<PAGE>
As filed with the Securities and Exchange Commission on July 30, 1999
Registration Number 333-________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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 continuous 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. /_/
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
========================================================================================================
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
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issuable upon conversion of
convertible preferred stock (1) 2,694,691 $1.32 $3,556,992 $9,888.44
- --------------------------------------------------------------------------------------------------------
Common Stock to be paid as dividend on
convertible preferred (1) 323,363 $1.32 $426,839 $1,186.61
========================================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
========================================================================================================
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock issuable upon exercise of
warrants (2) 100,000 $1.32 $132,000 $366.96
- --------------------------------------------------------------------------------------------------------
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 July 26, 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 July 26, 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.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the SEC, acting pursuant
to said Section 8(a) may determine.
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+ The information in this prospectus is not complete and may be changed. +
+ The selling shareholders may not sell these securities until the +
+ Registration Statement filed with the Securities and Exchange Commission is +
+ effective. This prospectus is not an offer to sell these securities and it +
+ is not soliciting an offer to buy these securities in any state where the +
+ offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS [NOT COMPLETE]
Issued July 30, 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 __, 1999, the last reported bid price of our common stock was $____ 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 __, 1999.
<PAGE>
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
<PAGE>
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.
<PAGE>
We also own a subsidiary, GlobalSCAPE, Inc., ("GlobalSCAPE") which sells,
markets and distributes its proprietary Internet productivity software,
CuteFTP/TM/ and CuteHTML/TM/ .
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.
<PAGE>
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.
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
<PAGE>
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.
. 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.
<PAGE>
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 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.
<PAGE>
. 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. 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
<PAGE>
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.
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
<PAGE>
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
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
<PAGE>
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 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.
<PAGE>
Series B Preferred Stock
The Shaar Fund Ltd. ("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:
<PAGE>
- --------------------------------------------------------------------------------
78% of Avg. of 5 Closing Bid on Formula Number of Shares
Lowest Closing Bid July 1, 1999 of Common Stock
Prices During 10
Trading Days
Preceding Conversion
- --------------------------------------------------------------------------------
1.00 1.375 2,000,000 divided 2,000,000
by 1.00
- --------------------------------------------------------------------------------
1.36 1.375 2,000,000 divided 1,470,588
by 1.36
- --------------------------------------------------------------------------------
1.39 1.375 2,000,000 divided 1,454,545
by 1.375
- --------------------------------------------------------------------------------
2.00 1.375 2,000,000 divided 1,454,545
by 1.375
- --------------------------------------------------------------------------------
2.50 1.375 2,000,000 divided 1,454,545
by 1.375
- --------------------------------------------------------------------------------
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
<PAGE>
as the Common Stock Purchase Warrant. ATSI is required to register 100,000
shares of its common stock for the 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:
<PAGE>
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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-
- --------------------
/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
<PAGE>
Counter Bulletin Board or otherwise, at prices and on terms then prevailing or
at prices related to the market price, or in negotiated transactions.
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.
<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 public 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
<PAGE>
San Antonio, Texas 78249
(210) 558-6090.
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 $11,677.75
Legal 6,000.00
Printing 3,000.00
Miscellaneous 1,000.00
Total: 21,677.75
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.
<PAGE>
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 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
23 Consent of Arthur Andersen LLP
24 Power of Attorney (included on signature page to the Registration
Statement)
10.33 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
July 2, 1999 CONFIDENTIAL TREATMENT HAS BEEN REQUESTED FOR PORTIONS OF
THIS AGREEMENT*
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
* to be filed by amendment
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.
<PAGE>
Notwithstanding the foregoing, any increase or decrease in volume of
securities offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the low or
high end of the estimated maximum offering range may be reflected in the
form of prospectus filed with the 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
(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
<PAGE>
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.
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
- -------------------------
<PAGE>
Arthur L. Smith Chief Executive Officer
Director
/s/ H. Douglas Saathoff Chief Financial Officer July 30, 1999
- -------------------------- Senior Vice President
H. Douglas Saathoff Secretary
Treasurer
/s/Richard C. Benkendorf Director July 30, 1999
- --------------------------
Richard C. Benkendorf
/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
<PAGE>
EXHIBIT 5.1
[LOGO OF COMPANY NAME APPEARS HERE]
July 28, 1999
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
Re: American TeleSource International, Inc. Registration Statement on Form
S-3 (the "Registration Statement")
Ladies and Gentlemen:
I have acted as counsel to American TeleSource International, Inc., a
Delaware corporation, ("ATSI") in connection with the registration for resale of
3,438,181 shares of common stock of ATSI (the "Shares") on Form S-3. This
opinion is being furnished in accordance with the requirements of Item 16 of
Form S-3.
I have reviewed the following:
1. ATSI's Amended and Restated Certificate of Incorporation (the
"Certificate of Incorporation");
2. ATSI's Bylaws (the "Bylaws");
3. ATSI's Certificate of Designation, Preferences and Rights of 6% Series
B Cumulative Convertible Preferred Stock (the "Certificate of
Designation");
4. Common Stock Purchase Warrant issued by ATSI to The Shaar Fund Ltd.
dated July 1, 1999 (the "Shaar Fund Warrant");
5. Common Stock Purchase Warrant issued by ATSI to Gary Wright dated
November 6, 1998 (the "Wright Warrant");
6. Common Stock Purchase Warrant issued by ATSI to Rocky Dazzo dated
November 6, 1998 (the "Dazzo Warrant");
7. Written Consent of the Board of Directors of ATSI dated June 30, 1999
regarding the issuance of the Series B Preferred Stock; and
8. Certificate of Good Standing for ATSI issued by the Secretary of State
of the State of Delaware dated June 22, 1999.
The Certificate of Designation permits ATSI to redeem the 6% Series B
Cumulative Convertible Preferred Stock upon payment of cash and delivery of an
additional warrant in the form of the Shaar Fund Warrant (the "Redemption
Warrant"). I have assumed, for the purposes of this opinion, that the
Redemption Warrant, if issued, will be in the exact form of the Shaar Fund
Warrant except for the date of issuance.
<PAGE>
Based on my review of these documents, it is my opinion that the Shares,
if, as and when issued in accordance with the terms of the Certificate of
Incorporation and the Bylaws, and in accordance with the terms of the
Certificate of Designation, the Shaar Fund Warrant, the Wright Warrant, the
Dazzo Warrant, the Redemption Warrant, or in payment of dividends on the 6%
Series B Cumulative Convertible Preferred Stock pursuant to the terms of the
Certificate of Designation, as applicable, will be duly authorized, validly
issued, fully paid and nonassessable.
I consent to the filing of this opinion as an Exhibit to the Registration
Statement and to the reference to me under the caption "Legal Matters" in the
prospectus which is part of the Registration Statement. In giving this consent,
I do not admit that I come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933, as amended, or the Rules
and Regulations of the Securities and Exchange Commission thereunder.
Very truly yours,
/s/Alice L. King
Alice L. King
Corporate Counsel,
American TeleSource International, Inc.
2
<PAGE>
EXHIBIT 10.34
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
6% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
AMERICAN TELESOURCE INTERNATIONAL, INC.
--------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
--------------------------------------------------
American TeleSource International, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the Board of Directors of the Corporation
on June 30, 1999 adopted by unanimous written consent resolutions adopting this
Certificate of Designation, Preferences and Rights designating a new class of
its preferred stock called the 6% Series B Cumulative Convertible Preferred
Stock, having the terms set forth herein, and that the Corporation has caused
this Certificate of Amendment to the Certificate of Incorporation to be executed
by a duly authorized officer as of the 30th day of June, 1999.
6% Series B Cumulative Convertible Preferred Stock
ARTICLE 1
Definitions
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2
under the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or any day
on which banks located in the State of New York are authorized or obligated to
close.
(d) "Capital Shares" means the Common Shares and any other shares of
any other class or series of common stock, whether now or hereafter authorized
and however designated, which have the right to participate in the distribution
of earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "Closing Date" means the Issue Date.
(f) "Common Shares" or "Common Stock" means shares of common stock,
par value $0.001 per share, of the Corporation.
<PAGE>
(g) "Common Stock Issued at Conversion" when used with reference to
the securities issuable upon conversion of the Series B Preferred Stock, means
all Common Shares now or hereafter Outstanding and securities of any other class
or series into which the Series B Preferred Stock hereafter shall have been
changed or substituted, whether now or hereafter created and however designated.
(h) "Conversion Date" means any day on which all or any portion of
shares of the Series B Preferred Stock is converted in accordance with the
provisions hereof.
(i) "Conversion Notice" has the meaning set forth in Section 6.2.
(j) "Conversion Price" means on any date of determination the
applicable price for the conversion of shares of Series B Preferred Stock into
Common Shares on such day as set forth in Section 6.1.
(k) "Conversion Ratio" means on any date of determination the
applicable percentage of the Market Price for conversion of shares of Series B
Preferred Stock into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation" means American TeleSource International, Inc., a
Delaware corporation, and any successor or resulting corporation by way of
merger, consolidation or otherwise.
(m) "Current Market Price" means on any date of determination the
closing bid price of a Common Share on such day as reported on the OTCBB;
provided, if such security bid is not listed or admitted to trading on the
OTCBB, as reported on the principal national security exchange or quotation
system on which such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national securities exchange
or quotation system, the closing bid price of such security on the over-the-
counter market on the day in question as reported by Bloomberg LP, or a similar
generally accepted reporting service, as the case may be.
(n) "Default Dividend Rate" shall be equal to the Preferred Stock
Dividend Rate plus an additional 4% per annum.
(o) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series B Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(p) "Issue Date" has the meaning set forth in Section 6.1.
(q) "Market Disruption Event" means any event that results in a
material suspension or limitation of trading of the Common Shares on the OTCBB.
(r) "Market Price" per Common Share, on any date of determination,
means the arithmetic mean of the lowest closing bid prices of the Common Shares
as reported on the OTCBB for five (5) Trading Days during the period of ten (10)
Trading Days immediately preceding such date of determination, it being
understood that such five (5) Trading Days need not be consecutive; provided, if
such security is not listed or admitted to trading on the OTCBB, as reported on
the principal national security exchange or quotation system on which such
2
<PAGE>
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market on the day
in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be, for five (5) Trading Days during the
period of ten (10) Trading Days immediately preceding such date of
determination, it being understood that such five (5) Trading Days need not be
consecutive.
(s) "Optional Redemption Price" means (i) a sum in cash equal to one
hundred twenty-seven percent (127%) of the Stated Value plus (ii) the Company's
common stock purchase warrant or warrants to purchase 50,000 shares of Common
Stock, having the same terms and conditions as the Warrant. (t) "OTCBB" means
the OTC Bulletin Board service of the National Association of Securities
Dealers, Inc.
(u) "Outstanding" when used with reference to Common Shares or
Capital Shares (collectively, "Shares"), means, on any date of determination,
all issued and outstanding Shares, and includes all such Shares issuable in
respect of outstanding scrip or any certificates representing fractional
interests in such Shares; provided, however, that any such Shares directly or
indirectly owned or held by or for the account of the Corporation or any
Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes
hereof .
(v) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(w) "Registration Rights Agreement" means that certain Registration
Rights Agreement dated the Closing Date between the Corporation and The Shaar
Fund Ltd.
(x) "SEC" means the United States Securities and Exchange Commission.
(y) "Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations of the SEC thereunder, all as in effect at the
time.
(z) "Securities Purchase Agreement" means that certain Securities
Purchase Agreement dated the Closing Date between the Corporation and The Shaar
Fund Ltd.
(aa) "Series B Preferred Shares" or "Series B Preferred Stock" means
the shares of 6% Series B Cumulative Convertible Preferred Stock of the
Corporation or such other convertible Preferred Stock exchanged therefor.
(bb) "Stated Value" has the meaning set forth in Article 2.
(cc) "Subsidiary" means any entity of which securities or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other persons performing similar functions are owned
directly or indirectly by the Corporation.
3
<PAGE>
(dd) "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on the OTCBB are reported thereon and on
which no Market Disruption Event has occurred.
(ee) "Valuation Event" has the meaning set forth in Section 6.1.
(ff) "Valuation Period" means the ten (10) Trading Day period
immediately preceding the Conversion Date.
(gg) "Warrant" means the warrant to purchase Common Stock issued by
the Company to the initial Holder pursuant to the Securities Purchase Agreement.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
Designation and Amount
The designation of this series, which consists of 2,000 shares of
Preferred Stock, is 6% Series B Cumulative Convertible Preferred Stock (the
"Series B Preferred Stock") and the stated value shall be $1,000.00 per share
(the "Stated Value").
ARTICLE 3
Rank
The Series B Preferred Stock shall rank (i) prior to the Common Stock;
(ii) prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities") and (iii) pari passu with the 10% Series A Cumulative
Convertible Preferred Stock of the Corporation currently outstanding and any
class or series of capital stock of the Corporation hereafter created
specifically ranking on parity with the Series B Preferred Stock ("Pari Passu
Securities").
ARTICLE 4
Dividends
(a) (i) The Holder shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Article 4(a)(ii) hereof) at the
rate of six percent (6%) per annum (computed on the basis of a 360-day
year) (the "Dividend Rate") on the Stated Value of each share of Series B
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series B Preferred Stock shall be cumulative from the date
of issue, whether or not declared for any reason, including if such
declaration is prohibited under any outstanding indebtedness or borrowings
of the Corporation or any of its Subsidiaries, or any other contractual
provision binding on the Corporation or any of its Subsidiaries, and
whether or not there shall be funds legally available for the payment
thereof.
4
<PAGE>
(ii) Each dividend shall be payable in equal quarterly amounts
on each March 31, June 30, September 30 and December 31 of each year or, if
any such date is not a business day, on the next succeeding business day
(each, a "Dividend Payment Due Date"), commencing September 30, 1999, to
the holders of record of shares of the Series B Preferred Stock, as they
appear on the stock records of the Corporation at the close of business on
any record date, not more than 60 days or less than 10 days preceding the
payment dates thereof, as shall be fixed by the Board of Directors. For the
purposes hereof, "Dividend Period" means the period commencing on and
including the Issue Date through September 30, 1999 and thereafter each
quarterly period commencing on the day after the immediately preceding
Dividend Payment Due Date and ending on and including the immediately
subsequent Dividend Payment Due Date. Accrued and unpaid dividends for any
past Dividend Period may be declared and paid at any time, without
reference to any Dividend Payment Due Date, to holders of record on such
date, not more than 15 days preceding the payment date thereof, as may be
fixed by the Board of Directors.
(iii) Subject to the next sentence, at the option of the
Corporation, the dividend shall be paid in cash or through the issuance of
duly and validly authorized and issued, fully paid and nonassessable shares
of the Common Stock valued at the Market Price. The Corporation may
exercise such option only if the Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement (as
defined in the Registration Rights Agreement) to be filed by the
Corporation to register the Common Stock issuable upon conversion of the
shares of Series B Preferred Stock and exercise of the Warrants as set
forth in the Registration Rights Agreement. Notwithstanding the foregoing,
until such Registration Statement (as defined in the Registration Rights
Agreement) has been declared effective under the Securities Act by the SEC,
payment of dividends on the Series B Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any dividends in excess of
the cumulative dividends, as herein provided, on the Series B Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends, except as described in the next succeeding sentence,
shall be declared or paid or set apart for payment on Pari Passu Securities for
any period unless full cumulative dividends required to be paid in cash have
been or contemporaneously are declared and paid or declared and a sum sufficient
for the payment thereof set apart for such payment on the Series B Preferred
Stock for all Dividend Periods terminating on or prior to the date of payment of
the dividend on such class or series of Pari Passu Securities. When dividends
are not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series B Preferred Stock are
outstanding, no dividends shall be declared or paid or set apart for payment or
other distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or
5
<PAGE>
otherwise acquired (other than a redemption, purchase or other acquisition of
shares of Common Stock made for purposes of an employee incentive or benefit
plan (including a stock option plan) of the Corporation or any subsidiary or any
cashless exercise of warrants), (all such dividends, distributions, redemptions
or purchases being hereinafter referred to as a "Junior Securities
Distribution") for any consideration (or any moneys be paid to or made available
for a sinking fund for the redemption of any shares of any such stock) by the
Corporation, directly or indirectly, unless in each case (i) the full cumulative
dividends required to be paid in cash on all outstanding shares of the Series B
Preferred Stock and any other Pari Passu Securities shall have been paid or set
apart for payment for all past Dividend Periods with respect to the Series B
Preferred Stock and all past dividend periods with respect to such Pari Passu
Securities, and (ii) sufficient funds shall have been paid or set apart for the
payment of the dividend for the current Dividend Period with respect to the
Series B Preferred Stock and the current dividend period with respect to such
Pari Passu Securities.
ARTICLE 5
Liquidation Preference
(a) If the Corporation shall commence a voluntary case under the
Federal bankruptcy laws or any other applicable Federal or state bankruptcy,
insolvency or similar law, or consent to the entry of an order for relief in an
involuntary case under any law or to the appointment of a receiver, liquidator,
assignee, custodian, trustee, sequestrator (or other similar official) of the
Corporation or of any substantial part of its property, or make an assignment
for the benefit of its creditors, or admit in writing its inability to pay its
debts generally as they become due, or if a decree or order for relief in
respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up (each such event being considered a "Liquidation
Event"), no distribution shall be made to the holders of any shares of Common
Stock or Junior Securities of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the holders of shares of Series B Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
(as defined in Article 5(c)) with respect to each share. If upon the occurrence
of a Liquidation Event, the assets and funds legally available for distribution
among the holders of the Series B Preferred Stock and holders of Pari Passu
Securities shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series B Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the liquidation preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance or disposition
of all or substantially all of the assets of the Corporation, the effectuation
by the Corporation of a transaction or series of related transactions in which
more than 50% of the voting power of the Corporation is obtained by any Person
or "group" as defined in or pursuant to Section 13 of the
6
<PAGE>
Securities Exchange Act of 1934, as amended, other than a Person or "group" (as
so defined), if any, having more than 50% of the voting power of the Corporation
on the Issue Date, or the consolidation, merger or other business combination of
the Corporation with or into any other Person or Persons when the Corporation is
not the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute, upon consummation of and as a condition to, such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding share of Series B Preferred Stock in accordance with and
subject to the terms of this Article 5 or (ii) be treated pursuant to Section
6.4 hereof; provided, that all holders of Series B Preferred Stock shall be
deemed to elect the option set forth in clause (i) hereof if at least a majority
in interest of such holders elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to
a share of the Series B Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to 30% of such Stated
Value, plus (iii) the aggregate of all accrued and unpaid dividends on such
share of Series B Preferred Stock until the most recent Dividend Payment Due
Date; provided that, in the event of an actual liquidation, dissolution or
winding up of the Corporation, the amount referred to in clause (iii) above
shall be calculated by including accrued and unpaid dividends to the actual date
of such liquidation, dissolution or winding up, rather than the Dividend Payment
Due Date referred to above.
ARTICLE 6
Conversion of Preferred Stock
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series B Preferred Stock
may be converted, either in whole or in part (in whole shares of Series B
Preferred Stock), into Common Shares (calculated as to each such conversion to
the nearest 1/100th of a share of Common Stock), at any time, and from time to
time following the date ninety (90) days after the date of issuance of the
Series B Preferred Stock (the "Issue Date") at a Conversion Price per share of
Common Stock equal to the lesser of: (i) the closing bid price of the Common
Stock on the Trading Day immediately preceding the Issue Date and (ii) seventy-
eight percent (78%) of the Market Price determined as of the Conversion Date;
provided that the Holder may not exercise any right of conversion set forth in
this Article 6 during the period of forty-five (45) days commencing on and
including the first Trading Day following the Issue Date, if any, on which the
Current Market Price of the Common Stock is $0.85 or less; and provided,
further, that if the Corporation's Common Stock, for any reason, (a) becomes
ineligible for trading on OTCBB, (b) is not listed on the New York Stock
Exchange or the American Stock Exchange or (c) is not admitted to trading on the
Nasdaq National Market or the Nasdaq SmallCap Market, then any remaining
unconverted Series B Preferred Stock may be converted, at the sole option of the
Holder, at a Conversion Price per share of Common Stock equal to 65% of the
Market Price determined as of the Conversion Date. At the Corporation's option,
the amount of accrued and unpaid dividends as of the Conversion Date may be
paid in cash or in Common Stock valued at the Market Price on the Conversion
Date.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to
be converted,
7
<PAGE>
multiplied by (ii) the Stated Value and divided by (iii) the applicable
Conversion Price. Notwithstanding any other provision herein, the Conversion
Price shall not be less than the par value of the Common Stock
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during the period of ten (10) Trading Days immediately
preceding a Conversion Date, the Market Price with respect to such Conversion
Date shall be (a) the arithmetic mean of the lowest closing bid prices of the
Common Shares (reported as provided in the definition of "Market Price") for
five (5) Trading Days (it being understood that such five (5) Trading Days need
not be consecutive) during the period beginning on the Trading Day immediately
following the occurrence of such Valuation Event and ending on the Conversion
Date (the "New Valuation Period"), if such New Valuation Period includes five
(5) Trading Days or more, or (b) the arithmetic mean of the lowest closing bid
prices of the Common Shares (reported as provided in the definition of "Market
Price") for all Trading Days in the New Valuation Period, if such New Valuation
Period includes four (4) Trading Days or less; provided that, if the Valuation
Event occurs on the Trading Day immediately preceding such Conversion Date, then
the Conversion Price shall be the lesser of (x) the closing bid price of the
Common Stock on the Trading Day immediately preceding the Issue Date and (y)
seventy-eight percent (78%) of the Current Market Price of the Common Shares on
the Trading Day immediately preceding the Conversion Date; and provided,
further, that the Holder may, in its discretion, postpone such Conversion Date
to a Trading Day which is no more than ten (10) Trading Days after the
occurrence of the latest Valuation Event by delivering a notification to the
Corporation within two Business Days of the receipt of the Valuation Event
Notice. In the event that the Holder deems the Market Price is to be calculated
with reference to a period other than the ten (10) Trading Days immediately
prior to the Conversion Date, the Holder shall give written notice of such fact
to the Corporation in the related Conversion Notice at the time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an
event in which the Corporation at any time takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b)
above, at a price per share less, or for other consideration lower, than the
Current Market Price in effect immediately prior to such issuances, or without
consideration, except for issuances under stock option plans presently in effect
and issuances under presently outstanding warrants, options or convertible
securities (and except for issuances upon exercise, conversion or exchange of
securities described in Section 6.1(d) and 6.1(e) below);
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance of the warrants, options or
other rights;
8
<PAGE>
(e) issues any securities convertible into or exchangeable or
exercisable for Additional Capital Shares and the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities shall
be less than the Current Market Price in effect immediately prior to such
issuance of such convertible or exchangeable securities;
(f) makes a distribution of its assets or evidences of indebtedness
to the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(f) hereof, inclusive, which in the opinion of the Corporation's
Board of Directors, determined in good faith, would have a material adverse
effect upon the rights of the Holder at the time of a conversion of the
Preferred Stock.
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series B Preferred Stock may be exercised, in
whole or in part, by the Holder by telecopying an executed and completed notice
of conversion in the form annexed hereto as Annex I (the "Conversion Notice") to
the Corporation. Each date on which a Conversion Notice is telecopied to the
Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Series B
Preferred Stock and issue the Common Stock Issued at Conversion to be issued
upon conversion thereof, and all voting and other rights associated with the
beneficial ownership of such Common Stock Issued at Conversion to be issued upon
conversion thereof shall vest with the Holder, effective as of the Conversion
Date at the time specified in the Conversion Notice. The Conversion Notice also
shall state the name or names (with addresses) of the Persons who are to become
the holders of the Common Stock Issued at Conversion in connection with such
conversion. The Holder shall deliver the shares of Series B Preferred Stock to
the Corporation by express courier within 30 days following the date on which
the telecopied Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied by a proper
assignment thereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five (5) Business Days after the Corporation's receipt of
such Conversion Notice and the Series B Preferred Stock being converted, the
Corporation shall (i) issue the Common Stock Issued at Conversion in accordance
with the provisions of this Article 6 (including, without limitation, any shares
of Common Stock issued pursuant to Section 4(a)(iii), at the option of the
Corporation, in payment of dividends on the Series B Preferred Stock), (ii)
cause to be mailed for delivery by overnight courier to the Holder a certificate
or certificate(s) representing the number of Common Shares to which the Holder
is entitled by virtue of such conversion and (iii) remit, in immediately
available funds, payment as provided in Section 6.3 in respect of any fraction
of a Common Share issuable upon such conversion and payment in the amount of
accrued and unpaid dividends as of the Conversion Date. Such conversion shall be
deemed to have been effected at the time at which the Conversion Notice
indicates so long as the Series B Preferred Stock shall have been surrendered as
aforesaid at such
9
<PAGE>
time, and at such time the rights of the Holder of the Series B Preferred Stock,
as such, shall cease and the Person or Persons in whose name or names the Common
Stock Issued at Conversion shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby and all
voting and other rights associated with the beneficial ownership of such Common
Shares shall at such time vest with such Person or Persons. The Conversion
Notice shall constitute a contract between the Holder and the Corporation,
whereby the Holder shall be deemed to subscribe for the number of Common Shares
which it will be entitled to receive upon such conversion and, in payment and
satisfaction of such subscription (and for any cash adjustment to which it is
entitled pursuant to Section 6.4), to surrender the Series B Preferred Stock and
to release the Corporation from all liability thereon. No cash payment
aggregating less than $1.00 shall be required to be given unless specifically
requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or
denies the right of the Holder hereof to effect the conversion of the Series B
Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 6.2 or (ii) any
third party who is not and has never been an Affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Series B Preferred Stock into Common Shares, then the Holder shall have
the right, by written notice to the Corporation, to require the Corporation to
promptly redeem, to the extent permitted by law, the Series B Preferred Stock
for cash at a redemption price equal to 127% of the Stated Value thereof
together with all accrued and unpaid dividends thereon (the "Mandatory Purchase
Amount"). Under any of the circumstances set forth above, the Corporation shall
be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in disputing
any such action or pursuing its rights hereunder (in addition to any other
rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. (S) 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. (S) 362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. (S) 362 in
respect of the conversion of the Series B Preferred Stock. The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. (S) 362.
Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common
Shares shall be issued upon conversion of the Series B Preferred Stock. Instead
of any fractional Common Shares which otherwise would be issuable upon
conversion of the Series B Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
No cash payment of less than $1.00 shall be required to be given unless
specifically requested by the Holder.
10
<PAGE>
Section 6.4 Reclassification, Consolidation, Merger or Mandatory
Share Exchange
At any time while the Series B Preferred Stock remains outstanding and
any shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation will not effect any
such action unless the Corporation, or such successor, resulting or purchasing
corporation, as the case may be, shall, without benefit of any additional
consideration therefor, issues a new preferred stock providing that the Holder
shall have the right to convert such new preferred stock (upon terms and
conditions not less favorable to the Holder than those in effect pursuant to the
Series B Preferred Stock) and to receive upon such exercise, in lieu of each
Common Share theretofore issuable upon conversion of the Series B Preferred
Stock, the kind and amount of shares of stock, other securities, money or
property receivable upon such reclassification, change, consolidation, merger,
mandatory share exchange, sale or transfer by the holder of one Common Share
issuable upon conversion of the Series B Preferred Stock had the Series B
Preferred Stock been converted immediately prior to such reclassification,
change, consolidation, merger, mandatory share exchange or sale or transfer.
The provisions of this Section 6.4 shall similarly apply to successive
reclassifications, changes, consolidations, mergers, mandatory share exchanges
and sales and transfers.
Section 6.5 Adjustments to Conversion Price
For so long as any shares of the Series B Preferred Stock are
outstanding, if the Corporation: (i) issues and sells pursuant to an exemption
from registration under the Securities Act (A) Common Shares at a purchase price
on the date of issuance thereof that is lower than the Conversion Price (other
than Common Shares issuable upon exercise, conversion or exchange of securities
described in the following clause (B) or (C), (B) warrants or options with an
exercise price representing a percentage of the Current Market Price on the
date of issuance of the warrants or options that is lower than the Conversion
Price, except for employee stock option agreements or stock incentive agreements
of the Corporation, or (C) convertible, exchangeable or exercisable securities
with a right to exchange at lower than the Current Market Price on the date of
issuance or conversion, as applicable, of such convertible, exchangeable or
exercisable securities, except for stock option agreements or stock incentive
agreements; and (ii) grants the right to the purchaser(s) thereof to demand that
the Corporation register under the Securities Act prior to two years from the
Issue Date such Common Shares issued or the Common Shares for which such
warrants or options may be exercised or such convertible, exchangeable or
exercisable securities may be converted, exchanged or exercised, then the
Conversion Price shall be reduced to equal the lowest of any such lower prices.
11
<PAGE>
Section 6.6 Optional Redemption and Optional Conversion
At any time after the date of issuance of the Series B Preferred Stock
until the Mandatory Conversion Date (as defined below), to the extent permitted
by law, the Corporation, upon notice delivered to the Holder as provided in
Section 6.7, may redeem all (but not less than all) of the Series B Preferred
Stock (but only with respect to such shares as to which the Holder has not
theretofore furnished a Conversion Notice in compliance with Section 6.2), at
the Optional Redemption Price, together with all accrued and unpaid dividends
thereon to the date of redemption (the "Redemption Date"); provided, however,
that the Corporation may only redeem the Series B Preferred Stock under this
Section 6.6 if the Current Market Price is less than the Current Market Price on
the Issue Date. Except as set forth in this Section 6.6, the Corporation shall
not have the right to prepay or redeem the Series B Preferred Stock.
Section 6.7 Notice of Redemption
Notice of redemption pursuant to Section 6.6 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 10 nor more than 15 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.6 (including a
statement of the Market Price per Common Share) and this Section 6.7.
Section 6.8 Surrender of Preferred Stock
Upon any redemption of the Series B Preferred Stock pursuant to
Sections 6.6 or 6.7 the Holder shall either deliver the Series B Preferred Stock
by hand to the Corporation at its principal executive offices or surrender the
same to the Corporation at such address by express courier. Payment of the
optional Redemption Price specified in Section 6.6 shall be made by the
Corporation to the Holder against receipt of the Series B Preferred Stock (as
provided in this Section 6.8) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify to the Corporation. If payment of
such redemption price is not made in full by the or the Redemption Date the
Holder shall again have the right to convert the Series B Preferred Stock as
provided in Article 6 hereof.
Section 6.9 Mandatory Conversion
On the second (2nd) anniversary of the Issue Date subject to 6.10(a)
(the "Mandatory Conversion Date"), the Corporation shall convert all Series B
Preferred Stock outstanding at the Conversion Price.
Section 6.10 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series B Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series B Preferred Stock in
shares of Common Stock) if and to the extent that the issuance to the Holder of
shares of Common Stock upon such conversion (or payment of dividends) would
result in the Holder being deemed the "beneficial owner" of more than 5% of the
then outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of
12
<PAGE>
competent jurisdiction shall determine that the foregoing limitation is
ineffective to prevent a Holder from being deemed the beneficial owner of more
than 5% of the then outstanding shares of Common Stock, then the Corporation
shall redeem, to the extent permitted by law, so many of such Holder's shares
(the "Redemption Shares") of Series B Preferred Stock as are necessary to cause
such Holder to be deemed the beneficial owner of not more than 5% of the then
outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series B Preferred Stock, and the Holder shall have no interest in or
rights under such Redemption Shares. Any and all dividends paid on or prior to
the date of such determination shall be deemed dividends paid on the remaining
shares of Series B Preferred Stock held by the Holder. Such redemption shall be
for cash at a redemption price equal to the sum of (i) the Stated Value of the
Redemption Shares and (ii) any accrued and unpaid dividends to the date of such
redemption; provided, however, if the redemption is a result of the mandatory
conversion pursuant to Section 6.9, the Corporation may either (i) make such
redemption in cash at a redemption price equal to the sum of (x) 127% of the
Stated Value of such shares and (y) any accrued and unpaid dividends to the date
of such redemption or (ii) extend the Mandatory Conversion Date for a period of
one year.
(b) Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of the OTCBB
or such stock market with which the Corporation shall be required to comply, but
only to the extent required thereby, the Corporation shall not issue shares of
Common Stock (i) upon conversion of any shares of Series B Preferred Stock or
(ii) as a dividend on the Series B Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (i) upon conversion of shares of the Series B Preferred Stock,
(ii) upon exercise of the Warrants issued pursuant to the terms of the
Securities Purchase Agreement and (iii) in payment of dividends on the Series B
Preferred Stock, would equal or exceed 20% of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Issue Date
(the "Maximum Issuance Amount"). In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (i)
converting the number of shares of Series B Preferred Stock stated in the
Conversion Notice not in excess of the Maximum Issuance Amount and (ii)
redeeming, to the extent permitted by law, the number of shares of Series B
Preferred Stock stated in the Conversion Notice equal to or in excess of the
Maximum Issuance Amount in cash at a price equal to 127% of the Stated Value of
the shares of Series B Preferred Stock to be so redeemed, together with all
accrued and unpaid dividends thereon. In the event that the Corporation shall
elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.
13
<PAGE>
ARTICLE 7
Voting Rights
The holders of the Series B Preferred Stock have no voting power,
except as otherwise provided by the General Corporation Law of the State of
Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each Holder
of Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least 30 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such action is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding, the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of the
Series B Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative vote
or consent of the Holders of at least a majority of the outstanding shares of
Series B Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
B Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series B Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series B Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series B Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
Except as otherwise required by applicable law, subject to receipt of
the approval of the Holders of the Series B Preferred Stock as required herein,
the Corporation may alter or change the rights, preferences or privileges of the
Class B Preferred Stock without the approval of any other class of series of
capital stock of the Corporation.
ARTICLE 8
Protective Provisions
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the
14
<PAGE>
DGCL) of the Holders of at least a majority of the then outstanding shares of
Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series B Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior Securities")
or alter or change the rights, preferences or privileges of any Senior
Securities so as to affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B Preferred
Stock; or
(d) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series B Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event Holders of least a majority of the then outstanding
shares of Series B Preferred Stock give their approval to allow the Corporation
to alter or change the rights, preferences or privileges of the shares of Series
B Preferred Stock, pursuant to subsection (a) above, so as to affect the Series
B Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series B Preferred Stock that did not approve such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of 30 days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series B Preferred Stock.
ARTICLE 9
Miscellaneous
Section 9.1 Loss, Theft, Destruction of Preferred Stock Certificates
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series B Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series B Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series B Preferred Stock, new shares of Series
B Preferred Stock of like tenor. The Series B Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series B Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the
15
<PAGE>
absolute owner of the Series B Preferred Stock for the purpose of receiving
payment of dividends on the Series B Preferred Stock, for the conversion of the
Series B Preferred Stock and for all other purposes, and the Corporation shall
not be affected by any notice to the contrary. All such payments and such
conversion shall be valid and effectual to satisfy and discharge the liability
upon the Series B Preferred Stock to the extent of the sum or sums so paid or
the conversion so made.
Section 9.3 Notice of Certain Events
In the case of the occurrence of any Valuation Event described in
Sections 6.1, or 6.6 of this Certificate of Designation, the Corporation shall
cause to be mailed to the Holder of the Series B Preferred Stock at its last
address as it appears in the Corporation's security registry, at least 20 days
prior to the applicable record, effective or expiration date hereinafter
specified (or, if such 20 days notice is not possible, at the earliest possible
date prior to any such record, effective or expiration date), a notice stating
(x) the date on which a record is to be taken for the purpose of such dividend,
distribution, issuance or granting of rights, options or warrants, or if a
record is not to be taken, the date as of which the Holders of record of Series
B Preferred Stock to be entitled to such dividend, distribution, issuance or
granting of rights, options or warrants are to be determination or the date on
which such reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and (y) the date as
of which it is expected that Holders of record of Series B Preferred Stock will
be entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
Section 9.4 Register
The Corporation shall keep at its principal office a register in which
the Corporation shall provide for the registration of the Series B Preferred
Stock. Upon any transfer of the Series B Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the Series B
Preferred Stock register.
The Corporation may deem the person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series B Preferred Stock
for the purpose of receiving payment of dividends on the Series B Preferred
Stock, for the conversion of the Series B Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective
to satisfy and discharge the liability upon the Series B Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series B Preferred Stock.
16
<PAGE>
Section 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
17
<PAGE>
In Witness Whereof, the Corporation has caused this Certificate of
Designation, Preferences and Rights to be signed by its duly authorized officers
on July 1,1999.
American TeleSource International, Inc.
By:/s/ H. Douglas Saathoff
-------------------------
Name: H. Douglas Saathoff
Title: Senior Vice President
By:/s/ Charles R. Poole
-------------------------
Name: Charles R. Poole
Title: President
18
<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
To: American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
The undersigned owner of this Series B 6% Convertible Preferred Stock
(the "Series B Preferred Stock") issued by American TeleSource International,
Inc. (the "Corporation") hereby irrevocably exercises its option to convert
__________ shares of the Series B Preferred Stock into shares of the common
stock, par value $0.001 per share ("Common Stock"), of the Corporation in
accordance with the terms of the Certificate of Designation. The undersigned
hereby instructs the Corporation to convert the number of shares of the Series B
Preferred Stock specified above into Shares of Common Stock Issued at Conversion
in accordance with the provisions of Article 6 of the Certificate of
Designation. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series B Preferred Stock
recertificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Certificate of Designation. So long as the
Series B Preferred Stock shall have been surrendered for conversion hereby, the
conversion pursuant hereto shall be deemed to have been effected at the date and
time specified below, and at such time the rights of the undersigned as a Holder
of the Series B Preferred Stock shall cease and the Person or Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons.
Date and time:
----------------------
---------------------------
Signature
Fill in for registration of Series B Preferred Stock:
- --------------------------------------------------------------------
- --------------------------------------------------------------------
- --------------------------------------------------------------------
Please print name and address (including zip code number)
19
<PAGE>
EXHIBIT 10.35
Execution Version
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 50,000
Warrant No. 1
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
American TeleSource International, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered assigns, is
entitled, at any time from the Closing Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from American TeleSource
International, Inc., a Delaware corporation (the "Company"), 50,000 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
set forth herein, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. Definitions
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as of the
last day of any month immediately preceding such date, divided by the number of
Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by
Arthur Andersen LLP or any other firm of independent certified public
accountants of recognized national standing selected by the Company and
reasonably acceptable to the Holder.
<PAGE>
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $0.001 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Market Price" shall mean, as of any date of determination,
the average of the closing bid prices of the Common Shares as reported on the
OTCBB for the five Trading Days immediately preceding such date of
determination; provided that, if such security is not listed or admitted to
trading on the OTCBB, the closing prices as reported on the principal national
security exchange or quotation system on which such security is quoted or listed
or admitted to trading (closing bid prices in the case of a quotation system),
or if not quoted or listed or admitted to trading on any national securities
exchange or quotation system, the closing bid prices of such security on the
over-the-counter market as reported by Bloomberg LP, or a similar generally
accepted reporting service, as the case may be, for the five Trading Days
immediately preceding such date of determination.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, one hundred and fifteen percent (115%) of
the arithmetic mean of the lowest closing bid prices of a share of Common Stock
as reported on the OTCBB on five (5) Trading Days during the period of ten (10)
Trading Days immediately preceding the Closing Date, it being understood that
such five (5) Trading Days need not be consecutive.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
2
<PAGE>
"Expiration Date" shall mean July 2, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining Book Value or
net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company maintained for
such purpose.
"Market Price" per Common Share means the average of the closing bid
prices of the Common Shares as reported on the OTC Bulletin Board service of the
National Association of Securities Dealers, Inc. for the five trading days
immediately preceding the Closing Date.
"OTCBB" shall mean the OTC Bulletin Board service of the National
Association of Securities Dealers, Inc.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated a date even herewith between the Company and The Shaar Fund
Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on their exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
3
<PAGE>
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
2. Exercise of Warrant
2.1 Manner of Exercise
From and after the Closing Date and until 5:00 p.m., New York time, on
the Expiration Date, Holder may exercise this Warrant, on any Business Day, for
all or any part of the number of shares of Common Stock purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 12500 Network Boulevard, Suite
407, San Antonio, Texas 78249, or at the office or agency designated by the
Company pursuant to Section 12, (i) a written notice of Holder's election to
exercise this Warrant, which notice shall specify the number of shares of Common
Stock to be purchased, (ii) to the extent such exercise is not being effected
through a Cashless Exercise, payment of the Warrant Price in cash or wire
transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription
form appearing at the end of this Warrant as Exhibit A, duly executed by Holder
or its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) above, the Company shall, as promptly as practicable, and in any
event within five Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice.
This Warrant shall be deemed to have been exercised and such
4
<PAGE>
certificate or certificates shall be deemed to have been issued, and Holder or
any other Person so designated to be named therein shall be deemed to have
become a holder of record of such shares for all purposes, as of the date the
notice, provided that the cash or check or checks and this Warrant are received
by the Company as described above and all taxes required to be paid by Holder,
if any, pursuant to Section 2.2 prior to the issuance of such shares have been
paid. If this Warrant shall have been exercised in part, the Company shall, at
the time of delivery of the certificate or certificates representing Warrant
Stock, deliver to Holder a new Warrant evidencing the rights of Holder to
purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant,
or, at the request of Holder, appropriate notation may be made on this Warrant
and the same returned to Holder. Notwithstanding any provision herein to the
contrary, the Company shall not be required to register shares in the name of
any Person who acquired this Warrant (or part hereof) or any Warrant Stock
otherwise than in accordance with this Warrant.
Simultaneously with the exercise of this Warrant, payment in full of
the Warrant Price may be made, at the option of the Holder, (i) by payment of
the Warrant Price in cash by wire transfer or cashier's check drawn on a United
States bank, (ii) by the surrender (which surrender shall be evidenced by
cancellation of the number of Warrants represented by any certificate(s)
evidencing the Warrants (the "Warrant Certificate") presented in connection with
a Cashless Exercise) of a Warrant or Warrants (represented by one or more
Warrant Certificates), and without payment of the Warrant Price in cash, for
such number of shares as shall be equal to the product of (1) the number of
shares for which such Warrant is exercisable with payment in cash of the Warrant
Price as of the date of exercise multiplied by (2) the Cashless Exercise Ratio
-------------
or (iii) by any combination of (i) and (ii). For purposes of this Agreement,
the "Cashless Exercise Ratio" shall equal a fraction, the numerator of which is
the excess of the Current Market Price per share of the Common Stock on the date
of exercise over the Warrant Price per share as of the date of exercise and the
denominator of which is the Current Market Price per share of the Common Stock
on the date of exercise. An exercise of a Warrant in accordance with the
immediately preceding sentences is herein called a "Cashless Exercise." Upon
surrender of a Warrant Certificate representing more than one Warrant in
connection with the Holder's option to elect a Cashless Exercise, the number of
shares deliverable upon a Cashless Exercise shall be equal to the Cashless
Exercise Ratio multiplied by the number of Warrants that the Holder specifies is
to be exercised pursuant to a Cashless Exercise. All provisions of this
Agreement shall be applicable with respect to an exercise of a Warrant
Certificate pursuant to a Cashless Exercise for less than the full number of
Warrants represented thereby.
2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this Warrant
pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, without any preemptive rights. The Company shall pay all
expenses in connection with, and all taxes and other governmental charges that
may be imposed with respect to, the issue or delivery thereof, unless such tax
or charge is imposed by law upon Holder, in which case such taxes or charges
shall be paid by Holder. The Company shall not be required, however, to pay any
tax or other charge imposed in connection with any transfer involved in the
issue of any certificate for shares of Common Stock issuable upon exercise of
this Warrant in any name other than that of Holder,
5
<PAGE>
and in such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.
2.3 Fractional Shares
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of any Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
2.4 Continued Validity
A holder of shares of Common Stock issued upon the exercise of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights to the extent permitted by law.
3. Transfer, Division and Combination
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if
properly assigned in compliance with Section 9, may be exercised by a new Holder
for the purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together
6
<PAGE>
with a written notice specifying the names and denominations in which new
Warrants are to be issued, signed by Holder or its agent or attorney. Subject to
compliance with Section 3.1 and with Section 9, as to any transfer which may be
involved in such division or combination, the Company shall execute and deliver
a new Warrant or Warrants in exchange for the Warrant or Warrants to be divided
or combined in accordance with such notice.
3.3 Expenses
The Company shall prepare, issue and deliver at its own expense (other
than transfer taxes) the new Warrants or Warrants under this Section 3.
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency,
books for the registration and the registration of transfer of the Warrants.
4. Adjustments
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
7
<PAGE>
4.2 Certain Other Distributions
If at any time the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock or
any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock); or
(c) any warrants or other rights to subscribe for or purchase any
evidences of its indebtedness, any shares of its stock or any other securities
or property of any nature whatsoever (other than cash, Convertible Securities or
Additional Shares of Common Stock);
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this Section
The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) When Adjustments to be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(b) Fractional Interests. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
8
<PAGE>
(d) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Company
and acceptable to Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets
In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, consolidation or disposition of assets by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 still similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock
In case at any time or from time to time the Company shall take any
action in respect of its Common Stock, other than any action described in this
Section 4, which would have a materially adverse effect upon the rights of
Holder, the number of shares of Common
9
<PAGE>
Stock and/or the purchase price thereof shall be adjusted in such manner as may
be equitable in the circumstances, as determined in good faith by the Board of
Directors of the Company.
4.6 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees
not to enter into any transaction which, by reason of any adjustment hereunder,
would cause the Current Warrant Price to be less than the par value per share of
Common Stock.
5. Notices to Holder
5.1 Notice of Adjustments
Whenever the number of shares of Common Stock for which this Warrant
is exercisable, or whenever the price at which a share of such Common Stock may
be purchased upon exercise of the Warrants, shall be adjusted pursuant to
Section 4, the Company shall forthwith prepare a certificate to be executed by
the chief financial officer of the Company setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair value of any evidences of indebtedness,
shares of stock, other securities or property or warrants or other subscription
or purchase rights referred to in Section 4.2), specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 Notice of Corporate Action
If at any time:
(a) the Company shall take a record of the holders of its Common
Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right; or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
(c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;
10
<PAGE>
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. No Impairment
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder, to the extent permitted by law.
7. Reservation and Authorization of Common Stock
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding
11
<PAGE>
Warrants. All shares of Common Stock which shall be so issuable, when issued
upon exercise of any Warrant and payment therefor in accordance with the terms
of such Warrant, shall be duly and validly issued and fully paid and
nonassessable and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. Taking of Record; Stock and Warrant Transfer Books
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of record of such holders, the Company will in each case
take such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. Restrictions on Transferability
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock agrees
that this Warrant and the Warrant Stock issuable upon exercise hereof may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for Holder that such securities may be sold pursuant to an
exemption from registration under the Securities Act or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
12
<PAGE>
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS.
THESE SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OR SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any
shares of Restricted Common Stock, the Holder shall give ten days' prior written
notice (a "Transfer Notice") to the Company of Holder's intention to effect such
Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably satisfactory.
9.3 Required Registration
Pursuant to the terms and conditions set forth in Registration Rights
Agreement, the Company shall prepare and file with the Commission not later than
the 30th day after the Closing Date, a Registration Statement relating to the
offer and sale of the Common Stock
13
<PAGE>
issuable upon exercise of the Warrants and shall use its best efforts to cause
the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but no later than 90 days after the
Closing Date.
9.4 Termination of Restrictions
Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT CONTAINED
IN SECTION 9 HEREOF TERMINATED ON __________, _____, AND ARE OF NO
FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any securities
exchange or quotation system, it will, at its expense, list thereon, maintain
and, when necessary, increase such listing of, all shares of Common Stock issued
or, to the extent permissible under the applicable securities exchange rules,
issuable upon the exercise of this Warrant so long as any shares of Common Stock
shall be so listed during any such Exercise Period.
10. Supplying Information
The Company shall cooperate with Holder in supplying such information
as may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
14
<PAGE>
11. Loss or Mutilation
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation no indemnity shall be required if
this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. Office of the Company
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. Limitation of Liability
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. Miscellaneous
14.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails
to make, when due, any payments provided for hereunder, or fails to comply with
any other provision of this Warrant, the Company shall pay to Holder such
amounts as shall be sufficient to cover any costs and expenses including,
without limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
15
<PAGE>
(a) if to the Company, to:
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
Attention: H. Douglas Saathoff
with a copy to:
Alice L. King, Esq.
Corporate Counsel
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
(b) if to the Holder, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7771
(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)
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind (collectively, "Losses") which may be imposed upon, incurred by or
asserted against Holder in any manner relating to or arising out of any failure
by the Company to perform or observe in any material respect any of its
covenants,
16
<PAGE>
agreements, undertakings or obligations set forth in this Warrant; provided,
however, that the Company shall not be liable under this Section 14.3 to the
extent that any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses or disbursements are
found in a final nonappealable judgment by a court to have resulted from
Holder's gross negligence, bad faith or willful misconduct in its capacity as a
stockholder or warrantholder of the Company; and provided, further, that the
Company shall not be liable under this Section 14.3 to the extent that it has
provided indemnity to Holder with respect to any Losses pursuant to the
Registration Rights Agreement.
14.4 Remedies
Holder in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under Section 9 of this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of Section 9 of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 Amendment
This Warrant and all other Warrants may be modified or amended or the
provisions hereof waived with the written consent of the Company and Holder.
14.7 Severability
Wherever possible, each provision of this Warrant shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall only be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant.
14.8 Headings
The headings used in this Warrant are for the convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.
17
<PAGE>
14.9 Governing Law
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflicts of law.
[NO FURTHER TEXT ON THIS PAGE]
18
<PAGE>
In Witness Whereof, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: July 2, 1999
American TeleSource International, Inc.
By: /s/H. Douglas Saathoff
----------------------------------------
Name: H. Douglas Saathoff
Title: Chief Financial Officer
Attest:
By: /s/H. Douglas Saathoff
------------------------------------
Name: H. Douglas Saathoff
Title: Secretary
19
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of __________ shares of Common Stock of American
TeleSource International, Inc. and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to
- -------------------------------------------------------------------------------
whose address is
- -------------------------------------------------------------------------------
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
----------------------------------------------
(Name of Registered Owner)
----------------------------------------------
(Signature of Registered Owner)
----------------------------------------------
(Street Address)
----------------------------------------------
(City) (State) (Zip Code)
Notice: The signature on this subscription
must correspond with the name as written upon
the face of the within Warrant in every
particular, without alteration or enlargement
or any change whatsoever.
A-1
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
For Value Received the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
- ---------------------------- ------------
and does hereby irrevocably constitute and appoint
- -------------------------------------------------------------------------------
attorney-in-fact to register such transfer on the books of American TeleSource
International, Inc. maintained for the purpose, with full power of substitution
in the premises.
Dated: ____________________________
----------------------------------------------
(Print Name)
----------------------------------------------
(Signature)
----------------------------------------------
(Print Name of Witness)
----------------------------------------------
(Witness's Signature)
Notice: The signature on this assignment must
correspond with the name as written upon the
face of the within Warrant in every particular,
without alteration or enlargement or any change
whatsoever.
B-1
<PAGE>
EXHIBIT 10.36
Execution Version
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of July 2, 1999 (this
"Agreement"), between American TeleSource International, Inc., a Delaware
corporation, with principal executive offices located at 12500 Network
Boulevard, Suite 407, San Antonio 78249 (the "Company"), and The Shaar Fund Ltd.
(the "Initial Investor").
Whereas, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of July 2, 1999, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor (i) 2,000 shares of its Series
B 6% Convertible Preferred Stock, par value $0.001 per share (the "Preferred
Shares"), which, upon the terms and subject to the conditions of the Company's
Certificate of Designation of Series B 6% Convertible Preferred Stock (the
"Certificate of Designation"), are convertible into shares of the Company's
common stock, par value $0.001 per share (the "Common Stock") and (ii) Common
Stock Purchase Warrants (the "Initial Warrants") to purchase 50,000 shares of
Common Stock;
Whereas, upon the terms and subject to the conditions of the
Certificate of Designation, the Series B Preferred Shares may be redeemed by the
Company at a redemption price which includes, but is not limited to, the
issuance of its Common Stock Purchase Warrants having the same terms and
conditions as the Initial Warrants and exercisable to purchase an additional
50,000 shares of Common Stock (the "Redemption Warrants" and, together with the
Initial Warrants, the "Warrants"); and
Whereas, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion of the Preferred Shares and upon exercise of
the Warrants certain registration rights under the Securities Act;
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:
1. Definitions
(a) As used in this Agreement, the following terms shall have the
meanings:
(i) "Affiliate," of any specified Person means any other
Person who directly, or indirectly through one or more intermediaries, is
in control of, is controlled by, or is under common control with, such
specified Person. For purposes of this definition, control of a Person
means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person whether by contract,
<PAGE>
securities, ownership or otherwise; and the terms "controlling" and
"controlled" have the respective meanings correlative to the foregoing.
(ii) "Closing Date" means the date and time of the issuance and
sale of the Preferred Shares and the Initial Warrants.
(iii) "Commission" means the Securities and Exchange Commission.
(iv) "Current Market Price" on any date of determination means
the closing bid price of a share of the Common Stock on such day as
reported on OTC Bulletin Board service of the National Association of
Securities Dealers, Inc. ("OTCBB") or, if such security is not quoted on
the OTCBB, on the principal national security exchange or quotation system
on which such security is quoted or listed or admitted to trading, or, if
not quoted or listed or admitted to trading on any national securities
exchange or quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg LP,
or a similar generally accepted reporting service, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(vi) "Investors" means the Initial Investor and any transferee
or assignee of Registrable Securities who agrees to become bound by all of
the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vii) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(viii) "Prospectus" means the prospectus (excluding any
preliminary prospectus but including, without limitation, any final
prospectus filed pursuant to Rule 424(b) under the Securities Act and any
prospectus that discloses information previously omitted from a prospectus
filed as part of an effective registration statement in reliance on Rule
430A under the Securities Act) included in the Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the
terms of the offering of any portion of the Registrable Securities covered
by the Registration Statement and by all other amendments and supplements
to such prospectus, including all material incorporated by reference in
such prospectus and all documents filed after the date of such prospectus
by the Company under the Exchange Act and incorporated by reference
therein.
(ix) "Public Offering" means an offer registered with the
Commission and the appropriate state securities commissions by the Company
of its Common Stock and made pursuant to the Securities Act.
(x) "Registrable Securities" means the Common Stock issued or
issuable (i) in lieu of cash dividend payments on the Preferred Shares,
(ii) upon
2
<PAGE>
conversion of the Preferred Shares or (iii) upon exercise of the Warrants;
provided, however, a share of Common Stock shall cease to be a Registrable
Security for purposes of this Agreement when it no longer is a Restricted
Security.
(xi) "Registration Statement" means a registration statement of
the Company filed on an appropriate form under the Securities Act providing
for the registration of, and the sale on a continuous or delayed basis by
the holders of, all of the Registrable Securities pursuant to Rule 415
under the Securities Act, including the Prospectus contained therein and
forming a part thereof, any amendments to such registration statement and
supplements to such Prospectus, and all exhibits and other material
incorporated by reference in such registration statement and Prospectus.
(xii) "Restricted Security" means any share of Common Stock
issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Preferred Shares or upon exercise of the
Warrants except any such share that (i) has been registered pursuant to an
effective registration statement under the Securities Act and sold in a
manner contemplated by the prospectus included in such registration
statement, (ii) has been transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor provision
thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision thereto), or (iii) otherwise has
been transferred and a new share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of
the Company.
(xiii) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration
(a) Filing and Effectiveness of Registration Statement. The Company
shall prepare and file with the Commission not later than 30 days after the
Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 90 days after the Closing Date,
assuming for purposes hereof a Conversion Price under the Preferred Shares of
fifty percent (50%) of the Current Market Price on the Closing Date. The
Company shall not include any other securities in the Registration Statement
relating to the offer and sale of the Registrable Securities, except for shares
of Common Stock underlying warrants presently outstanding for the purchase of
80,000 shares of Common Stock at an exercise price of $1.06 per share (which
warrants carry tag-along registration rights). The Company shall notify the
Initial Investor by written notice that such Registration Statement has been
declared effective by the Commission within 24 hours of such declaration by the
Commission.
3
<PAGE>
(b) Registration Default. If the Registration Statement covering the
Registrable Securities or the Additional Registrable Securities (as defined in
Section 2(d) hereof) required to be filed by the Company pursuant to Section
2(a) or 2(d) hereof, as the case may be, is not (i) filed with the Commission
within 30 days after the Closing Date or (ii) declared effective by the
Commission within 90 days after the Closing Date (either of which, without
duplication, an "Initial Date"), then the Company shall make the payments to the
Initial Investor as provided in the next sentence as liquidated damages and not
as a penalty. The amount to be paid by the Company to the Initial Investor
shall be determined as of each Computation Date (as defined below), and such
amount shall be equal to 2% (the "Liquidated Damage Rate") of the Purchase Price
(as defined in the Securities Purchase Agreement) from the Initial Date to the
first Computation Date and for each Computation Date thereafter, calculated on a
pro rata basis to the date on which the Registration Statement is filed with (in
the event of an Initial Date pursuant to clause (i) above) or declared effective
by (in the event of an Initial Date pursuant to clause (ii) above) the
Commission (the "Periodic Amount") provided, however, that in no event shall the
liquidated damages be less than $25,000. The full Periodic Amount shall be paid
by the Company to the Initial Investor by wire transfer of immediately available
funds within three days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date which
is 30 days after the Initial Date and, if the Registration Statement required to
be filed by the Company pursuant to Section 2(a) has not theretofore been
declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.
Notwithstanding the above, if the Registration Statement covering the
Registrable Securities or the Additional Registrable Securities required to be
filed by the Company pursuant to Section 2(a) or 2(d) hereof, as the case may
be, is not filed with the Commission by the 30th day after the Closing Date, the
Company shall be in default of this Registration Rights Agreement, and the
Initial Investor shall be entitled to liquidated damages as set forth above.
(c) Eligibility for Use of Form S-3. The Company agrees that at such
time as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) Additional Registration Statement. In the event the Current
Market Price declines to $0.80 per share or less (the "Decline Date"), the
Company shall, to the extent required by the Securities Act (because the
additional shares were not covered by the Registration Statement filed pursuant
to Section 2(a)), as reasonably determined by the Initial Investor, file an
additional Registration Statement with the Commission for such additional number
of Registrable Securities as would be issuable upon conversion of the Preferred
Shares and exercise of the Warrants (the "Additional Registrable Securities") in
addition to those previously registered, assuming a Conversion Price of $0.30
per share. The Company shall, to the extent required by the Securities Act, as
reasonably determined by the Initial Investor, prepare and file with the
Commission not later than the 30th day thereafter, a Registration Statement
relating to the offer and sale of such Additional Registrable Securities and
shall use its best efforts to cause the Commission to declare such Registration
Statement effective under the
4
<PAGE>
Securities Act as promptly as practicable but not later than 60 days thereafter.
The Company shall not include any other securities in the Registration Statement
relating to the offer and sale of such Additional Registrable Securities.
If the Additional Registration Statement is not (i) filed with the
Commission within 30 days after the Decline Date or (ii) declared effective by
the Commission within 90 days after the Decline Date (either of which, without
duplication, an "Additional Registration Date"), then the Company shall make the
payments to the Initial Investor at the Liquidated Damage Rate from the
Additional Registration Date to the first Additional Computation Date and for
each Additional Computation Date thereafter, calculated on a pro rata basis to
the date on which the Additional Registration Statement is filed with (in the
event of an Additional Registration Date pursuant to clause (i) above) or
declared effective by (in the event of an Additional Registration Date pursuant
to clause (ii) above) the Commission (the "Additional Periodic Amount")
provided, however, that in no event shall the liquidated damages be less than
$25,000. The full Additional Periodic Amount shall be paid by the Company to
the Initial Investor by wire transfer of immediately available funds within
three days after each Additional Computation Date.
As used in this Section 2(d), "Additional Computation Date" means the
date which is 30 days after the Additional Registration Date and, if the
Additional Registration Statement required to be filed by the Company pursuant
to this Section 2(d) has not theretofore been declared effective by the
Commission, each date which is 30 days after the previous Additional Computation
Date until such Additional Registration Statement is so declared effective.
(e) (i) If the Company proposes to register any of its warrants,
Common Stock or any other shares of common stock of the Company under the
Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other
shares of common stock of the Company issuable upon exercise of employee
share options or in connection with any employee benefit or similar plan of
the Company or (C) in connection with a direct or indirect acquisition by
the Company of another Person or any transaction with respect to which Rule
145 (or any successor provision) under the Securities Act applies), whether
or not for sale for its own account, it will each such time, give prompt
written notice at least 20 days prior to the anticipated filing date of the
registration statement relating to such registration to the Initial
Investor, which notice shall set forth such Initial Investor's rights under
this Section 3(e) and shall offer the Initial Investor the opportunity to
include in such registration statement such number of Registrable
Securities as the Initial Investor may request. Upon the written request of
an Initial Investor made within 10 days after the receipt of notice from
the Company (which request shall specify the number of Registrable
Securities intended to be disposed of by such Initial Investor), the
Company will use its best efforts to effect the registration under the
Securities Act of all Registrable Securities that the Company has been so
requested to register by the Initial Investor, to the extent requisite to
permit the disposition of the Registrable Securities so to be registered;
provided, however, that (A) if such registration involves a Public
Offering, the Initial Investor must sell its Registrable Securities to the
underwriters selected as provided in Section 3(b) hereof on the same terms
and conditions as apply to the
5
<PAGE>
Company and (B) if, at any time after giving written notice of its
intention to register any Registrable Securities pursuant to this Section 3
and prior to the effective date of the registration statement filed in
connection with such registration, the Company shall determine for any
reason not to register such Registrable Securities, the Company shall give
written notice to the Initial Investor and, thereupon, shall be relieved of
its obligation to register any Registrable Securities in connection with
such registration. The Company's obligations under this Section 2(e) shall
terminate on the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e) involves a
Public Offering and the managing underwriter thereof advises the Company
that, in its view, the number of shares of Common Stock, warrants or other
shares of Common Stock that the Company and the Initial Investor intend to
include in such registration exceeds the largest number of shares of Common
Stock or warrants (including any other shares of Common Stock or warrants
of the Company) that can be sold without having an adverse effect on such
Public Offering (the "Maximum Offering Size"), the Company will include in
such registration only that number of shares of Common Stock or warrants,
as applicable, which does not exceed the Maximum Offering Size, with the
difference between the number of shares in the Maximum Offering Size and
the number of shares originally intended for inclusion (including the
Common Stock covered by this Agreement, all shares and warrants originally
intended to be issued and sold by the Company ("Company Shares") and all
shares requested for inclusion by selling shareholders other than the
Initial Investor pursuant to any registration rights agreement now in
effect ("Third-Party Shares")) to be allocated among the Initial Investor,
such other selling shareholders and the Company pro rata on the basis of
the relative number of shares of Common Stock covered by this Agreement,
Third-Party Shares and Company Shares, respectively.
If as a result of the proration provisions of this Section 2(e)(ii),
any Initial Investor is not entitled to include all such Registrable Securities
in such registration, such Initial Investor may elect to withdraw its request to
include any Registrable Securities in such registration. With respect to
registrations pursuant to this Section 2(e), the number of securities required
to satisfy any underwriters' over-allotment option shall be allocated among the
Initial Investor, such other selling shareholders and the Company pro rata on
the basis of the relative number of shares of Common Stock covered by this
Agreement, Third-Party Shares and Company Shares, respectively.
3. Obligations of the Company
In connection with the registration of the Registrable Securities, the
Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the
6
<PAGE>
Prospectus forming part thereof to be current and useable by Investors for
resales of the Registrable Securities for a period of two years from the date on
which the Registration Statement is first declared effective by the Commission
(the "Effective Time") or such shorter period that will terminate when all the
Registrable Securities covered by the Registration Statement have been sold
pursuant thereto in accordance with the plan of distribution provided in the
Prospectus, transferred pursuant to Rule 144 under the Securities Act or
otherwise transferred in a manner that results in the delivery of new securities
not subject to transfer restrictions under the Securities Act (the "Registration
Period") and (ii) take all lawful action such that each of (A) the Registration
Statement and any amendment thereto does not, when it becomes effective, contain
an untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, not misleading
and (B) the Prospectus forming part of the Registration Statement, and any
amendment or supplement thereto, does not at any time during the Registration
Period include an untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. Notwithstanding the foregoing provisions of this Section 3(a), the
Company may, during the Registration Period, suspend the use of the Prospectus
for a period not to exceed 60 days (whether or not consecutive) in any 12-month
period if the Board of Directors of the Company determines in good faith that
because of valid business reasons, including pending mergers or other business
combination transactions, the planned acquisition or divestiture of assets,
pending material corporate developments and similar events, it is in the best
interests of the Company to suspend such use, and prior to or contemporaneously
with suspending such use the Company provides the Investors with written notice
of such suspension, which notice need not specify the nature of the event giving
rise to such suspension. At the end of any such suspension period, the Company
shall provide the Investors with written notice of the termination of such
suspension;
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide draft copies thereof
(including a copy of the accountant's consent letter to be included in the
filing) to the Investors and reflect in such documents all such comments as the
Investors reasonably may propose and (ii) furnish to each Investor whose
Registrable Securities are included in the Registration Statement and its legal
counsel identified to the Company, (A) promptly after the same is prepared and
publicly distributed, filed with the Commission, or received by the Company, one
copy of the Registration Statement, each Prospectus, and each amendment or
supplement thereto, and (B) such number of copies of the Prospectus and all
amendments and supplements thereto and such other documents, as such Investor
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the
7
<PAGE>
Investors who hold a majority-in-interest of the Registrable Securities being
offered reasonably request, (ii) prepare and file in such jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof at all times during the Registration Period, (iii) take
all such other lawful actions as may be necessary to maintain such registrations
and qualifications in effect at all times during the Registration Period, and
(iv) take all such other lawful actions reasonably necessary or advisable to
qualify the Registrable Securities for sale in such jurisdictions; provided,
however, that the Company shall not be required in connection therewith or as a
condition thereto to (A) qualify to do business in any jurisdiction where it
would not otherwise be required to qualify but for this Section 3(d), (B)
subject itself to general taxation in any such jurisdiction or (C) file a
general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an 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, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
for the Registrable Securities to be offered pursuant to the registration
statement and enable such certificates for the Registrable Securities to be in
such denominations or amounts, as the case may be, as the Investors reasonably
may request and registered in such names as the Investor may request; and,
within three business days after a registration statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such registration statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
8
<PAGE>
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(1) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company as confidential, proprietary or containing
any material nonpublic information shall be kept confidential by such Investors
and any such underwriter, attorney, accountant or agent (pursuant to an
appropriate confidentiality agreement in the case of any such holder or agent),
unless such disclosure is made pursuant to judicial process in a court
proceeding (after first giving the Company an opportunity promptly to seek a
protective order or otherwise limit the scope of the information sought to be
disclosed) or is required by law, or such records, information or documents
become available to the public generally or through a third party not in
violation of an accompanying obligation of confidentiality; and provided,
further, that, if the foregoing inspection and information gathering would
otherwise disrupt the Company's conduct of its business, such inspection and
information gathering shall, to the maximum extent possible, be coordinated on
behalf of the Investors and the other parties entitled thereto by one firm of
counsel designed by and on behalf of the majority in interest of Investors and
other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
9
<PAGE>
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the Exchange
Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
10
<PAGE>
4. Obligations of the Investors
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from in Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities
agrees to cooperate with the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Investor has
notified the Company in writing of its election to exclude all of its
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f), it shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(e) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
6. Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Investor and
each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their
11
<PAGE>
respective officers and directors and each person who controls such Investor or
underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (each such person being sometimes hereinafter referred to as
an "Indemnified Person") from and against any losses, claims, damages or
liabilities, joint or several, to which such Indemnified Person may become
subject under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement or an omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein, not misleading, or arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
Prospectus or an omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading; and
the Company hereby agrees to reimburse such Indemnified Person for all
reasonable legal and other expenses incurred by them in connection with
investigating or defending any such action or claim as and when such expenses
are incurred; provided, however, that the Company shall not be liable to any
such Indemnified Person in any such case to the extent that any such loss,
claim, damage or liability arises out of or is based upon (i) an untrue
statement or alleged untrue statement made in, or an omission or alleged
omission from, such Registration Statement or Prospectus in reliance upon and in
conformity with written information furnished to the Company by such Indemnified
Person expressly for use therein or (ii) in the case of the occurrence of an
event of the type specified in Section 3(e), the use by the Indemnified Person
of an outdated or defective Prospectus after the Company has provided to such
Indemnified Person written notice that such Prospectus is outdated or defective.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers and each person,
if any, who controls the Company within the meaning of either Section 15 of the
Securities Act or Section 20 of the Exchange Act, against any losses, claims,
damages or liabilities to which the Company or such other persons may become
subject, under the Securities Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon an untrue statement or alleged untrue statement of a material fact
contained in such Registration Statement or Prospectus or arise out of or are
based upon the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein (in
light of the circumstances under which they were made, in the case of the
Prospectus), not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or alleged
omission was made in reliance upon and in conformity with written information
furnished to the Company by such holder or underwriter expressly for use
therein; provided, however, that no Investor or underwriter shall be liable
under this Section 6(b) for any amount in excess of the net proceeds paid to
such Investor or underwriter in respect of shares sold by it, and (ii) reimburse
the Company for any legal or other expenses incurred by the Company in
connection with investigating or defending any such action or claim as such
expenses are incurred.
12
<PAGE>
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (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 6 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,
costs and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If
the Indemnified Party employs separate legal counsel in circumstances other than
as described in 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 counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying 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 Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section
6 is unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and
13
<PAGE>
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 6(d) were determined by pro rata allocation (even if the Investors or
any underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in this Section 6(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be several in
proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.
(e) Notwithstanding any other provision of this Section 6, in no
event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144
With a view to making available to the Investors the benefits of Rule
144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Investor, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
14
<PAGE>
8. Assignment
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such Registrable Securities
(or all or any portion of the Preferred Shares or Warrants of the Company which
is convertible into such securities) only if: (a) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.
9. Amendment and Waiver
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority-in-interest of the Registrable Securities.
Any amendment or waiver effected in accordance with this Section 9 shall be
binding upon each Investor and the Company.
10. Miscellaneous
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring
the Registration Statement to be filed pursuant to Section 2(a) effective under
the Securities Act, the Company grants to any Person any registration rights
with respect to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company forthwith shall
grant (by means of an amendment to this Agreement or otherwise) identical
registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
15
<PAGE>
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
Attention: H. Douglas Saathoff
with a copy to:
Alice L. King, Esq.
Corporate Counsel
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
(ii) if to the Initial Investor, 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)
(iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal
16
<PAGE>
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.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for such rights and conflicts as have been
irrevocably waived. Without limiting the generality of the foregoing, without
the written consent of the holders of a majority in interest of the Registrable
Securities, the Company shall not grant to any person the right to request it to
register any of its securities under the Securities Act unless the rights so
granted are subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement. The restrictions on the
Company's rights to grant registration rights under this paragraph shall
terminate on the date the Registration Statement to be filed pursuant to Section
2(a) is declared effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of a date even herewith (the "Escrow Instructions"),
between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, the Preferred Shares and the Warrants supersede all prior
agreements and undertakings among the parties hereto with respect to the subject
matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
17
<PAGE>
(k) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(1) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3, or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
18
<PAGE>
In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
American TeleSource International, Inc.
By: /s/H. Douglas Saathoff
------------------------
Name: H. Douglas Saathoff
Title: CFO
The Shaar Fund Ltd.
By: /s/Samuel Levinson
---------------------
Name: Samuel Levinson
Title: Managing Director
19
<PAGE>
EXHIBIT 10.37
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE UNDERLYING SHARES WHICH MAY
BE ACQUIRED UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT
WITH A VIEW TO DISTRIBUTION THEREOFInformation SystemsFinancial Printing
GroupTHE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE UNDERLYING SHARES
WHICH MAY BE ACQUIRED UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT
ONLY AND NOT WITH A VIEW TO DISTRIBUTION THEREOF. THE SECURITIES EVIDENCED BY
THIS CERTIFICATE HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS
OF ANY JURISDICTION. THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE
UNDERLYING SHARES WHICH MAY BE ACQUIRED UPON EXERCISE MAY NOT BE SOLD OR OFFERED
FOR SALE UNLESS AN APPROPRIATE REGISTRATION STATEMENT UNDER APPLICABLE
SECURITIES LAWS IS THEN IN EFFECT WITH RESPECT THERETO, OR UNLESS AN OPINION OF
COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER IS PROVIDED THAT
REGISTRATION IS NOT REQUIRED UNDER SUCH LAWS.
Warrant to Purchase
Date: November 6, 1998 40,000
Shares of Common Stock,
as herein described
No. W-1
American TeleSource International Inc.
--------------------------------
Common Stock Purchase Warrant
--------------------------------
ARTICLE 1. General Provisions.
-------------------
Section 1.01. This certifies that
Gary Wright
(herein called the Holder)
is entitled to purchase, at any time on or after the date set forth on the cover
page hereto (the "Effective Date") and on or before November 6, 1999 (the
"Expiration Date"), that number of fully paid and nonassessable shares of Common
Stock, without par value, of American TeleSource International, Inc., a Delaware
corporation (the "Company"), set forth on the cover page hereto, at the exercise
price of One Dollar and Six Cents (U.S. $1.06) per share subject to adjustment
as hereinafter provided.
1
<PAGE>
ARTICLE 2. Duration and Exercise of Warrants.
---------------------------------
Section 2.01. Duration of Warrants. Subject to the other provisions
--------------------
hereof, this Warrant may be exercised at any time on or after the Effective Date
and prior to the close of business on the Expiration Date.
Section 2.02. Terms of Exercise. This Warrant shall entitle the holder
-----------------
hereof to purchase the number of shares of Common Stock set forth in Article 1,
subject to adjustment as herein provided (the "Warrant Shares"), upon payment of
the amount per share, subject to adjustment as herein provided (the "Exercise
Price").
Section 2.03. Exercise of Warrant.
-------------------
(a) This Warrant may be exercised in whole or in part by
surrendering it, together with a subscription in the form attached hereto duly
executed, accompanied by a certified or official bank check (or such other form
of payment as the Company may accept) in payment of the Exercise Price. No
fractional shares are issuable upon exercise of this Warrant. Warrants may be
surrendered at the Company's corporate offices at the address indicated herein,
or as such corporate office may be relocated from time to time.
(b) This Warrant shall be exercisable during the period provided
in Section 2.01 at any time in whole or from time to time in part. Promptly
------------
after the Warrant has been so exercised, the Company shall issue and deliver or
cause to be delivered to, or upon the order of, the holder of the Warrant, in
such name or names as may be directed by such holder, a certificate or
certificates for the number of full Warrant Shares to which such holder is
entitled and, if this Warrant shall not have been exercised in full, a new
Warrant for the number of shares of Common Stock as to which this Warrant shall
not have been exercised. This Warrant, when so surrendered, shall be cancelled
by or on behalf of the Company.
Section 2.04. Common Stock Issued Upon Exercise of Warrant.
--------------------------------------------
(a) All Warrant Shares shall be duly authorized, validly issued,
fully paid and nonassessable. The Company shall pay all documentary stamp taxes
attributable to the initial issuance of Warrant Shares. The Company shall not be
required, however, to pay any tax imposed in connection with any transfer
involved in the issue of the Warrant Shares in a name other than that of the
holder of this Warrant upon exercise. In such case, the Company shall not be
required to issue any certificate for Warrant Shares until the person or persons
requesting the same shall have paid to the Company the amount of any such tax or
shall have established to the Company's satisfaction that the tax has been paid
or that no tax is due.
(b) Irrespective of the date of issue of certificates for any
Warrant Shares acquired upon exercise of this Warrant, each person in whose name
any certificate is issued shall be deemed to have become the holder of record of
the Warrant Shares represented thereby on the date on which this Warrant was
exercised and payment of the Exercise Price was tendered as provided in
Section 2.03 with respect to such Warrant Shares. Prior to such date, the Holder
- ------------
shall have no rights as a Stockholder with respect to unissued Warrant Shares.
2
<PAGE>
ARTICLE 3. Anti-Dilution Provisions.
------------------------
Section 3.01. Adjustment of Exercise Price and Number of Warrant Shares.
---------------------------------------------------------
The Exercise Price shall be subject to adjustment from time to time as provided
in this Article 3. Upon each adjustment of the Exercise Price, the holder of
this Warrant shall be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares, calculated to the nearest full
share, obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares purchasable pursuant to the
provisions of this Warrant immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
Section 3.02. Stock Dividends. If the Company shall declare a dividend or
---------------
any other distribution upon any capital stock which is payable in shares of
Common Stock, the Exercise Price shall be reduced to the quotient obtained by
dividing (i) the number of shares of Common Stock outstanding immediately prior
to such declaration multiplied by the then effective Exercise Price by (ii) the
total number of shares of Common Stock outstanding immediately after such
declaration. All shares of Common Stock and all convertible securities issuable
in payment of any dividend or other distribution upon the capital stock of the
Company shall be deemed to have been issued or sold without consideration.
Section 3.03. Stock Splits and Reverse Stock Splits. If the Company shall
-------------------------------------
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price shall be proportionately reduced and the number of
Warrant Shares issuable upon exercise of this Warrant shall be proportionately
increased. If the Company shall combine the outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price shall be proportionately
increased and the number of Warrant Shares issuable upon exercise of this
Warrant shall be proportionately decreased.
Section 3.04. Reorganizations. If any capital reorganization or
---------------
reclassification of the Company, or any consolidation or merger of the Company
with another corporation, shall be effected in such a way that the holders of
the Common Stock shall be entitled to receive securities or assets with respect
to or in exchange for shares of Common Stock, adequate provision shall be made,
prior to and as a condition of such reorganization, reclassification,
consolidation or merger whereby the holder of this Warrant shall have the right
to receive, upon the terms and conditions specified herein and in lieu of the
Warrant Shares otherwise receivable upon the exercise of this Warrant, such
securities or assets as may be issued or payable with respect to or in exchange
for the number of outstanding shares of Common Stock equal to the number of
Warrant Shares otherwise receivable had such reorganization, reclassification,
consolidation or merger not taken place. In any such case appropriate provision
shall be made with respect to the rights and interests of such holder so that
the provisions of this Warrant shall be applicable with respect to any
securities or assets thereafter deliverable upon exercise of this Warrant.
Section 3.05. Form of Warrant. This Warrant need not be changed because
---------------
of any adjustment to the Exercise Price or any change in the amount or nature of
securities issuable or deliverable pursuant to this Article 3. The Company may,
however, in its discretion, at any time change the form of Warrants to reflect
any such change in the amount or nature of securities
3
<PAGE>
issuable or deliverable upon exercise, provided such change in form does not
otherwise affect the substance thereof.
ARTICLE 4. Other Provisions for Protection of Warrantholders.
-------------------------------------------------
Section 4.01. Reservation of Shares. The Company shall at all times
---------------------
reserve and keep available such number of shares of its authorized but unissued
Common Stock as shall from time to time be sufficient to permit the exercise of
all outstanding Warrants. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient for such purpose, the Company
will take such action as, in the opinion of its counsel, may be necessary to
increase its authorized but unissued Common Stock to such number of shares as
shall be sufficient for such purpose.
Section 4.02. Lost and Misplaced Warrant Certificates. If any Warrant
---------------------------------------
becomes lost, stolen, mutilated or destroyed, the Company will, on such terms as
to indemnity or otherwise as it may in its discretion impose, issue a new
Warrant of like denomination, tenor and date as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall at any time be enforceable by
anyone.
ARTICLE 5. Transfer and Ownership of Warrants.
----------------------------------
Section 5.01. Transferability and Nonnegotiability of Warrant. This
-----------------------------------------------
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement (by
the Holder executing the Assignment annexed hereto) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
Section 5.02. Exchange of Warrants. At any time after the issuance and
--------------------
prior to expiration, this Warrant may be surrendered at the corporate offices of
the Company for exchange and, upon cancellation hereof, one or more new Warrants
shall be issued as requested by the holder for the same aggregate number of
shares.
Section 5.03. Compliance with Securities Laws. The Holder of this
-------------------------------
Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of
Common Stock to be issued upon exercise hereof are being acquired solely for the
Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon exercise hereof
except under circumstances that will not result in a violation of the Act or any
state securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, confirm in writing, in form satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale. All shares of
4
<PAGE>
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend substantially similar form to the legend appearing at the top of this
Warrant.
ARTICLE 6. Miscellaneous Provisions.
------------------------
Section 6.01. Applicable Law. This Warrant and the provisions contained
--------------
herein shall be governed by and construed in accordance with the laws of the
jurisdiction of incorporation of the Company.
Section 6.02. Notices. Any notice pursuant to this Agreement to be given
-------
to the Company shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until Warrant holders of record are advised in writing of
any other address) as follows:
American TeleSource International Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
IN WITNESS WHEREOF, this Warrant has been executed on behalf of the Company
as of the date first written above.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /s/Arthur L. Smith
---------------------------------------------
Name: Arthur L. Smith
Title: Chairman and CEO
5
<PAGE>
ADDITIONAL SIGNATURE PAGE TO COMMON STOCK
PURCHASE WARRANT OF AMERICAN TELESOURCE
INTERNATIONAL, INC.
IN WITNESS WHEREOF, this Warrant has been executed on behalf of the Holder
on 1-3, 1999.
Individual: /s/Gary Wright
---------------------------------------------
(Signature of Holder)
Gary Wright
---------------------------------------------
(Printed Name of Holder)
Corporation or Other Entity: ---------------------------------------------
By:
---------------------------------------------
Printed Name:
--------------------------------
Title:
---------------------------------------
6
<PAGE>
ASSIGNMENT
(to be executed by the registered holder to effect a transfer of the within
Warrant, subject to the restrictions on assignment set forth in the Warrant).
FOR VALUE RECEIVED, the undersigned registered holder hereby sells, assigns
and transfers unto
------------------------------------------------------------------------
(Name)
------------------------------------------------------------------------
(Address)
------------------------------------------------------------------------
the right to purchase the Common Stock evidenced by the within Warrant, and does
irrevocably constitute and appoint to transfer
------------- -------------------
the said right on the books of the Company, with full power of substitution.
Dated: , 19
------------------------ ---
SIGNATURE
--------------------------------------------------------------
- -----------------------------------------------------------------------------
NOTICE: The signature to this Assignment must correspond with the
name as written upon the face of the within Warrant, in every particular,
without alteration or change whatsoever, and must be guaranteed by a bank or
trust company, or by a firm having membership on a registered national
securities exchange.
7
<PAGE>
(SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned, registered holder or assignee of such registered holder of
the within Warrant, hereby (1) subscribes for shares of Common Stock which
-----
the undersigned is entitled to purchase under the terms of the within Warrant,
(2) makes the full cash payment therefor called for by the within Warrant, and
(3) directs that the Common Stock issuable upon exercise of said Warrant be
issued as described hereunder.
---------------------------------------------
(Name)
---------------------------------------------
(Address)
---------------------------------------------
(Signature)
Dated:
------------------------
----------------------------------------------------------------------------
NOTICE: The signature to this Assignment must correspond with the
name as written upon the face of the within Warrant, in every particular,
without alteration or change whatsoever, and must be guaranteed by a bank or
trust company, or by a firm having membership on a registered national
securities exchange.
8
<PAGE>
Exhibit 10.38
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE UNDERLYING SHARES
WHICH MAY BE ACQUIRED UPON EXERCISE HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT
ONLY AND NOT WITH A VIEW TO DISTRIBUTION THEREOF. THE WARRANTS REPRESENTED BY
THIS CERTIFICATE AND THE UNDERLYING SHARES WHICH MAY BE ACQUIRED UPON EXERCISE
HEREOF HAVE BEEN ACQUIRED FOR INVESTMENT ONLY AND NOT WITH A VIEW TO
DISTRIBUTION THEREOF. THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED OR QUALIFIED UNDER THE SECURITIES LAWS OF ANY JURISDICTION. THE
WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE UNDERLYING SHARES WHICH MAY BE
ACQUIRED UPON EXERCISE MAY NOT BE SOLD OR OFFERED FOR SALE UNLESS AN APPROPRIATE
REGISTRATION STATEMENT UNDER APPLICABLE SECURITIES LAWS IS THEN IN EFFECT WITH
RESPECT THERETO, OR UNLESS AN OPINION OF COUNSEL IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER IS PROVIDED THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH LAWS.
Warrant to Purchase
Date: November 6, 1998 40,000
Shares of Common Stock,
as herein described
No. W-1
American TeleSource International Inc.
--------------------------------
Common Stock Purchase Warrant
--------------------------------
ARTICLE 1. General Provisions.
Section 1.01. This certifies that
Rocky Dazzo
(herein called the Holder)
is entitled to purchase, at any time on or after the date set forth on the cover
page hereto (the "Effective Date") and on or before November 6, 1999 (the
"Expiration Date"), that number of fully paid and nonassessable shares of Common
Stock, without par value, of American TeleSource International, Inc., a Delaware
corporation (the "Company"), set forth on the cover page hereto, at the exercise
price of One Dollar and Six Cents (U.S. $1.06) per share subject to adjustment
as hereinafter provided.
1
<PAGE>
ARTICLE 2. Duration and Exercise of Warrants.
Section 2.01. Duration of Warrants. Subject to the other provisions
hereof, this Warrant may be exercised at any time on or after the Effective Date
and prior to the close of business on the Expiration Date.
Section 2.02. Terms of Exercise. This Warrant shall entitle the holder
hereof to purchase the number of shares of Common Stock set forth in Article 1,
subject to adjustment as herein provided (the "Warrant Shares"), upon payment of
the amount per share, subject to adjustment as herein provided (the "Exercise
Price").
Section 2.03. Exercise of Warrant.
(a) This Warrant may be exercised in whole or in part by
surrendering it, together with a subscription in the form attached hereto duly
executed, accompanied by a certified or official bank check (or such other form
of payment as the Company may accept) in payment of the Exercise Price. No
fractional shares are issuable upon exercise of this Warrant. Warrants may be
surrendered at the Company's corporate offices at the address indicated herein,
or as such corporate office may be relocated from time to time.
(b) This Warrant shall be exercisable during the period
provided in Section 2.01 at any time in whole or from time to time in part.
Promptly after the Warrant has been so exercised, the Company shall issue and
deliver or cause to be delivered to, or upon the order of, the holder of the
Warrant, in such name or names as may be directed by such holder, a certificate
or certificates for the number of full Warrant Shares to which such holder is
entitled and, if this Warrant shall not have been exercised in full, a new
Warrant for the number of shares of Common Stock as to which this Warrant shall
not have been exercised. This Warrant, when so surrendered, shall be cancelled
by or on behalf of the Company.
Section 2.04. Common Stock Issued Upon Exercise of Warrant.
(a) All Warrant Shares shall be duly authorized, validly
issued, fully paid and nonassessable. The Company shall pay all documentary
stamp taxes attributable to the initial issuance of Warrant Shares. The Company
shall not be required, however, to pay any tax imposed in connection with any
transfer involved in the issue of the Warrant Shares in a name other than that
of the holder of this Warrant upon exercise. In such case, the Company shall not
be required to issue any certificate for Warrant Shares until the person or
persons requesting the same shall have paid to the Company the amount of any
such tax or shall have established to the Company's satisfaction that the tax
has been paid or that no tax is due.
(b) Irrespective of the date of issue of certificates for any
Warrant Shares acquired upon exercise of this Warrant, each person in whose name
any certificate is issued shall be deemed to have become the holder of record of
the Warrant Shares represented thereby on the date on which this Warrant was
exercised and payment of the Exercise Price was tendered as provided in Section
2.03 with respect to such Warrant Shares. Prior to such date, the Holder shall
have no rights as a Stockholder with respect to unissued Warrant Shares.
2
<PAGE>
ARTICLE 3. Anti-Dilution Provisions.
Section 3.01. Adjustment of Exercise Price and Number of Warrant Shares.
The Exercise Price shall be subject to adjustment from time to time as provided
in this Article 3. Upon each adjustment of the Exercise Price, the holder of
this Warrant shall be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares, calculated to the nearest full
share, obtained by multiplying the Exercise Price in effect immediately prior to
such adjustment by the number of Warrant Shares purchasable pursuant to the
provisions of this Warrant immediately prior to such adjustment and dividing the
product thereof by the Exercise Price resulting from such adjustment.
Section 3.02. Stock Dividends. If the Company shall declare a dividend or
any other distribution upon any capital stock which is payable in shares of
Common Stock, the Exercise Price shall be reduced to the quotient obtained by
dividing (i) the number of shares of Common Stock outstanding immediately prior
to such declaration multiplied by the then effective Exercise Price by (ii) the
total number of shares of Common Stock outstanding immediately after such
declaration. All shares of Common Stock and all convertible securities issuable
in payment of any dividend or other distribution upon the capital stock of the
Company shall be deemed to have been issued or sold without consideration.
Section 3.03. Stock Splits and Reverse Stock Splits. If the Company shall
subdivide its outstanding shares of Common Stock into a greater number of
shares, the Exercise Price shall be proportionately reduced and the number of
Warrant Shares issuable upon exercise of this Warrant shall be proportionately
increased. If the Company shall combine the outstanding shares of Common Stock
into a smaller number of shares, the Exercise Price shall be proportionately
increased and the number of Warrant Shares issuable upon exercise of this
Warrant shall be proportionately decreased.
Section 3.04. Reorganizations. If any capital reorganization or
reclassification of the Company, or any consolidation or merger of the Company
with another corporation, shall be effected in such a way that the holders of
the Common Stock shall be entitled to receive securities or assets with respect
to or in exchange for shares of Common Stock, adequate provision shall be made,
prior to and as a condition of such reorganization, reclassification,
consolidation or merger whereby the holder of this Warrant shall have the right
to receive, upon the terms and conditions specified herein and in lieu of the
Warrant Shares otherwise receivable upon the exercise of this Warrant, such
securities or assets as may be issued or payable with respect to or in exchange
for the number of outstanding shares of Common Stock equal to the number of
Warrant Shares otherwise receivable had such reorganization, reclassification,
consolidation or merger not taken place. In any such case appropriate provision
shall be made with respect to the rights and interests of such holder so that
the provisions of this Warrant shall be applicable with respect to any
securities or assets thereafter deliverable upon exercise of this Warrant.
Section 3.05. Form of Warrant. This Warrant need not be changed because
of any adjustment to the Exercise Price or any change in the amount or nature of
securities issuable or deliverable pursuant to this Article 3. The Company may,
however, in its discretion, at any time change the form of Warrants to reflect
any such change in the amount or nature of securities
3
<PAGE>
issuable or deliverable upon exercise, provided such change in form does not
otherwise affect the substance thereof.
ARTICLE 4. Other Provisions for Protection of Warrantholders.
Section 4.01. Reservation of Shares. The Company shall at all times
reserve and keep available such number of shares of its authorized but unissued
Common Stock as shall from time to time be sufficient to permit the exercise of
all outstanding Warrants. If at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient for such purpose, the Company
will take such action as, in the opinion of its counsel, may be necessary to
increase its authorized but unissued Common Stock to such number of shares as
shall be sufficient for such purpose.
Section 4.02. Lost and Misplaced Warrant Certificates. If any Warrant
becomes lost, stolen, mutilated or destroyed, the Company will, on such terms as
to indemnity or otherwise as it may in its discretion impose, issue a new
Warrant of like denomination, tenor and date as the Warrant so lost, stolen,
mutilated or destroyed. Any such new Warrant shall constitute an original
contractual obligation of the Company, whether or not the allegedly lost,
stolen, mutilated or destroyed Warrant shall at any time be enforceable by
anyone.
ARTICLE 5. Transfer and Ownership of Warrants.
Section 5.01. Transferability and Nonnegotiability of Warrant. This
Warrant may not be transferred or assigned in whole or in part without
compliance with all applicable federal and state securities laws by the
transferor and the transferee (including the delivery of investment
representation letters and legal opinions reasonably satisfactory to the
Company, if such are requested by the Company). Subject to the provisions of
this Warrant with respect to compliance with the Securities Act of 1933, as
amended (the "Act"), title to this Warrant may be transferred by endorsement (by
the Holder executing the Assignment annexed hereto) and delivery in the same
manner as a negotiable instrument transferable by endorsement and delivery.
Section 5.02. Exchange of Warrants. At any time after the issuance and
prior to expiration, this Warrant may be surrendered at the corporate offices of
the Company for exchange and, upon cancellation hereof, one or more new Warrants
shall be issued as requested by the holder for the same aggregate number of
shares.
Section 5.03. Compliance with Securities Laws. The Holder of this
Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of
Common Stock to be issued upon exercise hereof are being acquired solely for the
Holder's own account and not as a nominee for any other party, and for
investment, and that the Holder will not offer, sell or otherwise dispose of
this Warrant or any shares of Common Stock to be issued upon exercise hereof
except under circumstances that will not result in a violation of the Act or any
state securities laws. Upon exercise of this Warrant, the Holder shall, if
requested by the Company, confirm in writing, in form satisfactory to the
Company, that the shares of Common Stock so purchased are being acquired solely
for the Holder's own account and not as a nominee for any other party, for
investment, and not with a view toward distribution or resale. All shares of
4
<PAGE>
Common Stock issued upon exercise hereof shall be stamped or imprinted with a
legend substantially similar form to the legend appearing at the top of this
Warrant.
ARTICLE 6. Miscellaneous Provisions.
Section 6.01. Applicable Law. This Warrant and the provisions contained
herein shall be governed by and construed in accordance with the laws of the
jurisdiction of incorporation of the Company.
Section 6.02. Notices. Any notice pursuant to this Agreement to be given
to the Company shall be sufficiently given if sent by first-class mail, postage
prepaid, addressed (until Warrant holders of record are advised in writing of
any other address) as follows:
American TeleSource International Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
IN WITNESS WHEREOF, this Warrant has been executed on behalf of the Company
as of the date first written above.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /s/ Arthur L. Smith
------------------------------------------
Name: Arthur L. Smith
Title: Chairman and CEO
5
<PAGE>
ADDITIONAL SIGNATURE PAGE TO COMMON STOCK
PURCHASE WARRANT OF AMERICAN TELESOURCE
INTERNATIONAL, INC.
IN WITNESS WHEREOF, this Warrant has been executed on behalf of the Holder
on _______________, 19___.
Individual: /s/ Rocky Dazzo
-------------------------------------
(Signature of Holder)
Rocky Dazzo
------------------------------------
(Printed Name of Holder)
Corporation or Other Entity:
------------------------------------
By:
---------------------------------
Printed Name:
-----------------------
Title:
------------------------------
6
<PAGE>
ASSIGNMENT
(to be executed by the registered holder to effect a transfer of the within
Warrant, subject to the restrictions on assignment set forth in the Warrant).
FOR VALUE RECEIVED, the undersigned registered holder hereby sells, assigns
and transfers unto
-------------------------------------------------------------------
(Name)
-------------------------------------------------------------------
(Address)
-------------------------------------------------------------------
the right to purchase the Common Stock evidenced by the within Warrant, and does
irrevocably constitute and appoint _____________ ___________________ to transfer
the said right on the books of the Company, with full power of substitution.
Dated: ________________________, 19___
SIGNATURE
-----------------------------------------------------------
- -------------------------------------------------------------------------
NOTICE: The signature to this Assignment must correspond with the
name as written upon the face of the within Warrant, in every particular,
without alteration or change whatsoever, and must be guaranteed by a bank or
trust company, or by a firm having membership on a registered national
securities exchange.
7
<PAGE>
(SUBSCRIPTION FORM TO BE EXECUTED UPON EXERCISE OF WARRANT)
The undersigned, registered holder or assignee of such registered holder of
the within Warrant, hereby (1) subscribes for _____ shares of Common Stock which
the undersigned is entitled to purchase under the terms of the within Warrant,
(2) makes the full cash payment therefor called for by the within Warrant, and
(3) directs that the Common Stock issuable upon exercise of said Warrant be
issued as described hereunder.
-------------------------------------------------
(Name)
-------------------------------------------------
(Address)
-------------------------------------------------
(Signature)
Dated:
--------------------------
- -------------------------------------------------------------------------
NOTICE: The signature to this Assignment must correspond with the
name as written upon the face of the within Warrant, in every particular,
without alteration or change whatsoever, and must be guaranteed by a bank or
trust company, or by a firm having membership on a registered national
securities exchange.
8
<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated October 2, 1998
included in American Telesource International, Inc.'s Form 10-K for the year
ended July 31, 1998 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
July 30, 1999
