrant for
50,000 shares on the same terms as the Common Stock Purchase Warrant. ATSI is
required to register 100,000 shares of its common stock for the
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exercise of these warrants under the Registration Rights Agreement signed by The
Shaar Fund and ATSI at the time of the sale of the Series B Preferred Stock and
the Common Stock Purchase Warrant.
Rocky Dazzo Warrant
Rocky Dazzo may acquire up to 40,000 shares of ATSI common stock at an exercise
price of $1.06 under the terms of a warrant issued on November 6, 1998. The
warrant includes "tag along" registration rights.
Gary Wright
Gary Wright may acquire up to 40,000 shares of ATSI common stock at an exercise
price of $1.06 under the terms of a warrant issued on November 6, 1998. The
warrant includes "tag along" registration rights.
SELLING SHAREHOLDERS
There are three selling shareholders. None of the selling shareholders or
their affiliates has held any position, office or other material relationship,
other than as a shareholder, with ATSI during the three years preceding the date
of this prospectus. The shareholders, the amount of common stock owned by each
of them as of July 30, 1999, the maximum amount of common stock that may be
offered by them under the Registration Statement, and their percentage ownership
in ATSI as of July 30, 1999:
16
<PAGE>
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
Name Amount of Common Maximum Amount of Percentage
Stock Owned as of Common Stock that Ownership of ATSI
July 30, 1999 may be Offered as of July 30, 1999
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
The Shaar Fund 2,744,691/1/ 2,744,691/1/ 5.4%/2/
- -------------------------------------------------------------------------------------------------------------
Gary Wright 565,305/3/ 40,000 1.2%/4/
- -------------------------------------------------------------------------------------------------------------
Rocky Dazzo 532,000 40,000 1.1%
- -------------------------------------------------------------------------------------------------------------
</TABLE>
PLAN OF DISTRIBUTION
The Registration Statement of which this prospectus forms a part has been
filed to satisfy registration rights held by the selling shareholders under
agreements between ATSI and the selling shareholders. To ATSI's knowledge, as of
this date, none of the selling shareholders has entered into any agreement,
arrangement or understanding with any particular broker or market maker with
respect to the shares offered by them, nor does ATSI know the identity of the
brokers or market makers which might participate in such an offering.
The shares being registered and offered may be sold from time to time by
the selling shareholders while the Registration Statement is in effect. The
selling shareholders will act independently of ATSI in making decisions with
respect to the timing, manner, and size of each sale. The sales may be made on
the NASD Over-the- Counter Bulletin Board or otherwise, at prices and on terms
then prevailing or at prices related to the market price, or in negotiated
transactions.
__________________
/1/ The maximum number of shares that The Shaar Fund may acquire pursuant to the
terms of the Series B Preferred Stock (described in the section entitled
Issuance of Common Stock) if a conversion price of $.7422 is assumed plus the
number of shares that The Shaar Fund may purchase pursuant to the Common Stock
Purchase Warrant issued on July 2, 1999; does not include any shares of common
stock that may be paid as a dividend on the Series B Preferred Stock and does
not include the shares that The Shaar Fund could purchase under an additional
warrant for 50,000 shares of common stock that ATSI would be required to issue
if it elected to redeem the Series B Preferred Stock.
/2/ Assumes that The Shaar Fund acquires (i) the maximum number of shares that
The Shaar Fund may acquire pursuant to the terms of the Series B Preferred Stock
(described in the section entitled Issuance of Common Stock) if a conversion
price of $.7422 is assumed, and (ii) the maximum number of shares that The
Shaar Fund may purchase pursuant to the Common Stock Purchase Warrant issued on
July 2, 1999; does not include any shares of common stock that may be paid as a
dividend on the Series B Preferred Stock and does not include the shares that
The Shaar Fund could purchase under an additional warrant for 50,000 shares of
common stock that ATSI would be required to issue if it elected to redeem the
Series B Preferred Stock.
/3/ Includes 304,605 shares held in name of Gary Wright, 115,700 held by
employee stock option plan of which Gary Wright is a beneficiary, 105,000 shares
held in individual retirement account for Gary Wright, and 40,000 shares that
may be acquired if the warrant described in Common Stock Issued is acquired.
/4/ Based on 565,305 shares - see footnote 3, above
17
<PAGE>
The shares may be sold by one or more of the following methods:
(1) A block trade in which the broker-dealer engaged by a selling
shareholder would attempt to sell shares as agent but may position and
resell a portion of the block as principal to facilitate the
transaction.
(2) Purchases by the broker-dealer as principal and resale by such broker
or dealer for its account according to this prospectus.
(3) ordinary brokerage transactions and transactions in which the broker
solicits purchasers.
To our knowledge, none of the selling shareholders has, as of the date of
this prospectus, entered into any arrangement with a broker or dealer for the
sale of shares through a block trade, special offering, or secondary
distribution of a purchase by a broker-dealer. In effecting sales, broker-
dealers engaged by a selling shareholder may arrange for other broker-dealers to
participate. Broker-dealers may receive commissions or discounts from a selling
shareholder in amounts to be negotiated.
In offering the shares, the selling shareholders and any broker-dealers who
execute sales for the selling shareholders may be deemed to be "underwriters"
within the meaning of the Securities Act of 1933 in connection with such sales,
and any profits realized by the selling shareholders and the compensation of
such broker-dealers may be deemed to be underwriting discounts and commissions.
We have agreed to keep the Registration Statement of which this prospectus
is a part effective until The Shaar Fund sells the shares of common stock
offered under this prospectus or until two years following the effective date of
the Registration Statement of which this prospectus is a part, whichever comes
first. No sales may be made pursuant to this prospectus after this date unless
we amend or supplement this prospectus to indicate that we have agreed to extend
the effective period.
We cannot assure you that any of the selling shareholders will sell any or
all of the shares of common stock registered in the Registration Statement.
LEGAL MATTERS
The validity of the shares of common stock offered hereby is being passed
upon by Alice King, Esq., San Antonio, Texas. Alice King is ATSI's Corporate
Counsel and is an employee.
18
<PAGE>
EXPERTS
The consolidated balance sheets as of July 31, 1997 and 1998, and the
related consolidated statements of operations, stockholders' equity and cash
flows for the years ended July 31, 1996, 1997 and 1998 of ATSI and its
subsidiaries have been incorporated by reference in this prospectus and
Registration Statement in reliance upon the report of Arthur Andersen LLP,
independent certified public accountants, incorporated by reference herein, and
upon the authority of said firm as experts in accounting and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Government Filings. We file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
The SEC public reference room in Washington D.C. is located at 450 Fifth Street,
N.W., Washington D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the pubic reference rooms. Our SEC filings are also available to
you free of charge at the SEC's web site at http://www.sec.gov.
-------------------
Information Incorporated by Reference. The SEC allows us to "incorporate by
reference" the information we file with them which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the SEC will automatically
update and replace information previously filed, including information contained
in this prospectus.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering has been completed.
. Our Annual Report on Form 10-K for the year ended July 31, 1998
. Our Quarterly Reports on Form 10-Q for the quarters ended October 31, 1998,
January 31, 1999 and April 30, 1999;
. Our Proxy Statement dated November 6, 1998 for our annual meeting of
shareholders;
. The description of our common stock included in our Registration Statement on
Form S-4 filed on March 6, 1998.
You may request a free copy of these filings by writing or telephoning us at the
following address:
American TeleSource International, Inc.
Investor Relations
12500 Network Blvd., Suite 407
San Antonio, Texas 78249
(210) 558-6090.
19
<PAGE>
We will not send exhibits to these documents unless the exhibits are
specifically incorporated by reference in these documents.
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following are the expenses (estimated except for the SEC registration
fee) for the issuance and distribution of the securities being registered, all
of which will be paid by ATSI:
SEC Registration $10,290.84
Legal 6,000.00
Printing 3,000.00
Miscellaneous 1,000.00
Total: $20,290.84
ATSI will not pay commissions and discounts of underwriters, dealers or agents,
if any, or any transfer taxes.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, ATSI's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. In addition, the DGCL and
ATSI's Bylaws provide for indemnification of ATSI's directors and officers for
certain liabilities and expenses that they may incur in such capacities. In
general, directors and officers are indemnified with respect to actions taken in
good faith in a manner reasonably believed to be in, or not opposed to, the
best interests of ATSI, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
ATSI has purchased insurance with respect to, among other things, the
liabilities that may arise under the provisions referred to above. The
directors and officers of ATSI are also insured against liabilities, including
liabilities arising under the Securities act of 1933, as amended, which might be
incurred by them in their capacities as directors and officers of ATSI and
against which they are not indemnified by ATSI.
In connection with this offering, The Shaar Fund (or its assignees under a
Registration Rights Agreement signed by ATSI and The Shaar Fund) has agreed to
indemnify ATSI, and its officers, directors and controlling persons, against any
losses, claims, damages or liabilities to which they may become subject that
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in this prospectus or the Registration Statement or
any omission or alleged omission to state in this prospectus or the Registration
Statement a
20
<PAGE>
material fact required to be stated or necessary to make the statements in this
prospectus or the Registration Statement not misleading, to the extent that such
statement or omission was made in reliance on the written information furnished
to ATSI by The Shaar Fund.
ITEM 16. EXHIBITS.
5.1 Opinion regarding legality*
10.33 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999**
10.34 Certificate of Designation, Preferences and Rights of 6% Series B
Cumulative Convertible Preferred Stock of American TeleSource
International, Inc.*
10.35 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by American
TeleSource International dated July 2, 1999*
10.36 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999*
10.37 Warrant issued to Gary Wright dated November 6, 1998*
10.38 Warrant issued to Rocky Dazzo dated November 6, 1998*
23 Consent of Arthur Andersen LLP*
24 Power of Attorney (included on signature page to the Registration
Statement)
*previously filed
**filed herewith
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. Undertakings Regarding Amendments to this Prospectus and the
Registration Statement
1. 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. 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 bereflected in the form of prospectus filed with the SEC pursuant to
Rule 424(b) if, in the aggregate, the changes in volume and price represent
no more than a 20% change in the maximum aggregate offering price set forth
in the "Calculation of Registration Fee" in the effective Registration
Statement; and
21
<PAGE>
(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.
Provided, however, that the undertakings set forth in paragraphs (1)(A)(i)
and (ii) of this section do not apply if the information required to be
included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by ATSI pursuant to Section 13 or Section 15(d) of
the Securities Exchange Act of 1934 that are incorporated by reference in
this Registration Statement.
2. 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.
3. 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.
B. Undertaking Regarding Filings Incorporating Subsequent Exchange Act
Documents by Reference. ATSI hereby undertakes that, for purposes of determining
any liability under the Securities Act of 1933, each filing of ATSI's Annual
Report on Form 10-K pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of any employee benefit
plan's annual report pursuant to section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in this Registration Statement 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. Undertaking in Respect of Indemnification. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling person of ATSI pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by ATSI of
expenses incurred or paid by a director, officer or controlling person of ATSI
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
registered, 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 whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the city of San Antonio, State of Texas on the 30th day of July,
1999.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /s/ H. Douglas Saathoff
------------------------
H. Douglas Saathoff
Chief Financial Officer
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints H.
Douglas Saathoff as attorney-in-fact, with the power of substitution, for him in
any and all capacities, to sign this Registration Statement and any amendments
to this Registration Statement and to file the same, with exhibits thereto and
other documents in connection therewith, with the SEC, granting to said
attorney-in-fact full power and authority to do and perform each and every act
and thing requisite and necessary to be done in connection therewith, as fully
to all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact, or his substitute or substitutes,
may lawfully do or cause to be done by virtue hereof.
In witness whereof, each of the undersigned has executed this Power of
Attorney as of the date indicted.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
/s/ Arthur L. Smith Chairman of the Board of Directors July 30, 1999
- -------------------------
Arthur L. Smith Chief Executive Officer
Director
/s/ H. Douglas Saathoff Chief Financial Officer July 30, 1999
- -------------------------
H. Douglas Saathoff Senior Vice President
Secretary
Treasurer
/s/ Richard C. Benkendorf Director July 30, 1999
- -------------------------
Richard C. Benkendorf
23
<PAGE>
/s/ Carlos K. Kauachi Director July 30, 1999
- ---------------------
Carlos K. Kauachi
/s/ Murray R. Nye Director July 30, 1999
- ---------------------
Murray R. Nye
/s/ Tomas Revesz Director July 30, 1999
- ---------------------
Tomas Revesz
/s/ Robert B. Werner Director July 30, 1999
- ---------------------
Robert B. Werner
24
<PAGE>
EXHIBIT 10.33
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of July 2, 1999, between
American TeleSource International, Inc., a Delaware corporation with principal
executive offices located at 12500 Network Boulevard, Suite 407, San Antonio,
Texas 78249 (the "Company"), and The Shaar Fund Ltd. ("Buyer").
Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 2,000 shares of the Company's 6% Series B
Cumulative Convertible Preferred Stock, par value $0.001 per share
(collectively, the "Preferred Shares"), and (ii) its Common Stock Purchase
Warrants or Warrant in the form attached hereto as Exhibit A (collectively, the
"Warrants");
Whereas, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of 6% Series B
Cumulative Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "Certificate of Designation"), the Preferred Shares are convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock");
Whereas, the Warrants, upon the terms and subject to the conditions in
the Warrants, will for a period of five (5) years be exercisable to purchase
50,000 shares of Common Stock;
Whereas, upon the terms and subject to the conditions of the
Certificate of Designation, the Preferred Stock may be redeemed by the Company
at a redemption price including, without limitation, the issuance of its Common
Stock Purchase Warrants having the same terms and conditions as the Warrants and
exercisable to purchase an additional 50,000 shares of Common Stock (the
"Redemption Warrants");
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. Purchase and Sale of Preferred Shares and Warrants
A. Transaction. Buyer hereby agrees to purchase from the Company,
and the Company has offered and hereby agrees to issue and sell to the Buyer in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 50,000 shares of Common Stock.
<PAGE>
B. Purchase Price; Form of Payment. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$2,000,000 (the "Purchase Price"). Buyer shall pay the Purchase Price by wire
transfer of immediately available funds to the escrow agent (the "Escrow Agent")
identified in those certain Escrow Instructions of even date herewith, a copy of
which is attached hereto as Exhibit C (the "Escrow Instructions").
Simultaneously with the execution of this Agreement and against receipt by the
Escrow Agent of the Purchase Price, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
other has been notified, I/N/O Buyer's nominee) evidencing the Preferred Shares
and the Warrants which the Buyer is purchasing, to the Escrow Agent or its
designated depository. By executing and delivering this Agreement, Buyer and the
Company each hereby agrees to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.
C. Method of Payment. Payment into escrow of the Purchase Price
shall be made by wire transfer of immediately available funds to:
The Bank of New York
48 Wall Street
New York, NY 10038
ABA No.: 021000018
For the Account of: Cadwalader, Wickersham & Taft
Trust Account IOLA Fund
Account No.: 0902061070
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.
II. Buyer's Representations, Warranties; Access to
Information; Independent Investigation
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Redemption Warrants, if any, the Common Stock issuable upon exercise of the
Warrants and the Redemption Warrants, if any, (the "Warrant Shares") and the
shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion Shares" and, collectively with the Preferred Shares, the Warrants,
the Redemption Warrants and the Warrant Shares, the "Securities") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
<PAGE>
C. Buyer understands that the Securities are being offered and sold
by the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
E. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission and that the foregoing authorities have not reviewed
any documents or instruments in connection with the offer and sale to it of the
Securities and have not confirmed or determined the adequacy or accuracy of any
such documents or instruments.
F. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
G. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or position
with respect to the Common Stock and neither Buyer nor any of its affiliates nor
any person acting on its or their behalf will use at any time shares of Common
Stock acquired pursuant to this Agreement to settle any put option, short
position or other similar instrument or position that may have been entered into
prior to the execution of this Agreement.
H. Neither Buyer nor any of its affiliates is a broker-dealer
registered as such with the Commission.
III. The Company's Representations
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists of: (i)
100,000,000 shares of Common Stock, of which 48,122,252 shares are issued
and outstanding on the date hereof, and (ii) 10,000,000 shares of "blank
check" preferred stock, par value $0.001 per share, of which 50,000 shares
have been designated 10% Series A Cumulative Convertible Preferred Stock,
of which 24,146 shares have been issued and are outstanding. All of the
issued and outstanding shares of Common Stock
<PAGE>
have been duly authorized and validly issued and are fully paid and
nonassessable. As of the date hereof, the Company has outstanding vested
stock options and warrants to purchase 3,419,333 shares of Common Stock and
non-vested stock options to purchase 2,576,467 shares of Common Stock, in
each case pursuant to its 1998 Stock Option Plan, and warrants to purchase
5,514,325 shares of Common Stock. The Conversion Shares and Warrant Shares
have been duly and validly authorized and reserved for issuance by the
Company, and when issued by the Company upon conversion of, or in lieu of
accrued dividends on, the Preferred Shares and on exercise of the Warrants
and the Redemption Warrants, if any, will be duly and validly issued, fully
paid and nonassessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive,
subscription, "call" or other similar rights to acquire the Common Stock
(including the Conversion Shares and Warrant Shares) that have been issued
or granted to any person, except as disclosed on Schedule III.A.1. hereto
or otherwise previously disclosed in writing to Buyer.
2. Except as disclosed on Schedule III.A.2. hereto, the Company
does not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company or on the consummation of any of the
transactions contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 12-month period immediately preceding the date hereof. The
Common Stock is traded on the OTC Bulletin Board service of the National
Association of Securities Dealers, Inc. ("OTCBB") and the Company has not
received any notice regarding, and to its knowledge there is no threat of,
the termination or discontinuance of the eligibility of the Common Stock
for such trading.
C. Authorized Shares. The Company has duly and validly authorized
and reserved for issuance 5,000,000 shares of Common Stock sufficient in number
for the conversion of the Preferred Shares and the exercise of the Warrants and
the Redemption Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Preferred
Shares and Warrant Shares upon conversion of the Preferred Shares and exercise
of the Warrants and Redemption Warrants, respectively. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants or
Redemption Warrants, if any, in
<PAGE>
accordance with this Agreement, the Certificate of Designation, the Warrants and
the Redemption Warrants is absolute and unconditional regardless of the dilutive
effect that such issuance may have on the ownership interests of other
stockholders of the Company and notwithstanding the commencement of any case
under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy Code"). In the event the
Company is a debtor under the Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may have under 11 U.S.C. (S)
362 in respect of the conversion of the Preferred Shares and the exercise of the
Warrants or Redemption Warrants, if any. The Company agrees, without cost or
expense to Buyer, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. (S) 362. Schedule III.C. hereto sets forth (i)
all issuances and sales by the Company since July 31, 1998 of its capital stock,
and other securities convertible, exercisable or exchangeable for capital stock
of the Company, (ii) the amount of such securities sold, including any
underlying shares of capital stock, (iii) the purchaser thereof, and (iv) the
amount paid therefor.
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the Redemption Warrants and the issuance
and reservation for issuance of the Conversion Shares and Warrant Shares), has
been duly authorized by all necessary corporate action on the part of the
Company. Each of the Documents has been duly and validly executed and delivered
by the Company, the Certificate of Designation has been duly filed with the
Delaware Secretary of State's office by the Company, and each instrument
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "Documents" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "Registration Rights Agreement");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.
E. Authorization of the Securities. The authorization, issuance,
sale and delivery of the Preferred Shares, the Warrants and the Redemption
Warrants has been duly authorized by all requisite corporate action on the part
of the Company. As of the Closing Date, the Preferred Shares and the Warrants,
and the Conversion Shares and Redemption Warrants and the Warrant Shares upon
their issuance in accordance with the Preferred Shares and the
<PAGE>
Warrants, respectively, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first refusal
or other similar rights.
F. Non-contravention. The execution and delivery by the Company of
the Documents, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, including,
without limitation, the filing of the Certificate of Designation with the
Delaware Secretary of State's office, do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default (or an event which, with notice, lapse of time or both,
would constitute a default) under (i) the articles of incorporation or by-laws
of the Company or (ii) any indenture, mortgage, deed of trust or other material
agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over the Company or any of the Company's properties or assets, except as to
clause (ii) above such conflict, breach or default which would not have a
Material Adverse Effect.
G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (and the
Redemption Warrants, the Conversion Shares and Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents that have been obtained by the Company prior to the date hereof.
H. Commission Filings. None of the Company's reports and documents
heretofore filed with the Commission pursuant to the Securities Act or the
Exchange Act (collectively, the "Commission Filings") contained at the time they
were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
I. Absence of Certain Changes. Since the Balance Sheet Date (as
defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company, and there has not existed any condition having or
reasonably likely to have, a Material Adverse Effect.
J. Full Disclosure. There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably could
be expected to have a Material Adverse Effect or (ii) reasonably could be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to the Documents.
K. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of Default" (as defined
in any agreement or instrument to which the Company is a party) and no event
which, with notice, lapse
<PAGE>
of time or both, would constitute an Event of Default (as so defined), has
occurred and is continuing, which could have a Material Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
July 31, 1997 and July 31, 1998 and the related audited statements of operations
and cash flows for the three fiscal years ended July 31, 1998 including the
related notes and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's independent auditors
relating to the dates and periods covered by the Financial Statements. Each of
the Financial Statements is complete and correct in all material respects, has
been prepared in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
to normal year end adjustments and the absence of footnotes) and in conformity
with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at July 31, 1998 is hereinafter referred to as
the "Balance Sheet" and July 31, 1998 is hereinafter referred to as the "Balance
Sheet Date". The Company has no indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.
N. Compliance with Laws; Permits. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively,
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
O. Related Party Transactions. Except as set forth on Schedule
III.O. hereto and excluding receivables between the Company and its
Subsidiaries, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company. Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or Affiliates (i) owns
any direct or indirect interest constituting more than a 1% equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant to or lender to or borrower from,
or has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of
the Company, (y) engaged in a business related to the business of the Company,
or (z) a participant in any transaction to which the Company is a party (other
than in the ordinary course of the Company's business) or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company.
<PAGE>
P. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. Securities Law Matters. Based, in part, upon the representations
and warranties of Buyer set forth in Section II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year next preceding the date hereof, except as
disclosed on Schedule III.A or III.Q. hereto or otherwise previously disclosed
in writing to Buyer, and the Company shall not directly or indirectly take, and
shall not permit any of its directors, officers or Affiliates directly or
indirectly to take, any action (including, without limitation, any offering or
sale to any person or entity of the Preferred Shares or shares of Common Stock),
so as to make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Buyer of the Preferred
Shares and the Warrants (and the Redemption Warrants, the Conversion Shares and
the Warrant Shares) as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the Company or any of
its officers, directors or Affiliates in connection with the offer or sale of
the Preferred Shares and the Warrants (and the Redemption Warrants, the
Conversion Shares and the Warrant Shares) as contemplated by this Agreement or
any other agreement to which the Company is a party.
R. Environmental Matters.
1. The operations of the Company are in compliance with all
applicable Environmental Laws and all permits issued pursuant to
Environmental Laws or otherwise;
2. The Company has obtained or applied for all permits required
under all applicable Environmental Laws necessary to operate its business;
3. The Company is not the subject of any outstanding written
order of or agreement with any governmental authority or person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
4. The Company has not received, since July 31, 1998, any
written communication alleging that it may be in violation of any
Environmental Law or any
<PAGE>
permit issued pursuant to any Environmental Law, or may have any liability
under any Environmental Law;
5. The Company does not have any current contingent liability
in connection with any Release of any Hazardous Materials into the indoor
or outdoor environment (whether on-site or off-site);
6. Except as set forth on Schedule III.R.6 hereto, to the
Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property
of the Company pending or threatened which could lead to the imposition of
any liability pursuant to any Environmental Law;
7. There is not located at any of the properties of the Company
any (A) underground storage tanks, (B) asbestos-containing material or (C)
equipment containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally
related audits, studies, reports, analyses, and results of investigations
that have been performed with respect to the currently or previously owned,
leased or operated properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law now in effect in any way
relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Occupational Safety and Health Act, and the regulations
promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of any Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor
<PAGE>
environment; or (z) perform pre-remedial studies and investigations or post-
remedial monitoring and care.
S. Labor Matters. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. Except as set forth on
Schedule III.S, no employees of the Company are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving the
Company pending or to the Company's knowledge, threatened by any labor
organization or group of employees of the Company. There are no (i) strikes,
work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances
or other labor disputes pending or, to the knowledge of the Company, threatened
against or involving the Company. There are no unfair labor practice charges,
grievances or complaints pending or, to the knowledge of the Company, threatened
by or on behalf of any employee or group of employees of the Company.
T. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the Pension
Benefits Guaranty Corporation, and the present value of all liabilities under
all Plans (based on those assumptions used to fund such Plans) did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of all such Plans in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974,
together with the regulations thereunder, as the same may be amended from time
to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code").
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Internal Revenue Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
<PAGE>
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it is required
to file under applicable Laws, except for such Tax Returns in respect of
which the failure to so file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects
and have been prepared in compliance with all applicable Laws; the Company
has paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and have withheld and paid over to
the appropriate taxing authorities all Taxes which it is required to
withhold from amounts paid or owing to any employee, stockholder, creditor
or other third parties; and since the Balance Sheet Date, the charges,
accruals and reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the Company
are adequate to cover any Tax liabilities of the Company if its current tax
year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign, federal, state or
local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not
executed or entered into a closing agreement pursuant to Section 7121 of
the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to
or is required to make any adjustments pursuant to Section 481(a) of the
Internal Revenue Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by the Company or
any of its subsidiaries or has any knowledge that the IRS has proposed any
such adjustment or change in accounting method, or has any application
pending with
<PAGE>
any taxing authority requesting permission for any changes in accounting
methods that relate to the business or operations of the Company. The
Company has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Internal Revenue Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Internal
Revenue Code.
3. The Company has not made an election under Section 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or (D)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, is obligated to make payments or is a
party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
V. Property. The Company has good and indefeasible title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. The
Company is not infringing upon or in conflict with any right of any other person
with respect to any Intangibles. Except as
<PAGE>
disclosed on Schedule III.W. hereto, no claims have been asserted by any person
to the ownership or use of any Intangibles and the Company has no knowledge of
any basis for such claim.
X. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
Y. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading.
AA. Finder's Fee. There are no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.
IV. Certain Covenants and Acknowledgments
A. Restrictive Legend. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (and any shares of Common
Stock issued in conversion of the Preferred Shares or exercise of the Warrants)
shall have endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred Shares, the
Warrant Shares and the Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT
<PAGE>
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF
THE SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and finder's fees in connection with such sale)
solely for general corporate and working capital purposes.
E. Listing. Except to the extent the Company lists its Common Stock
on the New York Stock Exchange or The Nasdaq Stock Market, the Company shall use
its best efforts to maintain its trading of the Common Stock on OTCBB.
F. Reserved Conversion Shares. The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
in full, of the Preferred Shares and upon the exercise of the Warrants and the
Redemption Warrants.
G. Right of First Refusal. If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in the Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the date
of issuance during the period ending two years after the Closing Date (the
"Right of First Refusal Period"), the Company shall be obligated to offer the
Buyer on the terms set forth in the Proposal (the "Offer") and the Buyer shall
have the right, but not the obligation, to accept such Offer on such terms. If
during the Right of First Refusal Period, the Company provides written notice to
the Buyer that it proposes to issue any Right of First Refusal Securities on the
terms set forth in the Proposal, then the Buyer shall have ten (10) business
days to accept or reject such offer in writing. If the Company fails to: (i)
issue a Proposal during the Right of First Refusal Period; (ii) offer the Buyer
the opportunity to complete the transaction as set forth in the Proposal; or
(iii) enter into an agreement with the Buyer, at such terms after the Buyer has
accepted the Offer, then the Company shall pay to the Buyer, as liquidated
damages, an amount in total equal to 10% of the amount paid to the Company for
the Right of First Refusal Securities. The foregoing Right of First Refusal is
and shall be senior in right to any other right of first refusal issued by the
Company to any other Person (as defined in the Certificate of
<PAGE>
Designation). Notwithstanding the foregoing, the Buyer shall have no rights
under this Section IV.G. in respect of Common Stock or any other securities of
the Company issuable (i) upon the exercise or conversion of options, warrants or
other rights to purchase securities of the Company outstanding as of the date
hereof or (ii) to officers, directors or employees of the Company or any of its
subsidiaries.
V. Transfer Agent Instructions
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants and the Redemption Warrants
otherwise shall be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable law. Nothing contained in this Section V.A. shall
affect in any way Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of such Common Stock. If, at any time,
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act and that the removal of restrictive legends is
permitted under applicable law, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
B. The Company shall permit Buyer to exercise its right to convert
the Preferred Shares by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company. Each
date on which a Conversion Notice is telecopied to and received by the Company
in accordance with the provisions hereof shall be deemed a Conversion Date (as
defined in the Certificate of Designation). The Company shall transmit the
certificates evidencing the shares of Common Stock issuable upon conversion of
the Preferred Shares (together with certificates evidencing any Preferred Shares
not being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within five business days after receipt by the Company of the Notice
of Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the
Notice of Conversion to the Company, Buyer shall deliver to the Company the
Preferred Shares being converted.
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants and the Redemption
Warrants in accordance with the applicable terms of the Warrants and the
Redemption Warrants. The last date that the Company may deliver shares of Common
Stock issuable upon any exercise of Warrants or Redemption Warrants is referred
to herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares, upon the conversion of the Preferred Shares or exercise of the Warrants
or Redemption Warrants beyond the applicable Dividend Payment Due Date (as
defined in the Certificate of Designation), Delivery Date or Warrant Delivery
Date could result in economic loss to Buyer. As compensation to
<PAGE>
Buyer for such loss (and not as a penalty), the Company agrees to pay to Buyer
for late issuance of Common Stock issuable in lieu of cash dividends on the
Preferred Shares, upon conversion of the Preferred Shares or exercise of the
Warrants or Redemption Warrants in accordance with the following schedule (where
"No. Business Days" is defined as the number of business days beyond five days
from the Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable):
Compensation For Each
10 Shares of
of Preferred Shares Not Converted
Timely or 500 Shares of Common
Stock Issuable In Payment of
Dividends or Upon Exercise of
Warrants or Redemption
No. Business Days Warrants Not Issued Timely
----------------- ---------------------------------
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer, and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants or Redemption Warrants by delivering a notice
to such effect to the Company whereupon the Company and Buyer shall each be
restored to their respective original positions immediately prior to delivery of
such Notice of Conversion on delivery.
VI. Delivery Instructions
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. Closing Date
The date and time of the issuance and sale of the Preferred Shares and
the Warrants (the "Closing Date") shall be the date hereof or such other as
shall be mutually agreed upon in writing. The issuance and sale of the
Securities shall occur on the Closing Date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the
<PAGE>
Escrow Agent shall not be authorized to release to the Company the Purchase
Price and to Buyer the Securities being purchased by Buyer unless the conditions
set forth in Section VIII.C. and IX.G. hereof have been satisfied.
VIII. Conditions to the Company's Obligations
The Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date; and
C. There shall not be in effect any Law or order, ruling, judgment
or writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. Conditions to Buyer's Obligations
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
C. The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
D. Buyer having received an opinion of counsel for the Company,
dated the Closing Date, in form, scope and substance reasonably satisfactory to
the Buyer as to the matters set forth in Annex A;
<PAGE>
E. There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on OTCBB, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
F. There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel);
H. There shall not be in effect any Law or order, ruling, judgment
or writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this Agreement;
and
I. Delivery of irrevocable instructions to the Company's transfer
agent to reserve 5,000,000 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.
X. Termination
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on July 5, 1999 (the "Latest Closing Date");
provided, however, that the right to terminate this Agreement pursuant to clause
(i) shall not be available to any party whose failure to fulfill any of its
obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur at or before such time and date, or (ii) any
court or public or governmental authority shall have issued an order, ruling,
judgment or writ, or there shall be in effect any Law, restraining, enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement; provided, further, however, that if the Closing shall not
have occurred on or prior to the Latest Closing Date, the Closing may only occur
after the Latest Closing Date with the written acceptance of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to
<PAGE>
any representation or warranty made by it in this Agreement, (iii) there shall
have occurred any event or development, or there shall be in existence any
condition, having or reasonably and forseeably likely to have a Material Adverse
Effect or (iv) the Company shall have failed to satisfy the conditions provided
in Section IX hereof.
D. Termination by the Company. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.
E. Fees and Expenses of Termination. If this Agreement is terminated
for any reason, other than pursuant to Section X.D, the Company shall reimburse
Buyer for all of Buyer's out-of-pocket costs and expenses incurred in connection
with the transactions contemplated by this Agreement and the other Documents
(including, without limitation, the fees and disbursements of Buyer's legal
counsel).
XI. Survival; Indemnification
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless the
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other Documents;
or
2. any failure by the Company to perform any of its covenants,
agreements. undertakings or obligations set forth in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument,
<PAGE>
agreement or certificate entered into or delivered by the Company pursuant
to this Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any of
Buyer's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by Buyer
pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such
<PAGE>
Claim. If the Indemnified Party employs separate legal counsel in circumstances
other than as described in clauses (x), (y) or (z) above, the fees, costs and
expenses of such legal counsel shall be borne exclusively by the Indemnified
Party. Except as provided above, the Indemnifying Party shall not, in connection
with any Claim in the same jurisdiction, be liable for the fees and expenses of
more than one firm of legal counsel for the Indemnified Party (together with
appropriate local counsel). The Indemnifying Party shall not, without the prior
written consent of the Indemnified Party (which consent shall not unreasonably
be withheld), settle or compromise any Claim or consent to the entry of any
judgment that does not include an unconditional release of the Indemnified Party
from all liabilities with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. Governing Law; Miscellaneous
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES OF SUCH STATE. EACH OF THE PARTIES CONSENTS TO THE JURISDICTION OF
THE FEDERAL COURTS WHOSE DISTRICTS ENCOMPASS ANY PART OF THE CITY OF NEW YORK OR
THE STATE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT AND HEREBY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION
BASED ON FORUM NON CONVENIENS, TO THE BRINGING OF ANY SUCH PROCEEDING IN SUCH
JURISDICTIONS. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XIII. Notices
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier
<PAGE>
service, and shall be deemed given when so delivered personally or by overnight
courier service, or, if mailed, three (3) days after the date of deposit in the
United States mails, as follows:
A. if to the Company, to:
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
Attention: H. Doublas Saathoff
with a copy to:
Alice L. King, Esq.
Corporate Counsel
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
B. if to the Buyer, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
<PAGE>
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company, the Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV. Confidentiality
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XV. Assignment
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any financially able affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
<PAGE>
In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
American TeleSource International, Inc.
By: /s/ H. Douglas Saathoff
-----------------------
Name: H. Douglas Saathoff
Title: Chief Financial Officer
The Shaar Fund Ltd.
By: /s/ Samuel Levinson
Name: Samuel Levinson
Title: Managing Director
