<PAGE>
As filed with the Securities and Exchange Commission on April 14, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1
TO
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN TELESOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
74-2849955
(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. [_]
<PAGE>
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
Maximum Proposed
Title of Amount Offering Maximum Amount of
Securities To be Price Aggregate Registration
To be Registered Registered Per Share Offering Price Fee
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common stock issued upon conversion of
preferred stock (1) 484,872 $0.76 $ 748,326 $ 208.03
- -------------------------------------------------------------------------------------------------------
Common stock issued in payment of
dividends on preferred stock (1) 7,436 $0.76 $ 89,799 $ 24.96
- -------------------------------------------------------------------------------------------------------
Common stock issuable upon conversion
of convertible preferred stock (2) 1,200,000 $6.06 $7,275,000 $1,920.60
- -------------------------------------------------------------------------------------------------------
Common Stock to be paid as dividend on
convertible preferred (2) 144,000 $6.06 $ 873,000 $ 230.47
- -------------------------------------------------------------------------------------------------------
Common stock issuable upon exercise of
warrants granted as placement fee (1) 50,000 $0.76 $ 38,000 $ 10.56
- -------------------------------------------------------------------------------------------------------
Common stock issued as placement fee (1) 19,693 $0.76 $ 14,967 $ 4.16
- -------------------------------------------------------------------------------------------------------
Common Stock issuable upon exercise of
warrants (2) 3,200,000 $6.06 $1,940,000 $ 512.16
=======================================================================================================
</TABLE>
(1) Calculated pursuant to Rule 457 (c), using the average of the high and low
prices reported on October 18, 1999, solely for the purpose of calculating
the Registration Fee; fee calculated and paid upon filing of original
Registration Statement on Form S-3 filed on October 26, 1999 pursuant to
Rule 457(c).
(2) Calculated pursuant to Rule 457 (c), using the average of the high and low
prices reported on April 10, 2000, 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>
PROSPECTUS NOT COMPLETE
[Not Yet Issued]
2,226,001 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 8.
The selling shareholders identified on page 24 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 25. 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 American Stock Exchange under the symbol
"AI". On April 10, 2000, the closing price of our common stock was $6.0625 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.
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
RELY ONLY ON THIS PROSPECTUS............................ 1
THE COMPANY............................................. 1
RISK FACTORS............................................ 8
FORWARD LOOKING STATEMENTS.............................. 19
USE OF PROCEEDS......................................... 19
COMMON STOCK ISSUED..................................... 19
SELLING SHAREHOLDERS.................................... 24
PLAN OF DISTRIBUTION.................................... 25
LEGAL MATTERS........................................... 27
EXPERTS................................................. 27
WHERE YOU CAN FIND MORE INFORMATION..................... 27
</TABLE>
ii
<PAGE>
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., or ATSI, 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 also own a subsidiary, GlobalSCAPE, Inc. which sells its proprietary
Internet productivity software, CuteFTP(R), CuteHTML(R) CuteZIP(TM), CuteMAP
(TM) and CuteMX(TM).
We have had operating losses for almost every quarter since we began
operations in 1994. Our auditors' opinion on our financial statements as of
July 31, 1999 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. We have experienced difficulty in paying our vendors and
lenders on time in the past, and may experience difficulty in the future. If we
are unable to pay our vendors and lenders on time, they may stop providing
critical services or repossess critical equipment that we need to stay in
business. We do not know when we will achieve profitability, so to stay in
business we will almost certainly have to borrow money or sell additional stock
in our company. We do not know if we will be able to borrow money or sell
additional stock on terms we find acceptable.
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 services
that will function regardless of the user's location north or south of the
U.S./Mexico border, such as
1
<PAGE>
enhanced prepaid calling services. Our marketing term for these types of
services is "borderless."
We have applied for a long distance license from the Mexican government which,
if obtained, could permit us to reduce our costs and expand our network in
Mexico. We are also in negotiations to acquire a Mexican company which holds a
long distance license, and we have obtained preliminary regulatory approval from
the Mexican government to acquire this Company. Currently we must rely on
Mexican-licensed long distance carriers to transport our traffic between our
facilities in Mexico and the local telephone company in Mexico. If we obtain
this license and are able to connect directly to 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.
Our capital stock
As of April 10, 2000 we have 64,646,831 shares of common stock outstanding, of
which 58,056,460 are registered with the SEC. Of the 6,590,371 outstanding
shares that are not registered, 375,174 have been held for more than one year,
making them eligible for resale in a "brokers transactions" as defined in SEC
Rule 144. 492,308 shares are included in the registration statement of which
this prospectus is a part, and we have agreed to register an additional
2,632,929 shares, with the initial registration statement to be filed no later
than April 30, 2000.
We have included 19,693 shares of common stock in this prospectus that have
not yet been issued, but will be issued upon effectiveness of the registration
statement.
In addition to our common stock, we currently have two series of preferred
stock outstanding. The series of preferred stock were issued in private
placements and are not freely tradable, but are convertible into shares of
common stock. We also have warrants outstanding for the purchase of common
stock. In addition to the 1,420,000 shares of common stock that may be issued
upon conversion of preferred stock and exercise of warrants that included in the
registration statement of which this prospectus is a part, we have agreed to
register an additional 506,330 shares of common stock that may be issued upon
conversion of the series A preferred stock issued on February 4, 2000, with the
registration statement to be filed no later than April 30, 2000.
The following table shows the potential dilution of our common stock. The
conversion price for the preferred stock floats with the market, so we do not
know exactly how many shares of common stock will be issued upon conversion of
the preferred stock. We have assumed the conversion prices shown on the table,
but the actual number of shares of common stock that may be issued may be
materially higher or lower. See the table on page 5, "Preferred Stock" for more
information on the terms of the preferred stock, including the conversion price
and adjustments to the conversion price.
2
<PAGE>
Potential Dilution Chart
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
Name of Security Amount Term Conversion or Exercise Registration Resulting Number of
Price Status of Shares of Common
Underlying
Common Stock
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Series A Preferred - March 1,141 mandatory 1141 divided by $6.11 Unregistered 18,674
conversion on times 100 (until March
February 28, 25, 2001)
2005
- ---------------------------------------------------------------------------------------------------------------------------------
Warrant 1 expires March $3.09 per share common Unregistered 40,000
9, 2002 stock
- ---------------------------------------------------------------------------------------------------------------------------------
Series A Preferred - 13,116 mandatory 13,116 divided by $.7078 Unregistered 1,810,681, assuming
April 23, 1999 conversion on times 100 (until April conversion at 141.283
February 28, 23, 2000) (plus Venbanc)
2005
- ---------------------------------------------------------------------------------------------------------------------------------
Warrant 1 expires July 2, $ 1.25 to be registered, 50,000
2004 included in
registration
statement filed
with SEC in
October, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Warrant 1 expires $ 1.19 to be registered, 20,000
September 24, included in
2004 registration
statement filed
with SEC in
October, 1999
- ---------------------------------------------------------------------------------------------------------------------------------
Series A Preferred - 4,370 mandatory 4370 divided by $.8969 unregistered 487,233
December 3, 1999 conversion on times 100 (until
February 28, December 3, 2000)
2005
- ---------------------------------------------------------------------------------------------------------------------------------
Series A Preferred - 10,000 mandatory 10,000 divided by $.9430 unregistered 1,060,445
December 8, 1999 conversion on times 100 (until
February 28, December 8, 2000)
2005
- ---------------------------------------------------------------------------------------------------------------------------------
Warrant 1 exercisable $.9430 unregistered 106,045
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
- ---------------------------------------------------
Name of Security % of Total
Current
Outstanding on a
Fully-Diluted
Basis Assuming
Full Conversion
- ---------------------------------------------------
<S> <C>
Series A Preferred - March Less than 1%
- ---------------------------------------------------
Warrant Less than 1%
- ---------------------------------------------------
Series A Preferred - 2.5%
April 23, 1999
- ---------------------------------------------------
Warrant Less than 1%
- ---------------------------------------------------
Warrant Less than 1%
- ---------------------------------------------------
Series A Preferred - Less than 1%
December 3, 1999
- ---------------------------------------------------
Series A Preferred - 1.48%
December 8, 1999
- ---------------------------------------------------
Warrant Less than 1%
- ---------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------------
after December
8, 2000; expires
December 8,
2004
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Series A Preferred - 10,000 mandatory 10,000 divided by $1.975 to be registered, 506,329 Less than 1%
February 4, 2000 conversion on times 100 (until initial filing
February 28, February 2, 2001) April 30, 2000
2005
- ------------------------------------------------------------------------------------------------------------------------------------
Series D Preferred 3,000 mandatory lesser of $5.4375 or 83% to be registered, 551,724 assuming Less than 1%
conversion on of the average of the 5 included in conversion price
February 22, lowest closing bid amendment to of $5.4375
2002 prices of the common registration
stock during the 10 statement filed
trading days preceding with SEC in
conversion, times 1000 October, 1999
per share
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants 2 expires $ 4.37 to be registered 150,000 Less than 1%
February 22,
2004
- ------------------------------------------------------------------------------------------------------------------------------------
Series D Redemption 1 expires five $ 4.37 to be registered 150,000 Less than 1%
Warrant years from
(may be issued if ATSI date of
redeems) issuance
- ------------------------------------------------------------------------------------------------------------------------------------
Common stock 19,693 n/a n/a to be registered 19,693 Less than 1%
- ------------------------------------------------------------------------------------------------------------------------------------
Warrants 2 Expire March 31, $ 7.17 Piggyback 175,000 Less than 1%
2003 registration
rights
- ------------------------------------------------------------------------------------------------------------------------------------
Vested options under earlier of 10 n/a registered 283,500 Less than 1%
stock option plans years from date
of grant or four
months from
termination of
employment
- ------------------------------------------------------------------------------------------------------------------------------------
Unvested options under same as vested n/a registered 1,336,881 1.87%
stock option plans
- ------------------------------------------------------------------------------------------------------------------------------------
TOTAL NEW SHARES OF 6,766,205 9.47%
COMMON STOCK
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
4
<PAGE>
The features of our common stock are described in our Registration Statement
on Form S-4 filed with the SEC on March 6, 1998 and incorporated by reference in
this prospectus. The features of the preferred stock and the registration status
of the common stock into which they may be converted are summarized in the table
below.
Preferred Stock Features
- ------------------------
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
Series A Series D
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Shares 37,186 3,000
Outstanding
- -----------------------------------------------------------------------------------------------------------------------------
Amount Paid Per $100 $1000
Share
- -----------------------------------------------------------------------------------------------------------------------------
Dividends 10% per annum payable quarterly in arrears 6% per annum payable quarterly in arrears,
beginning June 1, 1999; payable in shares of ATSI beginning March 31, 2000; payable in cash or
common stock registered shares of ATSI common stock, at ATSI's
election
participate in distributions to common stock
holders as if preferred stock had been converted
into common stock on record date for distribution
- -----------------------------------------------------------------------------------------------------------------------------
Dividend Prior to common stock, ratably with series D Prior to common stock, ratably with Series A
Preference preferred stock preferred stock
- -----------------------------------------------------------------------------------------------------------------------------
Liquidation Prior to common stock, shares ratably with series D Prior to common stock, ratably with Series A
Preference preferred stock; liquidation payment of $100 per preferred stock; liquidation payment of $1300 per
share outstanding plus accrued and unpaid dividends share outstanding plus accrued and unpaid dividends
- -----------------------------------------------------------------------------------------------------------------------------
Voting Votes as if conversion of outstanding shares None, except as required by Delaware law
Rights occurred on record date for vote; majority
approval required for significant corporate events
such as merger or sale
- -----------------------------------------------------------------------------------------------------------------------------
Conversion Average of closing sale prices for the 20 trading Lesser of $5.4375 or 83% of the average of the
Price days preceding issuance times $100 per share, plus lowest 5 closing bid prices for the common stock
accrued and unpaid dividends; reset on each during the 10 trading days prior to conversion
anniversary date to greater of 75% of initial
conversion price or 75% of 20 day trading average
prior to anniversary date
- -----------------------------------------------------------------------------------------------------------------------------
Conversion From date of issuance to February 28, 2005; Any time after February 22, 2000, except for a
Time mandatory conversion on February 28, 2005 single 30 day lock out if common stock price falls
below $2.50; mandatory conversion of any remaining
shares on February 22, 2002
- -----------------------------------------------------------------------------------------------------------------------------
Adjustments to As appropriate in event of stock split, reverse Upon notice of stock split, dividend, or issuance
Conversion stock split or stock dividend of additional shares at a discount to market,
holder may elect to convert
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Price based on average closing bid price during five or fewer
trading days preceding conversion;
If common stock becomes ineligible for trading on
OTCBB, AMEX or NASDAQ, conversion price adjusted to
65% of average of five lowest closing bid prices
during ten trading days preceding conversion.
If ATSI issues common stock, common stock warrants
or securities convertible into common stock at a
lower price than conversion price for Series D
preferred, and agrees to register the common stock,
holder's conversion price is adjusted to lowest
price for new issuance
- -----------------------------------------------------------------------------------------------------------------------------
Change of no special provision holder may elect redemption at 120% of sum of $1300
Control of per share and accrued and unpaid dividends, or
ATSI convert to whatever type of security the common
stockholders received in the change of control;
- -----------------------------------------------------------------------------------------------------------------------------
Mandatory N/A Upon change of control of ATSI, holder may elect
Redemption redemption at 120% of sum of $1300 per share and
accrued and unpaid dividends, or convert to
whatever type of security the common stockholders
received in the change of control;
Holder may elect redemption at $1270 per share plus
accrued and unpaid dividends if ATSI refuses to
honor conversion notice or third party brings suit
challenging conversion
- -----------------------------------------------------------------------------------------------------------------------------
Optional At ATSI's option after first anniversary of issue At ATSI's option if price of common stock falls
Redemption date if market price of common stock is 200% or below price at closing date, for $1270 per share
more of conversion price, for $100 per share plus plus accrued but unpaid dividends plus additional
accrued and unpaid dividends warrant for 150,000 shares of common stock (on
same terms as warrant issued to The Shaar Fund on
February 22, 2000)
- -----------------------------------------------------------------------------------------------------------------------------
Trading/ restricted, common shares issued on conversion Restricted; common shares issued on conversion to
Conversion restricted with exception of common shares be restricted until registration;
Restrictions underlying 10,000 shares
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------
of Series A which ATSI has agreed to register one time 30 day lock out if price of common stock
is $2.50 or less
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Registration For 10,000 shares issued February 4, 2000, Registration Statement for underlying common stock
Rights registration statement for underlying common stock to be filed by April 1, 2000 and effective by June
to be filed by April 30, 2000; with agreement that 1, 2000
first third may not be converted into common stock
until April 30, 2000, second third until July 31,
2000 and final third until October 31, 2000.
- -----------------------------------------------------------------------------------------------------------------------------
Liquidated $25,000 for failure to file registration statement $60,000 for failing to file by April 1, 2000 or
Damages for by April 30, 2000 or obtain effectiveness by 90 obtain effectiveness by June 1, 2000; $60,000 for
Failure to Meet days from filing, and $25,000 for each subsequent each subsequent 30 day period
Registration 30 day period that targets are not met
Deadlines
- -----------------------------------------------------------------------------------------------------------------------------
Other N/A Ten day right of first refusal on issuance of
common stock, warrants for common stock, or
securities convertible into common stock for price
less than then-current market price, or debt with
interest greater than 9.9%
No issuances of common stock that would cause
holder to own more than 5% of ATSI's total common
stock at any given time; if 5% limit would be
exceeded on mandatory conversion date ATSI may
redeem excess shares or extend conversion date for
one year
Total issuances of common stock during term of
Series D not to exceed 11,509,944 (20% of ATSI's
total shares outstanding at closing date); ATSI
must redeem any excess
May not create new stock having liquidation
preference over Series D
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
You may find additional information about the series D preferred stock that is
covered by this prospectus in the section of this prospectus entitled Common
Stock Issued on page 19.
We also have outstanding warrants and options for the purchase of our common
stock as described on the table appearing on page 3 of this prospectus.
7
<PAGE>
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 below all of
the material risks to our business that we are aware of.
RISKS RELATED TO OPERATIONS
. Our auditors have questioned our viability
Our auditors' opinion on our financial statements as of July 31, 1999 calls
attention to substantial doubts as to our ability to continue as a going
concern. This means that they question whether we can continue in business.
If we cannot continue in business, our common stockholders would likely lose
their entire investment. Our financial statements are prepared on the
assumption that we will continue in business. They do not contain any
adjustments to reflect the uncertainty over our continuing in business.
. We expect to incur losses, so if we do not raise additional capital we may go
out of business
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 and achieve
profitability. 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 are not able to sell
additional securities or borrow money on terms as desirable as those
available to profitable companies, and may not be able to raise money on any
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.
In the near term we expect to sell additional common stock or securities
convertible into common stock, which will dilute our existing shareholders'
percentage ownership of ATSI and depress the price of our common stock. See
the risk factors below under the heading "Risks Related to Market for Common
Stock."
If we sell more common stock 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.
. It is difficult for us to compete with much larger companies such as AT&T,
Sprint, MCI-Worldcom and Telmex
8
<PAGE>
The large carriers such as AT&T, Sprint and MCI/Worldcom in the U.S., and
Telmex in Mexico, have more extensive owned networks than we do, which
enables them to control costs more easily than we can. They are also able to
take advantage of their large customer base to generate economies of scale,
substantially lowering their per-call costs. Therefore, they are better able
than we are to lower their prices as needed to retain customers. In addition,
these companies have stronger name recognition and brand loyalty, as well as
a broader portfolio of services, making it difficult for us to attract new
customers. Our competitive strategy in the U.S. revolves around targeting
markets that are largely underserved by the big carriers. However, some
larger companies are beginning efforts or have announced that they plan to
begin efforts to capture these markets.
Mergers, acquisitions and joint ventures in our industry have created and may
continue to create more large and well-positioned competitors.
. The market for wholesale services is extremely price sensitive and there is
downward pricing pressure in this market making it difficult for us to retain
customers and generate adequate profit from this service
Industry capacity along the routes serviced by ATSI is generally growing as
fiber optic cable is activated. There have also been changes in the
international regulatory scheme that have permitted large carriers such as
AT&T and MCI/WorldCom to reduce the amount they may charge for international
services. These factors, along with intense competition among carriers in
this market, have created severe downward pricing pressure. For example, from
October 1998 to October 1999, the prevailing price per minute to carry
traffic from the U.S. to Mexico declined by approximately 45%. Although we
carried almost twice as much wholesale traffic in fiscal year 1999 than in
fiscal year 1998, we recognized about the same amount of revenue. If these
pricing pressures continue, the Company must continue to lower its costs in
order to maintain sufficient profits to continue in this market.
. We may not be able to collect large receivables, which could create serious
cash flow problems
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 carriers in Mexico to terminate
these calls. If a customer fails to pay a large balance on time, we will have
difficulty paying our carriers in Mexico on time. If our carriers suspend
services to us, it may affect all our customers.
. We may not be able to pay our suppliers on time, causing them to discontinue
critical services
We have not always paid all of our suppliers on time due to temporary cash
shortfalls. Our critical suppliers are SATMEX for satellite transmission
capacity and Bestel for fiber optic cable. We also rely on various Mexican
and U.S. long distance companies to complete the intra-Mexico and intra-U.S.
long distance portion of our calls. For the first two quarters of
9
<PAGE>
fiscal 2000, the monthly average amount due to these suppliers as a group
was approximately $1,722,000. We currently have overdue outstanding balances
with long distance carriers for the first two quarters of fiscal 2000 of
approximately $2,135,800 on which we are making payments. During the third
quarter we began paying the current portion of our long distance needs on a
weekly basis, so do not expect to accrue a large overdue balance as we did
in the first and second quarters. Although these suppliers have given us
payment extensions in the past, 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 or meet financial
covenants in our loan agreements, causing our lenders to repossess critical
equipment
We purchased some of our significant equipment with borrowed money,
including a substantial number of our payphones located in Mexico, our DMS
250/350 International gateway switch from Nortel, and packet-switching
equipment from Network Equipment Technologies. We pay these three lenders
approximately $171,165 on a monthly basis. Our amended 10-K, which is
incorporated by reference in this prospectus, includes more information
about our equipment, equipment debt and capital lease obligations - see
footnote 6 to financial statements. 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 are currently up to date in our payments
to our lenders, but we have not always paid all of our equipment lenders on
time due to temporary cash shortfalls. These lenders have given us payment
extensions in the past, but they may exercise their right to take possession
of certain critical equipment if we are not able to make payments on time in
the future. Our ability to make our payments on time depends on our ability
to raise additional capital or improve our cash flow from operations. We are
not currently in compliance with the financial covenants in our Nortel
switch loan agreement. Footnote 3 of our financial statements in our amended
10-Q for the period ended January 31, 2000 contains more detail on our non-
compliance with those financial covenants, and footnotes 4 and 5 of our
financial statements in our amended 10-K for the year ended July 31, 1999
contains more information on our secured loans and capital leases.
. A large portion of our revenue is concentrated among a few customers, making
us vulnerable to sudden revenue declines.
Our revenues from wholesale services currently comprise about 60% of our
total revenues. The volume of business sent by each customer fluctuates, but
this traffic is often heavily concentrated among three or four customers.
During some periods in the past, two of these customers have been
responsible for 50% of this traffic. Generally, our wholesale customers are
able to re-route their traffic to other carriers very quickly in response to
price changes. If we are not able to continue to offer competitive prices,
these customers will find some other
10
<PAGE>
supplier and we will lose a substantial portion of our revenue very quickly.
In addition, mergers and acquisitions in our industry may reduce the already
limited number of customers for our wholesale services.
. 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.
To compete successfully in the wholesale and retail markets, we must
maintain the highest quality of service. Therefore, we must continually
upgrade our network to keep pace with technological change. This is
expensive, and we do not have the substantial resources that our large
competitors have.
. We may not be able to attract and retain qualified personnel
We compete for technical and managerial personnel with other
telecommunications companies. Many of these have greater resources than we
do and are able to offer more attractive compensation packages, as well as
the security of working for an established company.
. We may not be able to generate the sales volume we need to recover our
substantial capital investment in our infrastructure.
We have made a substantial investment in our network and personnel to
position the company in our target markets and will continue to do so.
Therefore, we must achieve a high volume of sales to make this investment
worth while. We compete for wholesale and retail customers with larger, and
better known companies making it relatively more difficult for us to attract
new customers for our services.
. We may not be able to lease transmission facilities we need at cost-
effective rates
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 lines, we do not own a satellite or any
fiber optic lines 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.
In 1999 we experienced difficulty in obtaining fiber optic cable due to a
supplier's default under the terms of a lease agreement. This difficulty was
central to our failure to meet our revenue goals for 1999 since our goals
were based on implementing a new fiber optic route in January of 1999. We
were required to lease fiber optic lines from a different supplier at a
higher price, with the alternative fiber becoming operational in June 1999 -
delaying the new
11
<PAGE>
revenues by six months. This difficulty is described in more detail in our
amended 10-K in Legal Proceedings.
. The carriers on whom we rely for intra-Mexico long distance may not stay in
business leaving us fewer and more expensive options to complete calls
There are only 15 licensed Mexican long distance companies, and we currently
have agreements with four of them. One of these, Avantel, S.A. de C.V. has
said publicly that it may not continue in the business because of its
difficulty in achieving a desired profit margin. If the number of carriers
who provide intra-Mexico long distance is reduced, we will have fewer route
choices and may have to pay more for this service.
. We may have service interruptions and problems with the quality of
transmission, causing us to lose call volumes and customers
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 as 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 attempt 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. Our amended 10-K describes
these technologies. The risk of network problems increases during periods of
expansion and transition to new technologies.
. Changes in telecommunications regulations may harm our competitive position
Historically, telecommunications in the U.S. and Mexico have been closely
regulated under a monopoly system. As a result of the Telecommunications Act
of 1996 in the U.S. and new Mexican laws enacted in the 1990's, the
telecommunications industry in the U.S. and Mexico are in the process of a
revolutionary change to a fully competitive system. U.S. and Mexican
regulations governing competition are evolving as the market evolves. 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. There may be
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<PAGE>
significant regulatory changes that we cannot even predict at this time. We
cannot be sure that the governments of the U.S. and Mexico will even
continue to support a migration toward a competitive telecommunications
market.
. Regulators may challenge our compliance with laws and regulations causing us
considerable expense and possibly leading to a temporary or permanent shut
down of some operations
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 the right to offer services. To our knowledge, we
are not currently subject to any regulatory inquiry or investigation.
. If we are not able to obtain a long distance license from the Mexican
government, we may not be able to achieve profitability
The ultimate fulfillment of our strategy for the future depends on obtaining
a long distance license from the Mexican government so that we no longer
have to pay other companies who have a Mexican long distance license to
complete our calls in Mexico. If we do not obtain this license, we may not
be able to reduce our costs sufficiently that we earn a profit. We have
applied for a long distance license and we are also in negotiations to
acquire a Mexican company, which holds a long distance license. We have
obtained preliminary regulatory approval from the Mexican government to
acquire this company, but we may not be able to acquire this company or
obtain this license in some other manner.
. 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 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. The next elections in
Mexico are scheduled for August 2000. 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.
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<PAGE>
. 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.
RISKS RELATED TO FINANCING
. 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. In the near term we expect to sell additional
common stock or securities convertible into common stock, which will dilute
our existing shareholders' percentage ownership of ATSI and depress the price
of our common stock. See the risk factors in the section captioned "Risk
Related to Market for Common Stock," below. Since we are not a profitable
company, it is difficult for us to raise money on terms we find acceptable.
The terms we are able to arrange may be more costly than the terms that
profitable companies could obtain, and may place significant restrictions on
our operations.
. We owe $160,000 to the holder of our series D preferred stock for taking too
long to obtain an effective registration statement, and we will owe it even
more money if the registration statement is not declared effective soon.
Under the terms of registration rights agreements we signed with The Shaar
Fund at the time we issued our series C preferred stock on September 24, 1999
we are required to pay liquidated damages to The Shaar Fund of $25,000 for
failing to file a registration statement for the underlying common stock by
October 24, 2000 or failing to obtain effectiveness by December 23, 2000, and
an additional $25,000 for each subsequent 30 day period that we fail to meet
those targets. We initially filed our registration statement for the common
stock underlying the series C preferred stock on October 26, 2000, 2 days
late. The Shaar Fund has waived the penalty resulting from that late filing.
As of April 1, 2000, we have not obtained effectiveness of the registration
statement, resulting in liquidated damages owing to The Shaar Fund of
$100,000, with another $25,000 to accrue if the registration statement is not
effective by April 21, 2000.
Under the terms of registration rights agreements we signed with The Shaar
Fund at the time we issued our series D preferred stock on February 22, 2000
we are required to pay liquidated damages to The Shaar Fund of $60,000 for
failing to file a registration statement for the underlying common stock by
April 1, 2000 or failing to obtain effectiveness by June 1, 2000 and an
additional $60,000 for each subsequent 30 day period that we fail to meet
those targets. We filed the registration statement late, and if we fail to
obtain effectiveness, we may incur substantial additional liquidated damages.
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<PAGE>
. The terms of our preferred stock includes disincentives to a merger or other
change of control of the company, which could discourage a transaction that
would otherwise be in the interest of our stockholders.
In the event of a change of control of ATSI, the terms of the series D
preferred stock permit The Shaar Fund to choose either to receive whatever
cash or stock the common stockholders receive in the change of control as if
the series D stock had been converted, or to require us to redeem the series
D preferred stock at $1560 per share. If all 3,000 shares of the series D
preferred stock were outstanding at the time of a change of control, this
could result in a payment to The Shaar Fund of $4,680,000. The possibility
that we might have to pay this large amount of cash would make it more
difficult for us to agree to a merger or other opportunity that might arise
even though it would otherwise be in the best interest of the shareholders.
. We may have to redeem the series D preferred stock for a substantial amount
of cash, which would severely restrict the amount of cash available for our
operations.
The terms of the series D preferred stock require us to redeem the stock for
cash in two circumstances in addition to the change of control situation
described in the immediately preceding risk factor.
First, the terms of the series D preferred stock prohibits The Shaar Fund
from acquiring more than 11,509,944 shares of our common stock, which is 20%
of the amount of shares of common stock outstanding at the time we issued the
series D preferred stock. The terms of the series D preferred stock also
prohibit The Shaar Fund from holding more than 5% of our common stock at any
given time. Due to the floating conversion rate, the number of shares of
common stock that may be issued on the conversion of the series D stock
increases as the price of our common stock decreases, so we do not know the
actual number of shares of common stock that the series D preferred stock
will be convertible into. On the second anniversary of the issuance of the
series D preferred stock we are required to convert all remaining unconverted
series D preferred stock. If this conversion would cause The Shaar Fund to
exceed these limits, then we must redeem the excess shares of Series D
preferred stock for cash equal to $1270 per share, plus accrued but unpaid
dividends. The table on page 23 of this prospectus shows the number of shares
of common stock that may be issued on conversion of the series D preferred
stock at different assumed market prices, and the resulting percentage of
ownership of common stock that The Shaar Fund would have.
Second, if we refuse to honor a conversion notice or a third party challenges
our right to honor a conversion notice by filing a lawsuit, The Shaar fund
may require us to redeem any shares it then holds for $1270 per share. If all
3,000 shares were outstanding at the time of a redemption, this would result
in a cash payment of $3,810,000 plus accrued and unpaid dividends. If we were
required to make a cash payment of this size, it would severely restrict our
ability to fund our operations.
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<PAGE>
. We may redeem our preferred stock only under certain circumstances, and
redemption requires us to pay a significant amount of cash and issue
additional warrants; therefore we are limited as to what steps we may take to
prevent further dilution to the common stock if we find alternative forms of
financing
We may redeem the series A preferred stock only after the first anniversary
of the issue date, and only if the market price for our common stock is 200%
or more of conversion price for the series A preferred stock. The redemption
price for the series A stock is $100 per share plus accrued and unpaid
dividends. We may redeem the series D preferred stock only if the price of
our common stock falls below $9.00, the price on the date of closing the
series D preferred stock. The redemption price is $1270 per share, plus
accrued but unpaid dividends, plus an additional warrant for the purchase of
150,000 shares of common stock. In the event that we are able to find
replacement financing that does not require dilution of the common stock,
these restrictions would make it difficult for us to "refinance" the
preferred stock and prevent dilution to the common stock.
. The partial spin-off and public offering of shares of our subsidiary
GlobalSCAPE will have a negative impact on our operating results and cash
flows.
Because GlobalSCAPE currently contributes significantly to the Company's
consolidated EBITDA results, the Company expects its consolidated operating
and cash flow results to decline after the spin-off and offering.
RISKS RELATING TO MARKET FOR OUR COMMON STOCK
. We expect the holders of our preferred stock and warrants and our employees
who have stock options to convert their stock and exercise their warrants and
options, which will result in significant dilution to the common stock
The Potential Dilution Chart on page 3 shows all of the outstanding
securities that are convertible into or exercisable for ATSI's common stock.
The table on page 5 describes the features of the preferred stock in more
detail. Given the current market price of our stock, the holders of each of
most of these securities will realize a financial benefit by converting or
exercising their securities, so we expect that almost all of the common stock
that may be issued under the terms of each of these securities will be
issued. Even if the holders of the preferred stock do not elect to convert,
the terms of the preferred stock require conversion after a certain time.
Since the conversion price of our preferred stock floats at a discount to
market price, we do not know how many shares will ultimately be issued. The
table on page 23 of this prospectus shows the number of shares that may be
issued upon conversion of the series D preferred stock at different market
prices.
. The sale of the common stock issued upon conversion of preferred stock and
exercise of the warrants will put downward pricing pressure on ATSI's common
stock; any potential short sales by those converting will also put downward
pressure on ATSI's common stock
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<PAGE>
Most of the common stock that is included in the Potential Dilution Chart has
been or will be registered with the SEC, meaning that the common stock will
be freely tradeable in the near term. We expect many of the stockholders will
sell their holdings in the near term, and in particular we expect The Shaar
Fund to sell its shares of common stock resulting from the conversion of the
series C stock very shortly after the effectiveness of the registration
statement of which this prospectus is a part, and its shares of common stock
resulting from the conversion of the series D preferred stock very shortly
after it is issued to them. The addition of this substantial number of shares
of common stock to the market will put downward pricing pressure on out
stock.
. We will likely continue to issue common stock or securities convertible into
common stock to raise funds we need, which will further dilute your ownership
of ATSI and may put additional downward pricing pressure on the common stock
Since we continue to operate at a loss, we will continue to need additional
funds to stay in business. At this time, we are not likely to be able to
borrow enough money to continue operations on terms we find acceptable so we
expect to have to sell more shares of common stock or more securities
convertible in common stock. Convertible securities will likely have similar
features to our existing preferred stock, including conversion at a discount
to market. The sale of additional securities will further dilute your
ownership of ATSI and put additional downward pricing pressure on the stock.
. The potential dilution of your ownership of ATSI will increase as our stock
price goes down, since our preferred stock is convertible at a floating rate
that is a discount to the market price.
Our series A and D preferred stock is convertible into common stock based on
a conversion price that is a discount to the market price for ATSI's common
stock. The conversion price for the series A stock is reset each year on the
anniversary of the issuance of the stock, and the conversion price for the
series D preferred stock floats with the market on a day-to-day basis. For
each series, the number of shares of common stock that will be issued on
conversion increases as the price of our common stock decreases. Therefore,
as our stock price falls, the potential dilution to the common stock
increases, and the amount of pricing pressure on the stock resulting from the
entry of the new common stock into the market increases.
. Sales of common stock by the preferred holders may cause the stock price to
decrease, allowing the preferred stock holders to convert their preferred
stock into even greater amounts of common stock, the sales of which would
further depress the stock price.
The terms of the preferred stock may amplify a decline in the price of our
common stock since sales of the common stock by the preferred holders may
cause the stock price to fall, allowing them to convert into even more shares
of common stock, the sales of which would further depress the stock price.
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<PAGE>
. The potential dilution of your ownership of ATSI resulting from our series D
preferred stock will increase if we sell additional common stock for less
than the conversion price applicable to the series D preferred stock.
The terms of the series D preferred stock require us to adjust the conversion
price if we sell common stock or securities convertible into common stock at
a greater discount to market than provided for the series D preferred stock.
Therefore, if we sell common stock or securities convertible into common
stock in the future on more favorable terms than the discounted terms, we
will have to issue even more shares of common stock to The Shaar Fund than
initially agreed on.
. We expect to issue additional shares of common stock to pay dividends on the
preferred stock, further diluting your ownership of ATSI and putting
additional downward pricing pressure on the common stock.
The series A stock requires quarterly dividends of 10% per annum, and the
series D stock requires quarterly dividends of 6% per annum. We have the
option of paying these dividends in shares of common stock instead of cash
and we expect to use that option. The issuance of these additional shares of
common stock will further dilute your ownership of ATSI and put additional
downward pricing pressure on the common stock.
. We have has agreed to register additional unregistered shares of common
stock, which will put further pressure on the price of the common stock.
We have agreed to register 3,003,532 shares of common stock in addition to
the shares covered by this prospectus, which includes 506,330 shares for the
conversion of the 10,000 shares of series A preferred stock issued on
February 4, 2000 as described in our potential dilution chart on page 3 of
this prospectus, and 2,632,929 shares of common stock that were issued to
holders of convertible debt in exchange for their shares of convertible debt
in January 2000 as described in footnote 4 to our financial statements
appearing in our Quarterly Report on Form 10-Q for the quarter ended January
31, 2000. We expect that much of this stock will be sold upon registration,
which will put downward pressure on the price of our stock.
. You will almost certainly not receive any cash dividends on the common stock
in the foreseeable future.
Sometimes investors buy common stock of companies with the goal of generating
periodic income in the form of dividends. You may receive dividends from time
to time on stock you own in other companies. We have no plan to pay dividends
in the near future.
. 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. The risk factors described above
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<PAGE>
relating to the probable dilution of the common stock will tend to increase
volatility in the price of our common stock.
. The partial spin-off and public offering of shares of our subsidiary
GlobalSCAPE will tend to decrease the price of our stock.
On February 17, 2000 we announced that the Board of Directors had approved a
partial spin of GlobalSCAPE and a public offering of those shares to our
shareholders and GlobalSCAPE's customers. Completion of these transactions
separates the value of GlobalSCAPE that is currently inherent in our common
stock and tend to reduce the price of our stock.
. The partial spin-off and public offering of shares of our subsidiary
GlobalSCAPE will have a negative impact on our operating results and cash
flows.
Because GlobalSCAPE currently contributes significantly to the Company's
consolidated EBITDA results, the Company expects its consolidated operating
and cash flow results to decline after the spin-off and offering.
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.
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 has been or may be issued to the
selling shareholders pursuant to the terms of the following securities:
. 484,872 shares of common stock issued upon conversion of 500 shares of the
series C preferred stock issued to The Shaar Fund on September 24, 1999,
. 7,436 shares of common stock issued as a dividend on the series C preferred
stock,
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<PAGE>
. 20,000 shares of common stock that may be issued to The Shaar Fund under
the terms of a warrant issued to The Shaar Fund on September 24, 1999,
. 50,000 shares of common stock that may be issued to Corporate Capital
Management under a warrant issued as a placement fee in connection with
ATSI's series B preferred stock issuance, 19,693 shares of common stock
issued to Corporate Capital Management LLC as commission on ATSI's series C
preferred stock issuance,
. an undetermined number of shares of common stock that may be issued upon
conversion of 3,000 shares of series D preferred stock issued to The Shaar
Fund on February 22, 2000,
. an undetermined number of shares of common stock that may be issued to The
Shaar Fund in payment of dividends due on the series D preferred stock,
. 150,000 shares of common stock that may be issued to The Shaar Fund under
the terms of a warrant issued to The Shaar Fund on February 22, 2000, and
. 150,000 shares of common stock that may be issued to The Shaar Fund under
the terms of a warrant that may be issued to The Shaar Fund if ATSI elects
to redeem the series D preferred stock.
We do not know how many shares of common stock will be issued upon
conversion of the series D preferred stock. As described in the chart on page
23 of this prospectus, the series D preferred stock is convertible into common
stock based on a floating rate that is a discount of the common stock price at
the time of conversion. The conversion price for the series D preferred stock
as of April 10, 2000 was $4.90, which means that if The Shaar Fund had converted
all of its series D preferred stock on that date we would have issued 612,245
shares of common stock. However, due to the fluctuating conversion rate, we do
not know the number of shares of common stock that will be issued on conversion
of the series D preferred stock, and the number of shares may be materially
higher or lower than this.
You should carefully review this information and the discussion in the Risk
Factors section describing the risks arising from the uncertainty regarding the
number of shares that may be issued and the potential dilution to your ownership
of our common stock.
Series C Preferred Stock
The Shaar Fund purchased 500 shares of Series C Preferred Stock for $1000
per share on September 24, 1999. The Shaar Fund converted all of its shares of
series C preferred stock on March 7, 2000, resulting in the issuance of 484,872
shares of common stock. The series C preferred stock had terms similar to the
series D preferred stock.
The registration rights agreement signed by ATSI and The Shaar Fund at the
time of the sale of the Series C Preferred Stock requires ATSI to register the
common stock into which the
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series C preferred stock was converted. 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.
Series D Preferred Stock
The Shaar Fund purchased 3000 shares of series D preferred stock for $1000
per share on February 22, 2000. The Shaar Fund may convert each share of series
D preferred stock into that number of shares of common stock that is equal to
1000 divided by a conversion price that is the lesser of:
. $5.4375 (the closing sale price of the common stock on the American Stock
Exchange on February 17, 2000), and
. 83% of the average of the five lowest closing bid prices of the common
stock on the American Stock Exchange during the ten trading day period
immediately preceding the date of conversion.
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 price for the common stock falls to $2.50 or less on
any trading day, The Shaar Fund may not convert any series D preferred stock for
a single period of thirty days from that day. The series D preferred stock will
never be convertible into fewer than 551,724 shares of common stock, which is
the number of shares that may be acquired if the conversion price is $5.4375.
The Shaar Fund may convert any of its shares of series D preferred stock at
any time it elects after February 22, 2000, but any shares not converted by
February 22, 2002 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 D preferred stock requires ATSI to register that
number of common shares into which all of the shares of the series D preferred
stock would be convertible at a conversion price of $2.50. If the closing sale
price for the common stock falls below $3.00, we are required to register
additional shares of common stock based on an assumed conversion price of .30
per share.
This 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.
Dividends on Series C Preferred Stock and Series D Preferred Stock
The series C and D preferred stock require quarterly dividends at 6% per annum
calculated on the value of $1000 per share, which may be paid at our option
either in cash or registered shares
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of common stock valued at the conversion price on the dividend payment date. We
issued 7,436 shares of common stock to pay the dividends due on the series C
preferred stock and have included those shares in this registration statement.
The first dividend on the series D preferred stock was due on March 31, 2000,
and was for a total $52,500. We have included 144,000 shares of common stock in
this prospectus and registration statement for the payment of dividends on the
series D preferred stock.
The Warrants
The Shaar Fund may elect to acquire up to a total of 170,000 additional shares
of common stock under the terms of warrants issued in connection with the series
C and D preferred stock as follows:
. 20,000 shares at an exercise price of $1.19; and
. 150,000 shares at an exercise price of $4.37.
The features of these warrants are described in more detail in the chart
appearing on page 3 of this prospectus. If we elect to redeem the series D
preferred stock, part of the redemption price would be an additional warrant for
150,000 shares on the same terms as the warrant The Shaar Fund currently holds.
Under the registration rights agreements we signed with The Shaar Fund at the
time of the sale of the series D preferred stock we are required to register
300,000 shares of common stock that may be issued on the exercise of the
existing warrants and the warrants that may be issued if we elect to redeem the
series D preferred stock.
We issued Corporate Capital Management a warrant for the purchase of 50,000
shares of common stock at an exercise price of $1.25 as a placement fee in
connection with our issuance of our series B preferred stock on July 2, 1999.
The features of this warrant are described in more detail in the chart included
on page 3 of this prospectus. We agreed to register the common shares
underlying this warrant as consideration for Corporate Capital Management's
services in connection with the issuance of the series C preferred stock.
The Shaar Fund's Percentage Ownership of Common Stock
The table below shows the % of ATSI's common stock that The Shaar Fund may own
assuming different conversion prices of the series D preferred stock. Although
we have provided similar information in this prospectus in the Potential
Dilution Chart on page 3, and the Selling Shareholders table on page 24, we
wanted you to see the relationship between changes in our common stock price and
the percentage of ATSI that The Shaar Fund might own.
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<TABLE>
<CAPTION>
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Avg. of 5 Series D Total Number Total Number Shares of Shares of Total Shares Shaar Fund
Lowest Bid Conversion of Shares of of Shares of Common Common Issued to The % of ATSI
Prices During Price (lesser of Common Common Stock issued Stock issued Shaar Fund common stock
10 Trading $5.4375 and Stock Issued Stock issued on exercise of upon on full
Days 83% of Upon in payment of warrants conversion of conversion
Preceding average Conversion of dividends over series C
Conversion Series D two years preferred
Preferred stock
Stock
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
$ 0.37 $0.3071 9,768,805 1,172,257 170,000 492,402 11,603,464 15.37%
- ----------------------------------------------------------------------------------------------------------------------------------
$ .50 $ .415 7,228,916 867,470 170,000 492,402 8,758,788 12.06%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1.00 $ .83 3,614,458 433,735 170,000 492,402 4,710,595 6.87%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1.32 $ 1.096 2,738,226 328,587 170,000 492,402 3,729,215 5.51%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 1.50 $ 1.245 2,409,639 289,157 170,000 492,402 3,361,197 5.00%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2.00 $ 1.66 1,807,229 216,867 170,000 492,402 2,686,498 4.04%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 2.50 $ 2.075 1,445,783 173,494 170,000 492,402 2,281,679 3.45%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 3.00 $ 2.49 1,204,819 144,578 170,000 492,402 2,011,800 3.05%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 3.50 $ 2.905 1,032,702 123,924 170,000 492,402 1,819,029 2.77%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 4.00 $ 3.32 903,614 108,434 170,000 492,402 1,674,450 2.55%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 4.50 $ 3.735 803,213 96,386 170,000 492,402 1,562,000 2.39%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 5.00 $ 4.15 722,892 86,747 170,000 492,402 1,472,041 2.25%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 5.50 $ 4.565 657,174 78,861 170,000 492,402 1,398,437 2.14%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 6.00 $ 4.98 602,410 72,289 170,000 492,402 1,337,101 2.05%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 6.50 $ 5.395 556,070 66,728 170,000 492,402 1,285,201 1.97%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 6.55 $5.4375 551,724 66,207 170,000 492,402 1,280,333 1.96%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 7.00 $5.4375 551,724 66,207 170,000 492,402 1,280,333 1.96%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 8.00 $5.4375 551,724 66,207 170,000 492,402 1,280,333 1.96%
- ----------------------------------------------------------------------------------------------------------------------------------
$ 9.00 $5.4375 551,724 66,207 170,000 492,402 1,280,333 1.96%
- ----------------------------------------------------------------------------------------------------------------------------------
$10.00 $5.4375 551,724 66,207 170,000 492,402 1,280,333 1.96%
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE>
SELLING SHAREHOLDERS
There are two selling shareholders, The Shaar Fund and Corporate Capital
Management LLC. The selling shareholders and their affiliates have not held
any position, office or other material relationship with ATSI, other than
as described below during the three years preceding the date of this
prospectus.
. On July 2, 1999, we issued 2,000 shares of a series B preferred stock
and a warrant for the purchase of 50,000 shares of common stock to The
Shaar Fund for $2,000,000. This series B stock was substantially similar
to the series D preferred stock described in this prospectus and is
described in more detail in our registration statement filed with the
SEC on July 30, 1999 (File No.333-84115). The Shaar Fund has converted
all of the shares of series B preferred stock into common stock
(resulting in the issuance of 2,541,734 shares of common stock) and sold
the common stock
. Corporate Capital Management assisted us in placing the series B
preferred stock, for which they received a placement fee of cash and the
warrant that is described in this prospectus. We have also paid
Corporate Capital Management a placement fee in connection with the
placement of the series C preferred and a placement fee in connection
with the placement of the series D preferred.
The shareholders, the amount of common stock owned as of April 10, 2000,
the maximum amount of common stock that may be offered under the
Registration Statement, and the percentage ownership in ATSI as of April
10, 2000 is shown in the table below.
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
Amount of % of Maximum % of Common
Common Common Amount of Stock Owned
Name Stock Stock Common as of April 10,
Owned as of Owned as of Stock that 2000 including
April 10, April 10, may be Maximum
2000 2000 Offered Amount that
May be
Offered
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
The Shaar Fund 492,308 less than 1% 1,862,308 2.82%
- ----------------------------------------------------------------------------------------------------
Corporate Capital Management 69,693 less than 1% 69,693 less than 1%
- ----------------------------------------------------------------------------------------------------
</TABLE>
Explanation of Table
- --------------------
. The amount of shares listed in the table below as "owned" by The Shaar Fund
includes the 484,872 shares of common stock that The Shaar Fund acquired
upon conversion of the series C preferred stock and 7,436 shares of common
stock that The Shaar Fund received in payment of a dividend on the series C
preferred stock
24
<PAGE>
The amount of shares listed in the table below as the number that The Shaar Fund
may offer pursuant to this prospectus includes the following
. 492,308 shares of common stock, which is the number of shares that The Shaar
Fund acquired upon conversion of the series C preferred stock and the payment
of a dividend on the series C preferred stock
. 20,000 shares of common stock, which is the number of shares that The Shaar
Fund may purchase under the terms of the warrant issued on September 24,
1999;
. 1,200,000 shares of common stock, which is the number of shares that The
Shaar Fund may purchase under the series D preferred stock assuming a
conversion price of $2.50. We have assumed a conversion price of $2.50 since
that is the assumed conversion price we are required to use under our
registration rights agreement with The Shaar Fund to calculate the number of
shares of common stock included in this prospectus for the series D preferred
stock. Although we cannot be sure how many shares of common stock will be
issued to The Shaar Fund because of the fluctuation in conversion price; we
do not expect it to exceed this amount.
. 150,000 shares of common stock, which is the number of shares that The Shaar
Fund may purchase under the warrant issued on February 22, 2000.
It does not include any shares of common stock that may be paid as a dividend
on the series D preferred stock, and does not include the shares that The
Shaar Fund could purchase under an additional warrant for 150,000 shares of
common stock that ATSI would be required to issue if it elected to redeem the
series D preferred stock.
The amount of shares of common stock listed in the table below as "owned" by
Corporate Capital Management as of April 10, 2000, and the amount of shares of
common stock listed as the number of shares that and that may be offered under
this prospectus includes the following:
. 50,000 shares of common stock that Corporate Capital Management may purchase
under the terms of the warrant issued on July 2, 1999 as a placement fee for
the series B preferred stock; and
. 19, 693 shares of common stock issued as a placement fee in connection with
the series C preferred stock.
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. We have
not agreed to pay any
25
<PAGE>
underwriting discounts or commissions. We have agreed to pay the expenses of
registration of the shares of common stock included in this prospectus. Our
expenses as of April 10, 2000 for the registration of the common stock are
approximately $23,410.94.
The shares being registered and offered may be sold from time to time by
the selling shareholders while the Registration Statement is in effect. The
selling shareholders will act independently of ATSI in making decisions with
respect to the timing, manner, and size of each sale. The sales may be made on
the NASD Over-the- Counter Bulletin Board or otherwise, at prices and on terms
then prevailing or at prices related to the market price, or in negotiated
transactions.
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.
26
<PAGE>
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.
EXPERTS
The consolidated balance sheets as of July 31, 1998 and 1999, and the
related consolidated statements of operations, stockholders' equity,
comprehensive loss and cash flows for the years ended July 31, 1997, 1998 and
1999 of ATSI and its subsidiaries have been incorporated by reference in this
prospectus and Registration Statement in reliance upon the report of Arthur
Andersen LLP, independent certified public accountants, incorporated by
reference herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Government Filings. We file annual, quarterly and special reports, proxy
statements and other information with the Securities and Exchange Commission
(the "SEC"). You may read and copy any document we file at the SEC's public
reference rooms in Washington, D.C., New York, New York, and Chicago, Illinois.
The SEC public reference room in Washington D.C. is located at 450 Fifth Street,
N.W., Washington D.C., 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the pubic reference rooms. Our SEC filings are also available to
you free of charge at the SEC's web site at http://www.sec.gov.
------------------
Information Incorporated by Reference. The SEC allows us to "incorporate by
reference" the information we file with them which means that we can disclose
important information to you by referring you to those documents. The
information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the SEC will automatically
update and replace information previously filed, including information contained
in this prospectus.
We incorporate by reference the documents listed below and any future filings
made with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934 until this offering has been completed.
. Our Amended Annual Report on Form 10-KA for the year ended July 31, 1999
. Our Amended Quarterly Reports on Form 10-QA for the quarters ended October
31, 1999 and January 31, 2000;
. Our Proxy Statement dated October 25, 1999 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.
. Our Registration Statement on Form S-3 for 3,198,054 shares of Common Stock
filed on August 18, 1999.
27
<PAGE>
You may request a free copy of these filings by writing or telephoning us at the
following address:
American TeleSource International, Inc.
Investor Relations
12500 Network Blvd., Suite 407
San Antonio, Texas 78249
(210) 558-6090.
We will not send exhibits to these documents unless the exhibits are
specifically incorporated by reference in this document.
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 $ 2,910.94
Legal 10,000.00
Printing 10,000.00
Miscellaneous 500.00
----------
Total: $23,410.94
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,
28
<PAGE>
which might be incurred by them in their capacities as directors and officers of
ATSI and against which they are not indemnified by ATSI.
In connection with this offering, The Shaar Fund (or its assignees under a
Registration Rights Agreement signed by ATSI and The Shaar Fund) has agreed to
indemnify ATSI, and its officers, directors and controlling persons, against any
losses, claims, damages or liabilities to which they may become subject that
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in this prospectus or the Registration Statement or
any omission or alleged omission to state in this prospectus or the Registration
Statement a 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.
4.1 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.39 to Registration Statement on Form S-3,
File No. 33-89683 filed on October 26, 1999)
4.2 Certificate of Designation, Preferences and Rights of 6% Series C
Cumulative Convertible Preferred Stock of American TeleSource
International, Inc. (Exhibit 10.40 to Registration Statement on Form S-3,
File No. 33-89683 filed on October 26, 1999)
4.3 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by American
TeleSource International dated September 24, 1999 (Exhibit 10.41 to
Registration Statement on Form S-3, File No. 33-89683 filed on October 26,
1999)
4.4 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.42 to Registration Statement on Form S-3,
File No. 33-89683 filed on October 26, 1999)
4.5 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
February 22, 2000 (Exhibit to this Registration Statement on Form S-3, File
No. 33-89683 filed on April 13, 2000)
4.6 Certificate of Designation, Preferences and Rights of 6% Series D
Cumulative Convertible Preferred Stock of American TeleSource
International, Inc. (Exhibit to this Registration Statement on Form S-3,
File No. 33-89683 filed on April 13, 2000)
4.7 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by American
TeleSource International dated February 22, 2000 (Exhibit to this
Registration Statement on Form S-3, File No. 33-89683 filed on April 13,
2000)
4.8 Common Stock Purchase Warrant issued to Corporate Capital Management LLC by
American TeleSource International dated February 22, 2000 (Exhibit to this
Registration Statement on Form S-3, File No. 33-89683 filed on April 13,
2000)
4.9 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit to this Registration Statement on Form S-3,
File No. 33-89683 filed on April 13, 2000)
5.1 Opinion regarding legality
23 Consent of Arthur Andersen LLP (Exhibit to this Registration Statement on
Form S-3, File No. 33-89683 filed on April 13, 2000)
24 Power of Attorney (included on signature page to the Registration
Statement)
29
<PAGE>
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
A. Undertakings Regarding Amendments to this Prospectus and the
Registration Statement
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the
Registration Statement. Notwithstanding the foregoing, any increase or
decrease in volume of securities offered (if the total dollar value of
securities offered would not exceed that which was registered) and any
deviation from the low or high end of the estimated maximum offering range
may 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.
30
<PAGE>
B. Undertaking Regarding Filings Incorporating Subsequent Exchange Act
Documents by Reference. ATSI hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of
ATSI's Annual Report on Form 10-K pursuant to section 13(a) or section 15(d) of
the Securities Exchange Act of 1934 (and, where applicable, each filing of any
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Undertaking in Respect of Indemnification. Insofar as indemnification
for liabilities arising under the Securities Act of 1933 (the "Act") may be
permitted to directors, officers and controlling person of ATSI pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by ATSI of
expenses incurred or paid by a director, officer or controlling person of ATSI
in the successful defense of any action , suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
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 13th day of April
2000.
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
31
<PAGE>
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 October 26, 1999
- --------------------------
Arthur L. Smith Chief Executive Officer
Director
/s/ H. Douglas Saathoff Chief Financial Officer October 26, 1999
- --------------------------
H. Douglas Saathoff Senior Vice President
Secretary
Treasurer
/s/ Richard C. Benkendorf Director October 26, 1999
- --------------------------
Richard C. Benkendorf
/s/ Carlos K. Kauachi Director October 26, 1999
- --------------------------
Carlos K. Kauachi
/s/ Murray R. Nye Director October 26, 1999
- --------------------------
Murray R. Nye
/s/ Tomas Revesz Director October 26, 1999
- --------------------------
Tomas Revesz
/s/ Robert B. Werner Director October 26, 1999
- --------------------------
Robert B. Werner
32
<PAGE>
EXHIBIT INDEX
4.1 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.39 to Registration Statement on Form S-3,
File No. 33-89683 filed on October 26, 1999)
4.2 Certificate of Designation, Preferences and Rights of 6% Series C
Cumulative Convertible Preferred Stock of American TeleSource
International, Inc. (Exhibit 10.40 to Registration Statement on Form S-3,
File No. 33-89683 filed on October 26, 1999)
4.3 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by American
TeleSource International dated September 24, 1999 (Exhibit 10.41 to
Registration Statement on Form S-3, File No. 33-89683 filed on October 26,
1999)
4.4 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit 10.42 to Registration Statement on Form S-3,
File No. 33-89683 filed on October 26, 1999)
4.5 Securities Purchase Agreement between The Shaar Fund Ltd. and ATSI dated
February 22, 2000 (Exhibit to this Registration Statement on Form S-3, File
No. 33-89683 filed on April 13, 2000)
4.6 Certificate of Designation, Preferences and Rights of 6% Series D
Cumulative Convertible Preferred Stock of American TeleSource
International, Inc. (Exhibit to this Registration Statement on Form S-3,
File No. 33-89683 filed on April 13, 2000)
4.7 Common Stock Purchase Warrant issued to The Shaar Fund Ltd. by American
TeleSource International dated February 22, 2000 (Exhibit to this
Registration Statement on Form S-3, File No. 33-89683 filed on April 13,
2000)
4.8 Common Stock Purchase Warrant issued to Corporate Capital Management LLC by
American TeleSource International dated February 22, 2000 (Exhibit to this
Registration Statement on Form S-3, File No. 33-89683 filed on April 13,
2000)
4.9 Registration Rights Agreement between The Shaar Fund Ltd. and ATSI dated
September 24, 1999 (Exhibit to this Registration Statement on Form S-3,
File No. 33-89683 filed on April 13, 2000)
5.1 Opinion regarding legality
23 Consent of Arthur Andersen LLP (Exhibit to this Registration Statement on
Form S-3, File No. 33-89683 filed on April 13, 2000)
24 Power of Attorney (included on signature page to the Registration
Statement)
33
<PAGE>
Exhibit 4.5
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of February 22, 2000,
between American TeleSource International, Inc., a Delaware corporation with
principal executive offices located at 12500 Network Boulevard, Suite 407, San
Antonio, Texas 78249 (the "Company"), and The Shaar Fund Ltd., a British Virgin
Islands corporation with principal domestic executive offices located at Two
World Trade Center, Suite 1820, New York, New York 10048 ("Buyer").
Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 3,000 shares of the Company's 6% Series D
Cumulative Convertible Preferred Stock, par value $0.001 per share
(collectively, the "Preferred Shares"), and (ii) its Common Stock Purchase
Warrants or Warrant in the form attached hereto as Exhibit A (collectively, the
"Warrants");
Whereas, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of 6% Series D
Cumulative Convertible Preferred Stock in the form attached hereto as Exhibit B
(the "Certificate of Designation"), the Preferred Shares are convertible into
shares of the Company's common stock, par value $0.001 per share (the "Common
Stock");
Whereas, the Warrants, upon the terms and subject to the conditions in
the Warrants, will for a period of five (5) years be exercisable to purchase
150,000 shares of Common Stock;
Whereas, upon the terms and subject to the conditions of the
Certificate of Designation, the Preferred Stock may be redeemed by the Company
at a redemption price including, without limitation, the issuance of its Common
Stock Purchase Warrants having the same terms and conditions as the Warrants and
exercisable to purchase an additional 150,000 shares of Common Stock (the
"Redemption Warrants");
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. Purchase and Sale of Preferred Shares and Warrants
A. Transaction. Buyer hereby agrees to purchase from the Company,
and the Company has offered and hereby agrees to issue and sell to the Buyer in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 150,000 shares of Common Stock.
B. Purchase Price; Form of Payment. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$3,000,000 (the "Purchase Price"). Buyer shall pay the Purchase Price by wire
transfer of immediately available funds to the escrow agent (the "Escrow Agent")
identified in those certain Escrow Instructions of even date herewith, a copy of
which is attached hereto as Exhibit C (the "Escrow Instructions").
Simultaneously with the execution of this Agreement and against receipt by the
Escrow Agent of the Purchase Price, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company has
been notified otherwise, I/N/O Buyer's nominee) evidencing the Preferred Shares
and the Warrants which the Buyer is purchasing, to the Escrow Agent or its
designated depository. By executing and delivering this Agreement, Buyer and the
Company each hereby agree to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.
36
<PAGE>
C. Method of Payment. Payment into escrow of the Purchase Price
shall be made by wire transfer of immediately available funds to:
The Bank of New York
48 Wall Street
New York, NY 10038
ABA No.: 021000018
For the Account of: Cadwalader, Wickersham & Taft
Trust Account IOLA Fund
Account No.: 0902061070
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.
II. Buyer's Representations, Warranties; Access to
Information; Independent Investigation
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Redemption Warrants, if any, the Common Stock issuable upon exercise of the
Warrants and the Redemption Warrants, if any, (the "Warrant Shares") and the
shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion Shares" and, collectively with the Preferred Shares, the Warrants,
the Redemption Warrants and the Warrant Shares, the "Securities") for its own
account, for investment purposes only and not with a view towards or in
connection with the public sale or distribution thereof in violation of the
Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and sold
by the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer acknowledges that in making its decision to purchase the
Securities it has been given an opportunity to ask questions of and to receive
answers from the Company's executive officers, directors and management
personnel concerning the terms and conditions of the private placement of the
Securities by the Company.
E. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission and that the foregoing authorities have not reviewed
any documents or instruments in connection with the offer and sale to Buyer of
the Securities and have not confirmed or determined the adequacy or accuracy of
any such documents or instruments.
F. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against Buyer in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
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G. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or position
with respect to the Common Stock and neither Buyer nor any of its affiliates nor
any person acting on its or their behalf will at any time use shares of Common
Stock acquired pursuant to this Agreement to settle any put option, short
position or other similar instrument or position that may have been entered into
prior to the execution of this Agreement.
H. Neither Buyer nor any of its affiliates is a broker-dealer
registered as such with the Commission.
III. The Company's Representations, Warranties and Covenants
The Company represents and warrants to and convenants and agrees with
Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists of: (i)
100,000,000 shares of Common Stock, of which 57,549,721 shares are issued
and outstanding on the date hereof, and (ii) 10,000,000 shares of "blank
check" preferred stock, par value $0.001 per share, of which (x) 50,000
shares have been designated 10% Series A Cumulative Convertible Preferred
Stock (the "Series A Preferred Stock"), of which 38,401 shares have been
issued and are outstanding, (y) 2,000 shares have been designated 6% Series
B Cumulative Convertible Preferred Stock (the "Series B Preferred Stock"),
of which 2,000 shares have been issued and are outstanding, and (z) 500
shares have been designated 6% Series C Cumulative Preferred Stock (the
"Series C Preferred Stock"), of which 500 shares have been issued and are
outstanding. All of the issued and outstanding shares of Common Stock,
Series A Preferred Stock, Series B Preferred Stock, and Series C Preferred
Stock have been duly authorized and validly issued and are fully paid and
nonassessable. As of the date hereof, the Company has outstanding vested
stock options to purchase 3,281,369 shares of Common Stock and non-vested
stock options to purchase 1,382,103 shares of Common Stock, in each case
pursuant to its 1997 and 1998 Stock Option Plans, and warrants to purchase
1,997,219 shares of Common Stock. The Conversion Shares and Warrant Shares
have been duly and validly authorized and reserved for issuance by the
Company, and when issued by the Company upon conversion of, or in lieu of
accrued dividends on, the Preferred Shares and on exercise of the Warrants
and the Redemption Warrants, if any, will be duly and validly issued, fully
paid and nonassessable and will not subject the holder thereof to personal
liability by reason of being such holder. There are no preemptive,
subscription, "call" or other similar rights to acquire the Common Stock
(including the Conversion Shares and Warrant Shares) that have been issued
or granted to any person, except as disclosed on Schedule III.A.1. hereto
or otherwise previously disclosed in writing to Buyer.
2. Except as disclosed on Schedule III.A.2. hereto, the Company
does not own or control, directly or indirectly, any interest in any other
corporation, partnership, limited liability company, unincorporated
business organization, association, trust or other business entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly existing
and in good standing under the laws of the State of Delaware and is duly
qualified as a foreign corporation in all jurisdictions in which the
failure to so qualify would have a material adverse effect on the business,
properties, prospects, condition (financial or otherwise) or results of
operations of the Company or on the consummation of any of the transactions
contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 12-month period immediately preceding
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the date hereof. The Common Stock is traded on the American Stock Exchange
(the "Amex") and the Company has not received any notice regarding, and to
its knowledge there is no threat of, the termination or discontinuance of
the eligibility of the Common Stock for such trading.
C. Authorized Shares. The Company has duly and validly authorized
and reserved for issuance 3,500,000 shares of Common Stock sufficient in number
for the conversion of the Preferred Shares and the exercise of the Warrants and
the Redemption Warrants. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of the issuance of the Preferred
Shares and Warrant Shares upon conversion of the Preferred Shares and exercise
of the Warrants and Redemption Warrants, respectively. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants or
Redemption Warrants, if any, in accordance with this Agreement, the Certificate
of Designation, the Warrants and the Redemption Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. (S) 101 et seq. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. (S) 362 in respect of the conversion of the Preferred
Shares and the exercise of the Warrants or Redemption Warrants, if any. The
Company agrees, without cost or expense to Buyer, to take or consent to any and
all action necessary to effectuate relief under 11 U.S.C. (S) 362. Schedule
III.C. hereto sets forth (i) all issuances and sales by the Company since July
31, 1998 of its capital stock, and other securities convertible, exercisable or
exchangeable for capital stock of the Company, (ii) the amount of such
securities sold, including any underlying shares of capital stock, (iii) the
purchaser thereof, and (iv) the amount paid therefor.
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the Redemption Warrants and the issuance
and reservation for issuance of the Conversion Shares and Warrant Shares), has
been duly authorized by all necessary corporate action on the part of the
Company. Each of the Documents has been duly and validly executed and delivered
by the Company, the Certificate of Designation has been duly filed with the
Delaware Secretary of State's office by the Company, and each instrument
constitutes a valid and binding obligation of the Company enforceable against
the Company in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against the Company in accordance with their terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally. For purposes
of this Agreement, the term "Documents" means (i) this Agreement; (ii) the
Registration Rights Agreement of even date herewith between the Company and
Buyer, a copy of which is annexed hereto as Exhibit D (the "Registration Rights
Agreement"); (iii) the Certificate of Designation; (iv) the Warrants; and (v)
the Escrow Instructions.
E. Authorization of the Securities. The authorization, issuance,
sale and delivery of the Preferred Shares, the Warrants and the Redemption
Warrants has been duly authorized by all requisite corporate action on the part
of the Company. As of the Closing Date, the Preferred Shares and the Warrants,
and the Conversion Shares and Redemption Warrants and the Warrant Shares upon
their issuance in accordance with the Preferred Shares and the Warrants,
respectively, will be validly issued and outstanding, fully paid and
nonassessable, and not subject to any preemptive rights, rights of first refusal
or other similar rights.
F. Non-contravention. The execution and delivery by the Company of
the Documents, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, including,
without limitation, the filing of the Certificate of Designation with the
Delaware Secretary of
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State's office, do not and will not conflict with or result in a breach by the
Company of any of the terms or provisions of, or constitute a default (or an
event which, with notice, lapse of time or both, would constitute a default)
under (i) the articles of incorporation or by-laws of the Company or (ii) any
indenture, mortgage, deed of trust or other material agreement or instrument to
which the Company is a party or by which its properties or assets are bound, or
any law, rule, regulation, decree, judgment or order of any court or public or
governmental authority having jurisdiction over the Company or any of the
Company's properties or assets, except as to clause (ii) above such conflict,
breach or default which would not have a Material Adverse Effect.
G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (and the
Redemption Warrants, the Conversion Shares and Warrant Shares) to Buyer as
contemplated by this Agreement, except such authorizations, approvals and
consents as have been obtained by the Company prior to the date hereof.
H. Commission Filings. None of the Company's reports and documents
filed with the Commission pursuant to the Securities Act or the Exchange Act
(collectively, the "Commission Filings") prior to the date hereof contained at
the time they were filed any untrue statement of a material fact or omitted to
state any material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading.
I. Absence of Certain Changes. Except as set forth on Schedule
III.I., since the Balance Sheet Date (as defined in Section III.M.), there has
not occurred any change, event or development in the business, financial
condition, prospects or results of operations of the Company, and there has not
existed any condition, having or reasonably likely to have a Material Adverse
Effect.
J. Full Disclosure. There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in writing to the Buyer that (i) reasonably could
be expected to have a Material Adverse Effect or (ii) reasonably could be
expected to materially and adversely affect the ability of the Company to
perform its obligations pursuant to the Documents.
K. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of Default" (as defined
in any agreement or instrument to which the Company is a party) and no event
which, with notice, lapse of time or both, would constitute an Event of Default
(as so defined), has occurred and is continuing, which could have a Material
Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
July 31, 1998 and July 31, 1999 and the related audited statements of operations
and cash flows for the three fiscal years ended July 31, 1999 including the
related notes and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's independent auditors
relating to the dates and periods covered by the Financial Statements. Each of
the Financial Statements is complete and correct in all material respects, has
been prepared in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
to normal year end adjustments and the absence of footnotes) and in conformity
with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at July 31, 1999 is hereinafter referred to as
the "Balance Sheet" and July 31, 1999 is hereinafter referred to as the "Balance
Sheet Date". The Company has no indebtedness, obligations or liabilities of any
kind (whether accrued, absolute, contingent or otherwise, and whether due or to
become due) that would have been required to be reflected in, reserved against
or otherwise described in the Balance Sheet or in the notes thereto in
accordance with GAAP, which was not fully reflected in, reserved against or
otherwise described in the Balance Sheet or the notes thereto or was not
incurred since the Balance Sheet Date in the ordinary course of business
consistent with the Company's past practices.
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N. Compliance with Laws; Permits. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively,
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance as would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
O. Related Party Transactions. Except as set forth on Schedule
III.O. hereto and excluding receivables between the Company and its
Subsidiaries, neither the Company nor any of its officers, directors or
"Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) has
borrowed any moneys from or has outstanding any indebtedness or other similar
obligations to the Company. Except as set forth on Schedule III.O. hereto,
neither the Company nor any of its officers, directors or Affiliates (i) owns
any direct or indirect interest constituting more than a 1% equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant to or lender to or borrower from,
or has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of
the Company, (y) engaged in a business related to the business of the Company,
or (z) a participant in any transaction to which the Company is a party (other
than in the ordinary course of the Company's business) or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company.
P. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate and consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any such insurance policy presently in force.
Q. Securities Law Matters. Based, in part, upon the representations
and warranties of Buyer set forth in Section II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year period next preceding the date hereof,
except as disclosed on Schedule III.C or III.Q. hereto or otherwise previously
disclosed in writing to Buyer, and the Company shall not directly or indirectly
take, and shall not permit any of its directors, officers or Affiliates directly
or indirectly to take, any action (including, without limitation, any offering
or sale to any person or entity of the Preferred Shares or shares of Common
Stock), so as to make unavailable the exemption from Securities Act registration
being relied upon by the Company for the offer and sale to Buyer of the
Preferred Shares and the Warrants (and the Redemption Warrants, the Conversion
Shares and the Warrant Shares) as contemplated by this Agreement. No form of
general solicitation or advertising has been used or authorized by the Company
or any of its officers, directors or Affiliates in connection with the offer or
sale of the Preferred Shares and the Warrants (and the Redemption Warrants, the
Conversion Shares and the Warrant Shares) as contemplated by this Agreement or
any other agreement to which the Company is a party.
R. Environmental Matters.
1. The operations of the Company are in compliance with all
applicable Environmental Laws and all permits issued pursuant to
Environmental Laws or otherwise;
2. The Company has obtained or applied for all permits required
under all applicable Environmental Laws necessary to operate its business;
3. The Company is not the subject of any outstanding written
order of or agreement with any governmental authority or person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
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4. The Company has not received, since July 31, 1999, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law;
5. The Company does not have any current contingent liability in
connection with any Release of any Hazardous Materials into the indoor or
outdoor environment (whether on-site or off-site);
6. Except as set forth on Schedule III.R. hereto, to the
Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property
of the Company pending or threatened which could lead to the imposition of
any liability pursuant to any Environmental Law;
7. There are not located at any of the properties of the Company
any (A) underground storage tanks, (B) asbestos-containing material or (C)
equipment containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally related
audits, studies, reports, analyses, and results of investigations that have
been performed with respect to the currently or previously owned, leased or
operated properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law now in effect in any way
relating to the protection of human health and safety or the environment
including, without limitation, the Comprehensive Environmental Response,
Compensation and Liability Act, the Hazardous Materials Transportation Act, the
Resource Conservation and Recovery Act, the Clean Water Act, the Clean Air Act,
the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and
Rodenticide Act, and the Occupational Safety and Health Act, and the regulations
promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of any Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat or
in any other way address any Hazardous Material; (y) prevent the Release of any
Hazardous Material so it does not endanger or threaten to endanger public health
or welfare or the indoor or outdoor environment; or (z) perform pre-remedial
studies and investigations or post-remedial monitoring and care.
S. Labor Matters. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. Except as set forth on
Schedule III.S, no employees of the Company are represented by any labor
organization and none of such employees has made a pending demand for
recognition, and there are no representation proceedings or petitions seeking a
representation proceeding presently pending or, to the Company's knowledge,
threatened to be brought or filed, with the National Labor Relations Board or
other labor relations tribunal. There is no organizing activity involving the
Company pending or, to the Company's knowledge, threatened by any labor
organization or group of employees of the Company. There are no (i) strikes,
work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances
or other labor disputes pending or, to the knowledge of the Company, threatened
against
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or involving the Company. There are no unfair labor practice charges, grievances
or complaints pending or, to the knowledge of the Company, threatened by or on
behalf of any employee or group of employees of the Company.
T. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the PBGC, and
the present value of all liabilities under all Plans (based on those assumptions
used to fund such Plans) did not, as of the most recent annual valuation date
applicable thereto, exceed the value of the assets of all such Plans in the
aggregate. None of the Company or ERISA Affiliates has incurred any Withdrawal
Liability that could result in a Material Adverse Effect. None of the Company
or ERISA Affiliates has received any notification that any Multiemployer Plan is
in reorganization or has been terminated within the meaning of Title IV of
ERISA, and no Multiemployer Plan is reasonably expected to be in reorganization
or termination where such reorganization or termination has resulted or could
reasonably be expected to result in increases to the contributions required to
be made to such Plan or otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974,
together with the regulations thereunder, as the same may be amended from time
to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code").
"Multiemployer Plan" means a multiemployer plan as defined in Section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Section
414 of the Internal Revenue Code) is making or accruing an obligation to make
contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it is required to
file under applicable Laws, except for such Tax Returns in respect of which
the failure so to file does not and could not have a Material Adverse
Effect; all such Tax Returns are true and accurate in all material respects
and have been prepared in compliance with all applicable Laws; the Company
has paid all Taxes due and owing by it (whether or not such Taxes are
required to be shown on a Tax Return) and has withheld and paid over to the
appropriate taxing authorities all Taxes which it is required to withhold
from amounts paid or owing to any employee, stockholder, creditor or other
third parties; and since the Balance Sheet Date, the charges,
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accruals and reserves for Taxes with respect to the Company (including any
provisions for deferred income taxes) reflected on the books of the Company
are adequate to cover any Tax liabilities of the Company if its current tax
year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as disclosed
above, no written notice indicating an intent to open an audit or other
review has been received by the Company from any foreign, federal, state or
local taxing authority. There are no material unresolved questions or
claims concerning the Company's Tax liability. The Company (A) has not
executed or entered into a closing agreement pursuant to Section 7121 of
the Internal Revenue Code or any predecessor provision thereof or any
similar provision of state, local or foreign law; or (B) has not agreed to
nor is required to make any adjustments pursuant to Section 481(a) of the
Internal Revenue Code or any similar provision of state, local or foreign
law by reason of a change in accounting method initiated by the Company or
any of its subsidiaries or has any knowledge that the IRS has proposed any
such adjustment or change in accounting method, or has any application
pending with any taxing authority requesting permission for any changes in
accounting methods that relate to the business or operations of the
Company. The Company has not been a United States real property holding
corporation within the meaning of Section 897(c)(2) of the Internal Revenue
Code during the applicable period specified in Section 897(c)(1)(A)(ii) of
the Internal Revenue Code.
3. The Company has not made an election under Section 341(f) of
the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company (A) under Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or (D)
otherwise. The Company is not a party to any tax sharing agreement. The
Company has not made any payments, nor is it obligated to make payments nor
is it a party to an agreement that could obligate it to make any payments,
that would not be deductible under Section 280G of the Internal Revenue
Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto), whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
V. Property. The Company has good and indefeasible title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge
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(collectively, "Intangibles") necessary for the conduct of its business as now
being conducted including, but not limited to, those described on Schedule
III.W. hereto. The Company is not infringing upon or in conflict with any right
of any other person with respect to any Intangibles. Except as disclosed on
Schedule III.W. hereto, no claims have been asserted by any person to the
ownership or use of any Intangibles and the Company has no knowledge of any
basis for such claim.
X. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
Y. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading.
AA. Finder's Fee. There is no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.
IV. Certain Covenants and Acknowledgments
A. Restrictive Legend. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Preferred Shares the Warrants and the
Redemption Warrants shall have endorsed thereon a legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
Preferred Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT OR SUCH
OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with
the sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
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<PAGE>
D. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's out-
of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement) solely for general corporate and working capital
purposes.
E. Listing. Except to the extent the Company lists its Common Stock
on the New York Stock Exchange, the Company shall use its best efforts to
maintain its trading of the Common Stock on the Amex.
F. Reserved Conversion Shares. The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
in full, of the Preferred Shares and upon the exercise of the Warrants and the
Redemption Warrants.
G. Right of First Refusal. If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in the Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the date
of issuance during the period ending two years after the Closing Date (the
"Right of First Refusal Period"), the Company shall be obligated to offer such
right of First Refusal Securities to the Buyer on the terms set forth in the
Proposal (the "Offer") and the Buyer shall have the right, but not the
obligation, to accept such Offer on such terms. If during the Right of First
Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then Buyer shall have ten (10) business days to accept or
reject such offer in writing. If the Company fails to: (i) issue a Proposal
during the Right of First Refusal Period; (ii) offer Buyer the opportunity to
complete the transaction as set forth in the Proposal; or (iii) enter into an
agreement with Buyer, at such terms after the Buyer has accepted the Offer, then
the Company shall pay to Buyer, as liquidated damages, an amount in total equal
to 10% of the amount paid to the Company for the Right of First Refusal
Securities. The foregoing right of first refusal is and shall be senior in
right to any other right of first refusal issued by the Company to any other
Person (as defined in the Certificate of Designation). Notwithstanding the
foregoing, the Buyer shall have no rights under this Section IV.G. in respect of
Common Stock or any other securities of the Company issuable (i) upon the
exercise or conversion of options, warrants or other rights to purchase
securities of the Company outstanding as of the date hereof or (ii) to officers,
directors or employees of the Company or any of its subsidiaries.
H. Amendment of Certificate of Designation. The Company agrees to
take all necessary action (including without limitation an appropriate filing or
filings with the Secretary of State of the State of Delaware) to effect, as
promptly as possible but in no event later than February 29, 2000, the amendment
of Section 4(a)(ii) of the Certificate of Designation by the replacement of the
word and numbers "December 31, 1999" each time they occur in such Section
4(a)(ii) with the word and numbers "March 31, 2000". It is understood and
agreed that the first Dividend Payment Due Date (as defined in the Certificate
of Designation) with respect to the Preferred Stock will be March 31, 2000.
V. Transfer Agent Instructions
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants and the Redemption Warrants
otherwise shall be freely transferable on the books and records of the Company
as and to the extent provided in this Agreement, the Registration Rights
Agreement and applicable law. Nothing contained in this Section V.A. shall
affect in any way Buyer's obligations and agreement to comply with all
applicable securities laws upon resale of such Common Stock. If, at any time,
Buyer provides the Company with an opinion of counsel reasonably satisfactory to
the Company that registration of the resale by Buyer of such Common Stock is not
required under the Securities Act, the Company shall permit the transfer of such
Common Stock and, promptly instruct the Company's transfer agent to issue one or
more certificates for Common Stock without any restrictive legends endorsed
thereon.
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B. The Company shall permit Buyer to exercise its right to convert
the Preferred Shares by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company. Each
date on which a Conversion Notice is telecopied to and received by the Company
in accordance with the provisions hereof shall be deemed a Conversion Date (as
defined in the Certificate of Designation). The Company shall transmit the
certificates evidencing the shares of Common Stock issuable upon conversion of
the Preferred Shares (together with certificates evidencing any Preferred Shares
not being so converted) to Buyer via express courier, by electronic transfer or
otherwise, within five business days after receipt by the Company of the Notice
of Conversion (the "Delivery Date"). Within 30 days after Buyer delivers the
Notice of Conversion to the Company, Buyer shall deliver to the Company the
Preferred Shares being converted.
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants and the Redemption
Warrants in accordance with the applicable terms of the Warrants and the
Redemption Warrants. The last date that the Company may deliver shares of Common
Stock issuable upon any exercise of Warrants or Redemption Warrants is referred
to herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the shares
of Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants or Redemption
Warrants beyond the applicable Dividend Payment Due Date (as defined in the
Certificate of Designation), Delivery Date or Warrant Delivery Date could result
in economic loss to Buyer. As compensation to Buyer for such loss (and not as a
penalty), the Company agrees to pay to Buyer for late issuance of Common Stock
issuable in lieu of cash dividends on the Preferred Shares, upon conversion of
the Preferred Shares or exercise of the Warrants or Redemption Warrants in
accordance with the following schedule (where "No. Business Days" is defined as
the number of business days beyond five days from the Dividend Payment Due Date,
the Delivery Date or the Warrant Delivery Date, as applicable):
Compensation For Each
10 Shares
of Preferred Shares Not Converted
Timely or 500 Shares of Common
Stock Issuable In Payment of
Dividends or Upon Exercise of
Warrants or Redemption
No. Business Days Warrants Not Issued Timely
------------------- ----------------------------------
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer; and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants or
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<PAGE>
Redemption Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.
VI. Delivery Instructions
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. Closing Date
The date and time of the issuance and sale of the Preferred Shares and
the Warrants (the "Closing Date") shall be the date hereof or such other date as
shall be mutually agreed upon in writing. The issuance and sale of the
Securities shall occur on the Closing Date at the offices of the Escrow Agent.
Notwithstanding anything to the contrary contained herein, the Escrow Agent
shall not be authorized to release to the Company the Purchase Price and to
Buyer the Securities being purchased by Buyer unless the conditions set forth in
Section VIII.C. and IX.G. hereof have been satisfied.
VIII. Conditions to the Company's Obligations
Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be determined as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date; and
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. Conditions to Buyer's Obligations
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
C. The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be determined as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
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D. Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to the
Buyer as to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on the Amex, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
F. There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel);
H. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
and
I. Delivery of irrevocable instructions to the Company's transfer
agent to reserve 3,500,000 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.
X. Termination
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on February 29, 2000 (the "Latest Closing
Date"); provided, however, that the right to terminate this Agreement pursuant
to clause (i) shall not be available to any party whose failure to fulfill any
of its obligations under this Agreement has been the cause of or resulted in the
failure of the Closing to occur at or before such time and date, or (ii) any
court or public or governmental authority shall have issued an order, ruling,
judgment or writ, or there shall be in effect any Law, restraining, enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by this Agreement; provided, further, however, that if the Closing shall not
have occurred on or prior to the Latest Closing Date, the Closing may only occur
after the Latest Closing Date with the written acceptance of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, (iii) there shall have occurred any event or development,
or there shall be in existence any condition, having or reasonably and
forseeably likely to have a Material Adverse Effect or (iv) the Company shall
have failed to satisfy the conditions set forth in Section IX hereof.
D. Termination by the Company. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement.
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<PAGE>
E. Fees and Expenses of Termination. If this Agreement is terminated
for any reason, other than pursuant to Section X.D, the Company shall reimburse
Buyer for all of Buyer's out-of-pocket costs and expenses incurred in connection
with the transactions contemplated by this Agreement and the other Documents
(including, without limitation, the fees and disbursements of Buyer's legal
counsel).
XI. Survival; Indemnification
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless the
Buyer, its Affiliates and their respective officers, directors, partners and
members (collectively, the "Buyer Indemnitees"), from and against any and all
losses, claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other Documents;
or
2. any failure by the Company to perform any of its covenants,
agreements. undertakings or obligations set forth in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by the
Company pursuant to this Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any of
Buyer's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by Buyer
pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in this
Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in
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<PAGE>
respect of which indemnification is being sought (each, a "Claim"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section XI is being sought (the "Indemnifying Party") of the
commencement thereof; but the omission so to notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, out-of-
pocket costs and expenses, (y) the Indemnified Party and the Indemnifying Party
reasonably shall have concluded that representation of the Indemnified Party and
the Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clause (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. Governing Law; Miscellaneous
THIS AGREEMENT SHALL BE GOVERNED BY AND INTERPRETED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF NEW YORK, WITHOUT REGARD TO THE CONFLICTS OF LAW
PRINCIPLES OF SUCH STATE. EACH OF THE PARTIES CONSENTS TO THE JURISDICTION OF
THE FEDERAL COURTS WHOSE DISTRICTS ENCOMPASS ANY PART OF THE CITY OF NEW YORK OR
THE STATE COURTS OF THE STATE OF NEW YORK SITTING IN THE CITY OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS AGREEMENT AND HEREBY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION
BASED ON FORUM NON CONVENIENS, TO THE BRINGING OF ANY SUCH PROCEEDING IN SUCH
JURISDICTIONS. A signed facsimile transmission of this Agreement shall
constitute delivery thereof and shall be legal and binding on all parties
hereto. This Agreement may be signed in one or more counterparts, each of which
shall be deemed an original. The headings of this Agreement are for convenience
of reference and shall not form part of, or affect the interpretation of, this
Agreement. If any provision of this Agreement shall be invalid or unenforceable
in any jurisdiction, such invalidity or unenforceability shall not affect the
validity or enforceability of the remainder of this Agreement or the validity or
enforceability of this Agreement in any other jurisdiction. This Agreement may
be amended only by an instrument in writing signed by the party to be charged
with enforcement. This Agreement and the other Documents supersede all prior
agreements and understandings among the parties hereto with respect to the
subject matter hereof.
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XIII. Notices
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
A. if to the Company, to:
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
Attention: H. Douglas Saathoff
with a copy to:
Alice L. King, Esq.
Corporate Counsel
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
B. if to the Buyer, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
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The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV. Confidentiality
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XV. Assignment
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any financially able affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
American TeleSource International, Inc.
By: /s/ H. Douglas Saathoff
-----------------------
Name: H. Douglas Saathoff
Title: Chief Financial Officer
The Shaar Fund Ltd.
By: /s/ Samuel Levinson
-------------------
Name: Samuel Levinson
Title: Managing Director
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EXHIBIT 4.6
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF
6% SERIES D CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
AMERICAN TELESOURCE INTERNATIONAL, INC.
Pursuant to Section 151 of the General Corporation Law of the State of Delaware
American TeleSource International, Inc., a corporation organized and
existing under the General Corporation Law of the State of Delaware (the
"Corporation"), hereby certifies that the Board of Directors of the Corporation
effective as of February 15, 2000 adopted resolutions by Unanimous Written
Consent adopting this Certificate of Designation, Preferences and Rights
designating a new class of its preferred stock called the 6% Series D Cumulative
Convertible Preferred Stock, having the terms set forth herein, and that the
Corporation has caused this Certificate of Amendment to the Certificate of
Incorporation to be executed by a duly authorized officer as of the 18th day of
February, 2000.
6% Series D Cumulative Convertible Preferred Stock
ARTICLE 1
Definitions
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "AMEX" means the American Stock Exchange.
(d) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
(e) "Capital Shares" means the Common Shares and any other shares of any
other class or series of common stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(f) "Closing Date" means the Issue Date.
(g) "Common Shares" or "Common Stock" means shares of common stock, par
value $0.001 per share, of the Corporation.
(h) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series D Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series C Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(i) "Conversion Date" means any day on which all or any portion of shares
of the Series D Preferred Stock is converted in accordance with the provisions
hereof.
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(j) "Conversion Notice" has the meaning set forth in Section 6.2.
(k) "Conversion Price" means on any date of determination the applicable
price for the conversion of shares of Series D Preferred Stock into Common
Shares on such day as set forth in Section 6.1.
(l) "Conversion Ratio" means on any date of determination the applicable
percentage of the Market Price for conversion of shares of Series D Preferred
Stock into Common Shares on such day as set forth in Section 6.1.
(m) "Corporation" means American TeleSource International, Inc., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation or otherwise.
(n) "Current Market Price" means on any date of determination the closing
price of a Common Share on such day as reported on the AMEX; provided, if such
security bid is not listed or admitted to trading on the AMEX, then as reported
on the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market on the day
in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be.
(o) "Default Dividend Rate" shall be equal to the Preferred Stock Dividend
Rate plus an additional 4% per annum.
(p) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series D Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(q) "Issue Date" has the meaning set forth in Section 6.1.
(r) "Market Disruption Event" means any event that results in a material
suspension or limitation of trading of the Common Shares on the AMEX.
(s) "Market Price" per Common Share, on any date of determination, means
the arithmetic mean of the lowest closing prices of the Common Shares as
reported on the AMEX five (5) Trading Days during the period of ten (10) Trading
Days immediately preceding such date of determination, it being understood that
such five (5) Trading Days need not be consecutive; provided, if such security
is not listed or admitted to trading on the AMEX, then as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be, for five (5) Trading Days during the period of ten
(10) Trading Days immediately preceding such date of determination, it being
understood that such five (5) Trading Days need not be consecutive.
(t) "Optional Redemption Price" means (i) a sum in cash equal to one
hundred twenty-seven percent (127%) of the Stated Value plus (ii) the Company's
----
common stock purchase warrant or warrants to purchase 150,000 shares of Common
Stock, having the same terms and conditions as the Warrant.
(u) "Outstanding" when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(v) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
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(w) "Registration Rights Agreement" means that certain Registration Rights
Agreement dated the Closing Date between the Corporation and The Shaar Fund
Ltd., including any amendments thereto.
(x) "SEC" means the United States Securities and Exchange Commission.
(y) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(z) "Securities Purchase Agreement" means that certain Securities Purchase
Agreement dated the Closing Date between the Corporation and The Shaar Fund
Ltd., including any amendments thereto.
(aa) "Series D Preferred Shares" or "Series D Preferred Stock" means the
shares of 6% Series D Cumulative Convertible Preferred Stock of the Corporation
or such other convertible Preferred Stock exchanged therefor.
(bb) "Stated Value" has the meaning set forth in Article 2.
(cc) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(dd) "Trading Day" means any day on which purchases and sales of
securities authorized for quotation on the AMEX are reported thereon and on
which no Market Disruption Event has occurred.
(ee) "Valuation Event" has the meaning set forth in Section 6.1.
(ff) "Valuation Period" means the ten (10) Trading Day period immediately
preceding the Conversion Date.
(gg) "Warrant" means the warrant to purchase Common Stock issued by the
Company to the initial Holder pursuant to the Securities Purchase Agreement.
All references to "cash" or "$" herein means currency of the United States
of America.
ARTICLE 2
Designation And Amount
The designation of this series, which consists of 3,000 shares of Preferred
Stock, is 6% Series D Cumulative Convertible Preferred Stock (the "Series D
Preferred Stock") and the stated value shall be $1,000.00 per share (the "Stated
Value").
ARTICLE 3
Rank
The Series D Preferred Stock shall rank (i) prior to the Common Stock; (ii)
prior to any class or series of capital stock of the Corporation hereafter
created other than "Pari Passu Securities" (collectively, with the Common Stock,
"Junior Securities") and (iii) pari passu with the 10% Series A Cumulative
Convertible Preferred Stock, the 6% Series B Cumulative Convertible Preferred
Stock, and the 6% Series C Cumulative Convertible Preferred Stock of the
Corporation currently outstanding and any class or series of capital stock of
the Corporation hereafter created specifically ranking on parity with the Series
D Preferred Stock ("Pari Passu Securities").
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ARTICLE 4
Dividends
(a) (i) The Holder shall be entitled to receive, when, as and if
declared by the Board of Directors, out of funds legally available for the
payment of dividends, dividends (subject to Article 4(a)(ii) hereof) at the rate
of six percent (6%) per annum (computed on the basis of a 360-day year) (the
"Dividend Rate") on the Stated Value of each share of Series D Preferred Stock
on and as of the most recent Dividend Payment Due Date (as defined below) with
respect to each Dividend Period (as defined below). Dividends on the Series D
Preferred Stock shall be cumulative from the date of issue, whether or not
declared for any reason, including if such declaration is prohibited under any
outstanding indebtedness or borrowings of the Corporation or any of its
Subsidiaries, or any other contractual provision binding on the Corporation or
any of its Subsidiaries, and whether or not there shall be funds legally
available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on
each March 31, June 30, September 30 and December 31 of each year or, if any
such date is not a business day, on the next succeeding business day (each, a
"Dividend Payment Due Date"), commencing December 31, 1999, to the holders of
record of shares of the Series D Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on any record date, not more
than 60 days or less than 10 days preceding the payment dates thereof, as shall
be fixed by the Board of Directors. For the purposes hereof, "Dividend Period"
means the period commencing on and including the Issue Date through December 31,
1999 and thereafter each quarterly period commencing on the day after the
immediately preceding Dividend Payment Due Date and ending on and including the
immediately subsequent Dividend Payment Due Date. Accrued and unpaid dividends
for any past Dividend Period may be declared and paid at any time, without
reference to any Dividend Payment Due Date, to holders of record on such date,
not more than 15 days preceding the payment date thereof, as may be fixed by the
Board of Directors.
(iii) Subject to the next sentence, at the option of the Corporation,
the dividend shall be paid in cash or through the issuance of duly and validly
authorized and issued, fully paid and nonassessable shares of the Common Stock
valued at the Market Price. The Corporation may exercise such option only if
the Common Stock to be issued in lieu of cash payments shall be registered for
resale in the Registration Statement (as defined in the Registration Rights
Agreement) to be filed by the Corporation to register the Common Stock issuable
upon conversion of the shares of Series D Preferred Stock and exercise of the
Warrants as set forth in the Registration Rights Agreement. Notwithstanding the
foregoing, until such Registration Statement (as defined in the Registration
Rights Agreement) has been declared effective under the Securities Act by the
SEC, payment of dividends on the Series D Preferred Stock shall be in cash.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series D Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series D Preferred Stock that may be in arrears.
(c) So long as any shares of the Series D Preferred Stock are outstanding,
no dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series D Preferred Stock for
all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series D Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series D Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series D Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a
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stock option plan) of the Corporation or any subsidiary or any cashless exercise
of warrants), (all such dividends, distributions, redemptions or purchases being
hereinafter referred to as a "Junior Securities Distribution") for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation, directly or
indirectly, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series D Preferred Stock and any
other Pari Passu Securities shall have been paid or set apart for payment for
all past Dividend Periods with respect to the Series D Preferred Stock and all
past dividend periods with respect to such Pari Passu Securities, and (ii)
sufficient funds shall have been paid or set apart for the payment of the
dividend for the current Dividend Period with respect to the Series D Preferred
Stock and the current dividend period with respect to such Pari Passu
Securities.
ARTICLE 5
Liquidation Preference
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up (each such event being considered a "Liquidation
Event"), no distribution shall be made to the holders of any shares of Common
Stock or Junior Securities of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the holders of shares of Series D Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
(as defined in Article 5(c)) with respect to each share. If upon the occurrence
of a Liquidation Event, the assets and funds legally available for distribution
among the holders of the Series D Preferred Stock and holders of Pari Passu
Securities shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series D Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the liquidation preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
(b) At the option of each Holder, the sale, conveyance or disposition of
all or substantially all of the assets of the Corporation, the effectuation by
the Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is obtained by any Person or
"group" as defined in or pursuant to Section 13 of the Securities Exchange Act
of 1934, as amended, other than a Person or "group" (as so defined), if any,
having more than 50% of the voting power of the Corporation on the Issue Date,
or the consolidation, merger or other business combination of the Corporation
with or into any other Person or Persons when the Corporation is not the
survivor shall either: (i) be deemed to be a liquidation, dissolution or winding
up of the Corporation pursuant to which the Corporation shall be required to
distribute, upon consummation of and as a condition to, such transaction an
amount equal to 120% of the Liquidation Preference with respect to each
outstanding share of Series D Preferred Stock in accordance with and subject to
the terms of this Article 5 or (ii) be treated pursuant to Section 6.4 hereof;
provided, that all holders of Series D Preferred Stock shall be deemed to elect
the option set forth in clause (i) hereof if at least a majority in interest of
such holders elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to a
share of the Series D Preferred Stock shall mean an amount equal to the sum of
(i) the Stated Value thereof, plus (ii) an amount equal to 30% of such Stated
Value, plus (iii) the aggregate of all accrued and unpaid dividends on such
share of Series D Preferred Stock until the most recent Dividend Payment Due
Date; provided that, in the event of an actual liquidation, dissolution or
winding up of the Corporation, the amount referred to in clause (iii) above
shall be calculated by including accrued and unpaid dividends to the actual date
of such liquidation, dissolution or winding up, rather than the Dividend Payment
Due Date referred to above.
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ARTICLE 6
Conversion of Preferred Stock
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series D Preferred Stock may be
converted, either in whole or in part (in whole shares of Series D Preferred
Stock), into Common Shares (calculated as to each such conversion to the nearest
1/100th of a share of Common Stock), at any time, and from time to time
following the date of issuance of the Series D Preferred Stock (the "Issue
Date") at a Conversion Price per share of Common Stock equal to the lesser of:
(i) the closing price of the Common Stock on February 16, 2000, being $5.4375,
as the same may be adjusted from time to time for any subdivision or combination
of Outstanding Common Shares after the Issue Date; and (ii) eighty-three percent
(83%) of the Market Price determined as of the Conversion Date; provided that
the Holder may not exercise any right of conversion set forth in this Article 6
during the period of thirty (30) days commencing on and including the first
Trading Day following the Issue Date, if any, on which the Current Market Price
of the Common Stock is $2.50 or less, as the same may be adjusted from time to
time for any subdivision or combination of Outstanding Common Shares after the
Issue Date; and provided, further, that if the Corporation's Common Stock, for
any reason, (a) becomes ineligible for trading on AMEX, (b) is not listed on the
New York Stock Exchange or (c) is not admitted to trading on the NASDAQ National
Market, the NASDAQ SmallCap Market, then any remaining unconverted Series D
Preferred Stock may be converted, at the sole option of the Holder, at a
Conversion Price per share of Common Stock equal to 65% of the Market Price
determined as of the Conversion Date. At the Corporation's option, the amount
of accrued and unpaid dividends as of the Conversion Date may be paid in cash
or in Common Stock valued at the Market Price on the Conversion Date.
The number of shares of Common Stock due upon conversion of Series D
Preferred Stock shall be (i) the number of shares of Series D Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price. Notwithstanding any other provision herein, the
Conversion Price shall not be less than the par value of the Common Stock
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during the period of ten (10) Trading Days immediately
preceding a Conversion Date, the Market Price with respect to such Conversion
Date shall be (a) the arithmetic mean of the lowest closing prices of the Common
Shares (reported as provided in the definition of "Market Price") for five (5)
Trading Days (it being understood that such five (5) Trading Days need not be
consecutive) during the period beginning on the Trading Day immediately
following the occurrence of such Valuation Event and ending on the Conversion
Date (the "New Valuation Period"), if such New Valuation Period includes five
(5) Trading Days or more, or (b) the arithmetic mean of the lowest closing
prices of the Common Shares (reported as provided in the definition of "Market
Price") for all Trading Days in the New Valuation Period, if such New Valuation
Period includes four (4) Trading Days or less; provided that, if the Valuation
Event occurs on the Trading Day immediately preceding such Conversion Date, then
the Conversion Price shall be the lesser of (x) the closing price of the Common
Stock on February 16, 2000, being $5.4375, as the same may be adjusted from time
to time for any subdivision or combination of Outstanding Common Shares after
the Issue Date, and (y) eighty-three percent (83%) of the Current Market Price
of the Common Shares on the Trading Day immediately preceding the Conversion
Date; and provided, further, that the Holder may, in its discretion, postpone
such Conversion Date to a Trading Day which is no more than ten (10) Trading
Days after the occurrence of the latest Valuation Event by delivering a
notification to the Corporation within two Business Days of the receipt of the
Valuation Event Notice. In the event that the Holder deems the Market Price is
to be calculated with reference to a period other than the ten (10) Trading Days
immediately prior to the Conversion Date, the Holder shall give written notice
of such fact to the Corporation in the related Conversion Notice at the time of
conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event
in which the Corporation at any time takes any of the following actions:
(a) subdivides or combines its Capital Shares;
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(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital
Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other
consideration lower, than the Current Market Price in effect
immediately prior to such issuances, or without consideration, except
for issuances under stock option plans presently in effect and
issuances under presently outstanding warrants, options or convertible
securities (and except for issuances upon exercise, conversion or
exchange of securities described in Section 6.1(d) and 6.1(e) below);
(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares and the price per share for
which Additional Capital Shares may at any time thereafter be issuable
pursuant to such warrants, options or other rights shall be less than
the Current Market Price in effect immediately prior to such issuance
of the warrants, options or other rights;
(e) issues any securities convertible into or exchangeable or exercisable
for Additional Capital Shares and the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable
pursuant to the terms of such convertible, exchangeable or exercisable
securities shall be less than the Current Market Price in effect
immediately prior to such issuance of such convertible or exchangeable
securities;
(f) makes a distribution of its assets or evidences of indebtedness to the
holders of its Capital Shares as a dividend in liquidation or by way
of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends
under applicable law or any distribution to such holders made in
respect of the sale of all or substantially all of the Corporation's
assets (other than under the circumstances provided for in the
foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(f) hereof, inclusive, which in the opinion of the
Corporation's Board of Directors, determined in good faith, would have
a material adverse effect upon the rights of the Holder at the time of
a conversion of the Preferred Stock.
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series D Preferred Stock may be exercised, in whole
or in part, by the Holder by telecopying an executed and completed notice of
conversion in the form annexed hereto as Annex I (the "Conversion Notice") to
the Corporation. Each date on which a Conversion Notice is telecopied to the
Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Series D
Preferred Stock and issue the Common Stock Issued at Conversion to be issued
upon conversion thereof, and all voting and other rights associated with the
beneficial ownership of such Common Stock Issued at Conversion to be issued
upon conversion thereof shall vest with the Holder, effective as of the
Conversion Date at the time specified in the Conversion Notice. The Conversion
Notice also shall state the name or names (with addresses) of the Persons who
are to become the holders of the Common Stock Issued at Conversion in connection
with such conversion. The Holder shall deliver the shares of Series D Preferred
Stock to the Corporation by express courier within 30 days following the date on
which the telecopied Conversion Notice has been transmitted to the Corporation.
Upon surrender for conversion, the Preferred Stock shall be accompanied by a
proper assignment thereof to the Corporation or be endorsed in blank. As
promptly as practicable after the receipt of the Conversion Notice as aforesaid,
but in any event not more than five (5) Business Days after the Corporation's
receipt of such Conversion Notice and the Series D Preferred Stock being
converted, the Corporation shall (i) issue the Common Stock Issued at Conversion
in accordance with the provisions of this Article 6 (including, without
limitation, any shares of Common Stock issued pursuant to Section 4(a)(iii), at
the option of the Corporation, in payment of dividends on the Series D Preferred
Stock), (ii) cause to be mailed for delivery by overnight courier to the Holder
a certificate or certificate(s) representing the number of Common Shares to
which the Holder is entitled by virtue of
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such conversion and (iii) remit, in immediately available funds, payment as
provided in Section 6.3 in respect of any fraction of a Common Share issuable
upon such conversion and payment in the amount of accrued and unpaid dividends
as of the Conversion Date. Such conversion shall be deemed to have been effected
at the time at which the Conversion Notice indicates so long as the Series D
Preferred Stock shall have been surrendered as aforesaid at such time, and at
such time the rights of the Holder of the Series D Preferred Stock, as such,
shall cease and the Person or Persons in whose name or names the Common Stock
Issued at Conversion shall be issuable shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons. The Conversion Notice shall
constitute a contract between the Holder and the Corporation, whereby the Holder
shall be deemed to subscribe for the number of Common Shares which it will be
entitled to receive upon such conversion and, in payment and satisfaction of
such subscription (and for any cash adjustment to which it is entitled pursuant
to Section 6.4), to surrender the Series D Preferred Stock and to release the
Corporation from all liability thereon. No cash payment aggregating less than
$1.00 shall be required to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series D Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Series D Preferred Stock into Common Shares, then the Holder shall have the
right, by written notice to the Corporation, to require the Corporation to
promptly redeem, to the extent permitted by law, the Series D Preferred Stock
for cash at a redemption price equal to 127% of the Stated Value thereof
together with all accrued and unpaid dividends thereon (the "Mandatory Purchase
Amount"). Under any of the circumstances set forth above, the Corporation shall
be responsible for the payment of all costs and expenses of the Holder,
including reasonable legal fees and expenses, as and when incurred in disputing
any such action or pursuing its rights hereunder (in addition to any other
rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. (S) 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. (S) 362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. (S) 362 in
respect of the conversion of the Series D Preferred Stock. The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. (S) 362.
Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common Shares
shall be issued upon conversion of the Series D Preferred Stock. Instead of any
fractional Common Shares which otherwise would be issuable upon conversion of
the Series D Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction. No cash
payment of less than $1.00 shall be required to be given unless specifically
requested by the Holder.
Section 6.4 Reclassification, Consolidation, Merger or Mandatory Share
Exchange
At any time while the Series D Preferred Stock remains outstanding and any
shares thereof have not been converted, in case of any reclassification or
change of Outstanding Common Shares issuable upon conversion of the Series D
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series D Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the
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Series D Preferred Stock), or in the case of any sale or transfer to another
corporation of the property of the Corporation as an entirety or substantially
as an entirety, the Corporation will not effect any such action unless the
Corporation, or such successor, resulting or purchasing corporation, as the case
may be, shall, without benefit of any additional consideration therefor, issues
a new preferred stock providing that the Holder shall have the right to convert
such new preferred stock (upon terms and conditions not less favorable to the
Holder than those in effect pursuant to the Series D Preferred Stock) and to
receive upon such exercise, in lieu of each Common Share theretofore issuable
upon conversion of the Series D Preferred Stock, the kind and amount of shares
of stock, other securities, money or property receivable upon such
reclassification, change, consolidation, merger, mandatory share exchange, sale
or transfer by the holder of one Common Share issuable upon conversion of the
Series D Preferred Stock had the Series D Preferred Stock been converted
immediately prior to such reclassification, change, consolidation, merger,
mandatory share exchange or sale or transfer. The provisions of this Section 6.4
shall similarly apply to successive reclassifications, changes, consolidations,
mergers, mandatory share exchanges and sales and transfers.
Section 6.5 Adjustments to Conversion Price
For so long as any shares of the Series D Preferred Stock are outstanding,
if the Corporation: (i) issues and sells pursuant to an exemption from
registration under the Securities Act (A) Common Shares at a purchase price on
the date of issuance thereof that is lower than the Conversion Price (other than
Common Shares issuable upon exercise, conversion or exchange of securities
described in the following clause (B) or (C), (B) warrants or options with an
exercise price representing a percentage of the Current Market Price on the date
of issuance of the warrants or options that is lower than the Conversion Price,
except for employee stock option agreements or stock incentive agreements of the
Corporation, or (C) convertible, exchangeable or exercisable securities with a
right to exchange at lower than the Current Market Price on the date of issuance
or conversion, as applicable, of such convertible, exchangeable or exercisable
securities, except for stock option agreements or stock incentive agreements;
and (ii) grants the right to the purchaser(s) thereof to demand that the
Corporation register under the Securities Act prior to two years from the Issue
Date such Common Shares issued or the Common Shares for which such warrants or
options may be exercised or such convertible, exchangeable or exercisable
securities may be converted, exchanged or exercised, then the Conversion Price
shall be reduced to equal the lowest of any such lower prices.
Section 6.6 Optional Redemption and Optional Conversion
At any time after the date of issuance of the Series D Preferred Stock
until the Mandatory Conversion Date (as defined below), to the extent permitted
by law, the Corporation, upon notice delivered to the Holder as provided in
Section 6.7, may redeem all (but not less than all) of the Series D Preferred
Stock (but only with respect to such shares as to which the Holder has not
theretofore furnished a Conversion Notice in compliance with Section 6.2), at
the Optional Redemption Price, together with all accrued and unpaid dividends
thereon to the date of redemption (the "Redemption Date"); provided, however,
that the Corporation may only redeem the Series B Preferred Stock under this
Section 6.6 if the Current Market Price is less than the Current Market Price on
the Issue Date. Except as set forth in this Section 6.6, the Corporation shall
not have the right to prepay or redeem the Series D Preferred Stock.
Section 6.7 Notice of Redemption
Notice of redemption pursuant to Section 6.6 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 10 nor more than 15 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.6 (including a
statement of the Market Price per Common Share) and this Section 6.7.
Section 6.8 Surrender of Preferred Stock
Upon any redemption of the Series D Preferred Stock pursuant to Sections
6.6 or 6.7 the Holder shall either deliver the Series D Preferred Stock by hand
to the Corporation at its principal executive offices or surrender the same to
the Corporation at such address by express courier. Payment of the optional
Redemption Price specified in Section 6.6 shall be made by the Corporation to
the Holder against receipt of the Series D Preferred Stock (as
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provided in this Section 6.8) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify to the Corporation. If payment of
such redemption price is not made in full by the or the Redemption Date the
Holder shall again have the right to convert the Series D Preferred Stock as
provided in Article 6 hereof.
Section 6.9 Mandatory Conversion
On the second (2/nd/) anniversary of the Issue Date subject to 6.10(a) (the
"Mandatory Conversion Date"), the Corporation shall convert all Series D
Preferred Stock outstanding at the Conversion Price.
Section 6.10 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder shall
not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series D Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series D Preferred Stock in
shares of Common Stock) if and to the extent that the issuance to the Holder of
shares of Common Stock upon such conversion (or payment of dividends) would
result in the Holder being deemed the "beneficial owner" of more than 5% of the
then outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then outstanding shares of Common Stock,
then the Corporation shall redeem, to the extent permitted by law, so many of
such Holder's shares (the "Redemption Shares") of Series D Preferred Stock as
are necessary to cause such Holder to be deemed the beneficial owner of not more
than 5% of the then outstanding shares of Common Stock. Upon such determination
by a court of competent jurisdiction, the Redemption Shares shall immediately
and without further action be deemed returned to the status of authorized but
unissued shares of Series D Preferred Stock, and the Holder shall have no
interest in or rights under such Redemption Shares. Any and all dividends paid
on or prior to the date of such determination shall be deemed dividends paid on
the remaining shares of Series D Preferred Stock held by the Holder. Such
redemption shall be for cash at a redemption price equal to the sum of (i) the
Stated Value of the Redemption Shares and (ii) any accrued and unpaid dividends
to the date of such redemption; provided, however, if the redemption is a result
of the mandatory conversion pursuant to Section 6.9, the Corporation may either
(i) make such redemption in cash at a redemption price equal to the sum of (x)
127% of the Stated Value of such shares and (y) any accrued and unpaid dividends
to the date of such redemption or (ii) extend the Mandatory Conversion Date for
a period of one year.
(b) Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of the AMEX or
such stock market with which the Corporation shall be required to comply, but
only to the extent required thereby, the Corporation shall not issue shares of
Common Stock (i) upon conversion of any shares of Series D Preferred Stock or
(ii) as a dividend on the Series D Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (i) upon conversion of shares of the Series D Preferred Stock,
(ii) upon exercise of the Warrants issued pursuant to the terms of the
Securities Purchase Agreement and (iii) in payment of dividends on the Series D
Preferred Stock, would equal or exceed 20% of the number of shares of the
Corporation's Common Stock which were issued and outstanding on the Issue Date
(the "Maximum Issuance Amount"). In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (i)
converting the number of shares of Series D Preferred Stock stated in the
Conversion Notice not in excess of the Maximum Issuance Amount and (ii)
redeeming, to the extent permitted by law, the number of shares of Series D
Preferred Stock stated in the Conversion Notice equal to or in excess of the
Maximum Issuance Amount in cash at a price equal to 127% of the Stated Value of
the shares of Series D Preferred Stock to be so redeemed, together with all
accrued and unpaid dividends thereon. In the event that the Corporation shall
elect to pay a dividend in shares of Common Stock which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall pay (i) a dividend in shares of Common
Stock equal to one less than an amount which would result in the Corporation
issuing shares equal to the Maximum Issuance Amount and (ii) the balance of the
dividend in cash.
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ARTICLE 7
Voting Rights
The holders of the Series D Preferred Stock have no voting power, except as
otherwise provided by the General Corporation Law of the State of Delaware
("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each Holder of
Series D Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least 30 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such action is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding, the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of the Series D
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least a majority of the outstanding shares of
Series D Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
D Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series D Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series D Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series D Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
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Except as otherwise required by applicable law, subject to receipt of the
approval of the Holders of the Series D Preferred Stock as required herein, the
Corporation may alter or change the rights, preferences or privileges of the
Series D Preferred Stock without the approval of any other class or series of
capital stock of the Corporation.
ARTICLE 8
Protective Provisions
So long as shares of Series D Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the Holders of at least a majority of the
then outstanding shares of Series D Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series D
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series D Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation ("Senior
Securities") or alter or change the rights, preferences or privileges
of any Senior Securities so as to affect adversely the Series D
Preferred Stock;
(c) increase the authorized number of shares of Series D Preferred Stock;
or
(d) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the holders of shares
of the Series D Preferred Stock under Section 305 of the Internal
Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended).
In the event Holders of least a majority of the then outstanding shares of
Series D Preferred Stock give their approval to allow the Corporation to alter
or change the rights, preferences or privileges of the shares of Series D
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series D
Preferred Stock, then the Corporation will deliver notice of such approved
change to the Holders of the Series D Preferred Stock that did not approve such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of 30 days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series D Preferred Stock.
ARTICLE 9
Miscellaneous
Section 9.1 Loss, Theft, Destruction of Preferred Stock Certificates
Upon receipt of evidence satisfactory to the Corporation of the loss,
theft, destruction or mutilation of shares of Series D Preferred Stock and, in
the case of any such loss, theft or destruction, upon receipt of indemnity or
security reasonably satisfactory to the Corporation, or, in the case of any such
mutilation, upon surrender and cancellation of the Series D Preferred Stock, the
Corporation shall make, issue and deliver, in lieu of such lost, stolen,
destroyed or mutilated shares of Series D Preferred Stock, new shares of Series
D Preferred Stock of like tenor. The Series D Preferred Stock shall be held and
owned upon the express condition that the provisions of this Section 9.1 are
exclusive with respect to the replacement of mutilated, destroyed, lost or
stolen shares of Series D Preferred Stock and shall preclude any and all other
rights and remedies notwithstanding any law or statute existing or hereafter
enacted to the contrary with respect to the replacement of negotiable
instruments or other securities without the surrender thereof.
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series D Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series D Preferred Stock for the
purpose of receiving payment of dividends on the Series D Preferred Stock, for
the conversion of the Series D Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary.
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All such payments and such conversion shall be valid and effectual to satisfy
and discharge the liability upon the Series D Preferred Stock to the extent of
the sum or sums so paid or the conversion so made.
Section 9.3 Notice of Certain Events
In the case of the occurrence of any Valuation Event described in Sections
6.1, or 6.6 of this Certificate of Designation, the Corporation shall cause to
be mailed to the Holder of the Series D Preferred Stock at its last address as
it appears in the Corporation's security registry, at least 20 days prior to the
applicable record, effective or expiration date hereinafter specified (or, if
such 20 days notice is not possible, at the earliest possible date prior to any
such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not to be
taken, the date as of which the Holders of record of Series D Preferred Stock to
be entitled to such dividend, distribution, issuance or granting of rights,
options or warrants are to be determination or the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and (y) the date as
of which it is expected that Holders of record of Series D Preferred Stock will
be entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
Section 9.4 Register
The Corporation shall keep at its principal office a register in which the
Corporation shall provide for the registration of the Series D Preferred Stock.
Upon any transfer of the Series D Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the Series D
Preferred Stock register.
The Corporation may deem the person in whose name the Series D Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series D Preferred Stock for the
purpose of receiving payment of dividends on the Series D Preferred Stock, for
the conversion of the Series D Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversions shall be valid and effective to satisfy and
discharge the liability upon the Series D Preferred Stock to the extent of the
sum or sums so paid or the conversion or conversions so made.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series D Preferred Stock.
Section 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
In Witness Whereof, the Corporation has caused this Certificate of
Designation, Preferences and Rights to be signed by its duly authorized officers
on ___________________, 2000.
AMERICAN TELESOURCE INTERNATIONAL, INC.
By: /s/ H. Douglas Saathoff
-----------------------
H. Douglas Saathoff
Title: Senior Vice President
By: /s/ Charles R. Poole
--------------------
Name: Charles R. Poole
Title: President
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ANNEX I
FORM OF CONVERSION NOTICE
To: American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
The undersigned owner of this Series D 6% Convertible Preferred Stock (the
"Series D Preferred Stock") issued by American TeleSource International, Inc.
(the "Corporation") hereby irrevocably exercises its option to convert
__________ shares of the Series D Preferred Stock into shares of the common
stock, par value $0.001 per share ("Common Stock"), of the Corporation in
accordance with the terms of the Certificate of Designation. The undersigned
hereby instructs the Corporation to convert the number of shares of the Series D
Preferred Stock specified above into Shares of Common Stock Issued at Conversion
in accordance with the provisions of Article 6 of the Certificate of
Designation. The undersigned directs that the Common Stock issuable and
certificates therefor deliverable upon conversion, the Series D Preferred Stock
re-certificated, if any, not being surrendered for conversion hereby, together
with any check in payment for fractional Common Stock, be issued in the name of
and delivered to the undersigned unless a different name has been indicated
below. All capitalized terms used and not defined herein have the respective
meanings assigned to them in the Certificate of Designation. So long as the
Series D Preferred Stock shall have been surrendered for conversion hereby, the
conversion pursuant hereto shall be deemed to have been effected at the date and
time specified below, and at such time the rights of the undersigned as a Holder
of the Series D Preferred Stock shall cease and the Person or Persons in whose
name or names the Common Stock Issued at Conversion shall be issuable shall be
deemed to have become the holder or holders of record of the Common Shares
represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons.
Date and time:_____________________
________________________________________
Signature
Fill in for registration of Series D Preferred Stock:
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
Please print name and address (including zip code number)
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Exhibit 4.7
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: 150,000
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"), 150,000 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.
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.
"Amex" shall mean The American Stock Exchange.
"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.
"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.
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"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 prices of the Common Shares as reported on the Amex
for the five Trading Days immediately preceding such date of determination;
provided that, if such security is not listed on the Amex, 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 prices of a share of Common Stock as
reported on the Amex on five (5) Trading Days during the period of ten (10)
Trading Days immediately preceding February 17, 2000, 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.
"Expiration Date" shall mean February 22, 2005.
"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
prices of the Common Shares as reported on the Amex for the five trading days
immediately preceding February 17, 2000.
"Other Property" shall have the meaning set forth in Section 4.4.
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"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.
"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.
Exercise of Warrant
-------------------
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
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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 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.
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, 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.
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.
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
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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.
Transfer, Division and Combination
----------------------------------
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.
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 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.
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.
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.
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.
Stock Dividends, Subdivisions and Combinations
- ----------------------------------------------
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 a dividend
payable in, or other distribution of, Additional Shares of Common Stock;
subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock; or
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.
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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:
cash;
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 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.
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:
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.
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.
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.
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.
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
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<PAGE>
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.
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 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.
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.
Notices to Holder
-----------------
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.
Notice of Corporate Action
- --------------------------
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 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
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
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of the Company;
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,
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<PAGE>
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.
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.
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 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.
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.
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<PAGE>
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.
Restrictive Legend
- ------------------
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:
"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."
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."
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.
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
April 1, 2000, a Registration Statement relating to the offer and sale of the
Common Stock issuable upon exercise of the Warrants and shall use its best
efforts to cause the
76
<PAGE>
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but no later than June 1, 2000.
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).
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.
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.
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.
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.
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.
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<PAGE>
Miscellaneous
-------------
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.
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:
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)
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.
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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, 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.
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.
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.
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.
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.
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.
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]
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<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: February __, 2000
American TeleSource International, Inc.
By:_____________________________________
Name: H. Douglas Saathoff
Title: Chief Financial Officer
Attest:
By:______________________________
Name:
Title:
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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.
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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.
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Exhibit 4.8
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 Corporate Capital Management LLC, 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.
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.
"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 mean July 1, 1999. "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
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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 4.3.
"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.
"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 4.3.
"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
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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).
"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.
"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.
Exercise of Warrant
-------------------
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 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
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<PAGE>
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 by payment of the Warrant Price in cash by wire
transfer or cashier's check drawn on a United States bank
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, 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.
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.
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.
Transfer, Division and Combination
----------------------------------
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.
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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 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.
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.
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.
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.
Stock Dividends, Subdivisions and Combinations
- ----------------------------------------------
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 a dividend payable in, or other distribution of, Additional
Shares of Common Stock;
subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock; or 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.
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:
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.
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.
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.
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
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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.
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 4.3, "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 4.3 still similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
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 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.
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.
Notices to Holder
-----------------
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, specifying the number of shares of Common Stock for which this
Warrant is exercisable and (if such adjustment was made pursuant to Section 4.3
or 4.4) 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
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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.
Notice of Corporate Action
- --------------------------
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 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
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
there shall be a voluntary or involuntary dissolution, liquidation or winding up
of the Company;
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.
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.
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 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.
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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.
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.
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.
Restrictive Legend
- ------------------
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:
"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."
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."
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
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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.
9.4 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).
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.
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.
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.
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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.
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.
Miscellaneous
-------------
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.
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:
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)
if to the Holder, to:
Corporate Capital Management LLC
2000 South Plymouth Road, Suite 200
Minnetonka, Minnesota 55305
(612)545-7677
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(612)512-9958
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
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, 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. 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.
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.
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.
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.
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.
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.
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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:_______________________________________
Name:
Title:
Attest:
By:______________________________
Name:
Title:
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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.
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<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.
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<PAGE>
Exhibit 4.9
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of February 22, 2000
(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 February 22, 2000, between the Initial
Investor and the Company (the "Securities Purchase Agreement"), the Company has
agreed to issue and sell to the Initial Investor (i) 3,000 shares of its Series
D 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 D 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 150,000 shares of
Common Stock;
Whereas, upon the terms and subject to the conditions of the
Certificate of Designation, the 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 150,000 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, securities,
ownership or otherwise; and the terms "controlling" and "controlled" have
the respective meanings correlative to the foregoing.
(ii) "Commission" means the Securities and Exchange Commission.
(iii) "Current Market Price" on any date of determination means the
closing price of a share of the Common Stock on such day as reported on The
American Stock Exchange (the "Amex") or, if such security is not listed on
the Amex, 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
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<PAGE>
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.
(iv) "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.
(v) "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.
(vi) "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.
(vii) "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.
(viii) "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.
(ix) "Registrable Securities" means the Common Stock issued or issuable
(i) in lieu of cash dividend payments on the Preferred Shares, (ii) upon
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.
(x) "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.
(xi) "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.
(xii) "Securities Act" means the Securities Act of 1933, as amended, and
the rules and regulations of the Commission thereunder, or any similar
successor statute.
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<PAGE>
(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 April 1, 2000, 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 June 1, 2000, assuming for purposes hereof a
Conversion Price (as defined in the Certificate of Designation) of $2.50. The
Company shall not include any other securities in the Registration Statement
relating to the offer and sale of the Registrable Securities. 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.
(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 on
or before April 1, 2000 or (ii) declared effective by the Commission on or
before June 1, 2000 (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 April 1, 2000, 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 $3.00 per share or less, as the same may be adjusted
from time to time for any subdivision or combination of shares of Common Stock
after the date hereof (the date of such event, 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 (as defined
in the Certificate of Designation) 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 Securities
Act as promptly as practicable but
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<PAGE>
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 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
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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 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;
(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 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
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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;
(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;
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(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;
(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
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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.
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 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
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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.
(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
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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 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.
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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:
American TeleSource International, Inc.
12500 Network Boulevard, Suite 407
San Antonio, Texas 78249
(210) 558-6090
(210) 558-6095 (Fax)
Attention: H. Douglas Saathoff
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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 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.
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(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.
(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.
[NO FURTHER TEXT ON THIS PAGE.]
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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: Chief Financial Officer
The Shaar Fund Ltd.
By: /s/ Samuel Levinson
------------------------------
Name: Samuel Levinson
Title: Managing Director
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Exhibit 5.1
April 11, 2000
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
2,226,001 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 C Cumulative Convertible Preferred Stock (the "Series C
Certificate of Designation");
4. Common Stock Purchase Warrant issued by ATSI to The Shaar Fund
Ltd. dated September 24, 1999 (the "Series C Warrant");
5. Written Consent of the Board of Directors of ATSI dated September
effective September 24, 1999 regarding the issuance of the Series
C Preferred Stock;
6. ATSI's Certificate of Designation, Preferences and Rights of 6%
Series D Cumulative Convertible Preferred Stock (the "Series D
Certificate of Designation");
7. Common Stock Purchase Warrant issued by ATSI to The Shaar Fund
Ltd. dated February 22, 2000 (the "Series D Warrant");
8. Written Consent of the Board of Directors of ATSI dated February
15, 2000 regarding the issuance of the Series D Preferred Stock;
and
9. Certificates of Good Standing for ATSI issued by the Secretary of
State of the State of Delaware dated June 22, 1999 and February
11, 2000.
I note that all of the shares of common stock that were issuable
under the terms of the Series C Certificate of Designation were
issued on March 7, 2000, including 484,872 upon conversion of the
Series C Preferred Stock, and 7436 in payment of dividends due on
the Series C Preferred Stock.
34
<PAGE>
The Series D Certificate of Designation permits ATSI to redeem
the 6% Series D Cumulative Convertible Preferred Stock upon
payment of cash and delivery of an additional warrant in the form
of the Series D 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 Series D
Warrant except for the date of issuance.
Based on my review of these documents, it is my opinion that the
Shares issued pursuant to the Series C Certificate of Designation have been duly
authorized, validly issued, fully paid and nonassessable, and that the Shares
issuable under the Series D Certificate of Designation and the Series C Warrant,
the Series D Warrant, and the Redemption Warrant 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 Series D Certificate of Designation, the
Series D Warrant, and the Redemption Warrant, or in payment of dividends on the
6% Series D Cumulative Convertible Preferred Stock pursuant to the terms of the
Series D 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
35
<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 5, 1999
included in American TeleSource International, Inc.'s Form 10-K/A for the
year ended July 31, 1999 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Arthur Andersen LLP
San Antonio, Texas
April 13, 2000
111
