<PAGE>
As filed with the Securities and Exchange Commission on April 28, 2000
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM S-3
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
AMERICAN TELESOURCE INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
74-2849955
(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 continuos basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. / X /
---
If this Form is filed to register additional securities for an offering pursuant
to Rule 462(b) under the Securities Act, please check the following box and list
the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
---
<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 to refinance debt 533,774 $5.125 $ 2,735,591.75 $ 722.20
- -------------------------------------------------------------------------------------------------------
Common stock issued upon conversion of
debt 2,099,155 $5.125 $10,758,169.38 $2,840.16
- -------------------------------------------------------------------------------------------------------
Common stock issuable upon conversion
of convertible preferred stock 500,000 $5.125 $ 2,562,500 $ 676.50
- -------------------------------------------------------------------------------------------------------
Common Stock to be paid as dividend on
convertible preferred stock 50,000 $5.125 $ 256,250 $ 67.65
=======================================================================================================
</TABLE>
Calculated pursuant to Rule 457 (c), using the average of the high and low
prices reported on April 26, 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]
3,182,929 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 9.
The selling shareholders identified on page 25 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 27. 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 26, 2000, the closing price of our common stock was $5.125 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.
i
<PAGE>
TABLE OF CONTENTS
RELY ONLY ON THIS PROSPECTUS................ 1
THE COMPANY................................. 1
RISK FACTORS................................ 9
FORWARD LOOKING STATEMENTS.................. 21
USE OF PROCEEDS............................. 21
COMMON STOCK ISSUED......................... 21
SELLING SHAREHOLDERS........................ 24
PLAN OF DISTRIBUTION........................ 27
LEGAL MATTERS............................... 28
EXPERTS..................................... 28
WHERE YOU CAN FIND MORE INFORMATION......... 28
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, CuteFTPR, CuteHTMLR , CuteZIPTM, CuteMAP and
CuteMXTM.
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 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 26, 2000 we have 66,639,081 shares of common stock outstanding,
of which 58,799,268 are registered with the SEC. Of the 7,839,813 outstanding
shares that are not registered, 5,056,518 have been held for more than one year,
making them eligible for resale in a "brokers transactions" as defined in SEC
Rule 144. 2,632,929 shares are included in the registration statement of which
this prospectus is a part.
We included 19,693 shares of common stock in the registration statement
filed October 26, 1999 and amended April 14, 2000 that have not yet been issued,
but will be issued upon effectiveness of that 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. Our registration statement filed on October 26, 1999 and amended on April
14, 2000 included 1,420,000 shares of common stock that may be issued upon
conversion of preferred stock, payment of dividends on preferred stock, and
exercise of warrants, and we have included 550,000 shares of common stock that
may be issued upon conversion of preferred stock and in payment of dividends on
preferred stock in the registration statement of which this prospectus is a
part.
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 beginning on page 6, "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
Underlying Status
Common Stock
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Series A Preferred - March 1,141 Mandatory 1141 divided by $6.11 Unregistered
conversion on times 100 (until March
February 28, 2005 25, 2001)
- ------------------------------------------------------------------------------------------------------
Warrant 1 expires March 9, $3.09 per share common Unregistered
2002 stock
- ------------------------------------------------------------------------------------------------------
Warrant 1 expires July 2 , $ 1.25 included in
2004 registration
statement filed
with SEC on
October 26, 1999
and amended April
14, 2000
- ------------------------------------------------------------------------------------------------------
Warrant 1 expires $ 1.19 included in
September 24, registration
2004 statement filed
with SEC on
October 26, 1999
and amended April
14, 2000
- ------------------------------------------------------------------------------------------------------
Series A Preferred - 4,370 mandatory 4370 divided by $.8969 unregistered
December 3, 1999 conversion on times 100 (until
February 28, 2005 December 3, 2000)
- ------------------------------------------------------------------------------------------------------
Series A Preferred - 10,000 mandatory 10,000 divided by $.9430 unregistered
December 8, 1999 conversion on times 100 (until
February 28, 2005 December 8, 2000)
- ------------------------------------------------------------------------------------------------------
Warrant 1 exercisable $.9430 unregistered
</TABLE>
<TABLE>
<CAPTION>
Resulting Number of Shares % of Total Current
of Common Outstanding on a
Fully-Diluted Basis
Assuming Full
Conversion
- ----------------------------------------------------
<S> <C>
18,674 Less than 1%
- ----------------------------------------------------
40,000 Less than 1%
- ----------------------------------------------------
50,000 Less than 1%
- ----------------------------------------------------
20,000 Less than 1%
- ----------------------------------------------------
487,233 Less than 1%
- ----------------------------------------------------
1,060,445 1.48%
- ----------------------------------------------------
106,045 Less than 1%
- ----------------------------------------------------
</TABLE>
3
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
after December
8, 2000; expires
December 8, 2004
- ----------------------------------------------------------------------------------------------------
Series A Preferred - 10,000 Mandatory 10,000 divided by $2.00 included in
February 4, 2000 conversion on times 100 (until registration
February 28, 2005 February 2, 2001) statement of
which this
prospectus is a
part
- ----------------------------------------------------------------------------------------------------
Series D Preferred 3,000 Mandatory lesser of $5.4375 or 83% included in
conversion on of the average of the 5 registration
February 22, 2002 lowest closing bid statement filed
prices of the common with SEC on
stock during the 10 October 26, 1999
trading days preceding and amended April
conversion, times 1000 14, 2000
per share
- ----------------------------------------------------------------------------------------------------
Warrants 2 expires February $ 4.37 included in
22, 2004 registration
statement filed
with SEC on
October 26, 1999
and amended April
14, 2000
- ----------------------------------------------------------------------------------------------------
Series D Redemption 1 expires five $ 4.37 included in
Warrant years from date registration
(may be issued if ATSI of issuance statement filed
redeems) with SEC on
October 26, 1999
and amended April
14, 2000
- ----------------------------------------------------------------------------------------------------
Common stock 19,693 n/a n/a included in
registration
statement filed
with SEC on
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- ---------------------------------------------------
<S> <C>
500,000 Less than 1%
- ---------------------------------------------------
551,724 assuming Less than 1%
conversion price of $5.4375
- ---------------------------------------------------
150,000 Less than 1%
- ---------------------------------------------------
150,000 Less than 1%
- ---------------------------------------------------
19,693 Less than 1%
- ---------------------------------------------------
</TABLE>
4
<PAGE>
<TABLE>
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
October 26, 1999
and amended April
14, 2000
- ----------------------------------------------------------------------------------------------------
Warrants 2 Expire March 31, $ 7.17 piggyback
2003 registration
rights
- ----------------------------------------------------------------------------------------------------
Vested options under earlier of 10 n/a registered
stock option plans years from date
of grant or four
months from
termination of
employment
- ----------------------------------------------------------------------------------------------------
Unvested options under same as vested n/a registered
stock option plans
- ----------------------------------------------------------------------------------------------------
TOTAL NEW SHARES OF
COMMON STOCK
- ----------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
- -------------------------------------------------
<S> <C>
- -------------------------------------------------
175,000 Less than 1%
- -------------------------------------------------
283,500 Less than 1%
- -------------------------------------------------
1,336,381 1.87%
- -------------------------------------------------
4,948,695 6.91%
- -------------------------------------------------
</TABLE>
We signed an agreement on April 10, 2000 with an investor under which we
may require the investor to purchase up to 5 million shares of common stock over
an eighteen month period at 92% of the market price for our common stock at the
time of purchase. We are not required to use this facility, but if we do use
this facility we must issue common stock for an aggregate investment of at least
$1.5 million over the term of the facility. If ATSI elects to use this facility,
it must issue to the investor warrants for 1,500 shares of common stock for
every $100,000 that is invested at an exercise price of 120% of the average of
the five closing sale prices preceding the date of the investment, and an
additional 1,000 warrants per 100,000 invested to the placement agent on the
same terms. To use this facility, we must file a registration statement for the
common stock that we would issue and obtain effectiveness of the registration
statement.
5
<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 25,511 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 Rights Votes as if conversion of outstanding shares None, except as required by Delaware law
occurred on record date for vote; majority
approval required for significant corporate events
such as merger or sale
- -----------------------------------------------------------------------------------------------------------------------------
Conversion Price Average of closing sale prices for the 20 trading Lesser of $5.4375 or 83% of the average of the
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 Time From date of issuance to February 28, 2005; Any time after February 22, 2000, except for a
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 Price stock split or stock dividend of additional shares at a discount to market,
holder may elect to convert based on average
closing bid price during
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
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 ATSI per share and accrued and unpaid dividends, or
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 of Series A which ATSI has
agreed to register one time 30 day lock out if price of
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
<TABLE>
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
common stock is $2.50 or less
- -----------------------------------------------------------------------------------------------------------------------------
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>
We also have outstanding warrants and options for the purchase of our common
stock as described on the table beginning on page 3 of this prospectus.
8
<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
9
<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 fiscal
2000, the monthly average amount due to these suppliers as a group was
approximately
10
<PAGE>
$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 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
11
<PAGE>
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 revenues by six months. This difficulty is described in more
detail in our amended 10-K in Legal Proceedings.
12
<PAGE>
. 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
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.
13
<PAGE>
. 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.
. If the value of the Mexican Peso declines relative to the Dollar, we will
have decreased earnings as stated Dollars
14
<PAGE>
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 $185,000 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 26, 2000, we have not obtained effectiveness of the registration
statement, resulting in liquidated damages owing to The Shaar Fund of
$125,000, with another $25,000 to accrue if the registration statement is not
effective by May 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.
. 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.
15
<PAGE>
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 below 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.
16
<PAGE>
<TABLE>
<CAPTION>
Avg. of 5 Lowest Series D Conversion Total Number of Total Number of Shares of Common
Bid Prices During Price (lesser of Shares of Common Shares of Common Stock issued on
10 Trading Days $5.4375 and 83% of Stock Issued Upon Stock issued in exercise of
Preceding average Conversion of payment of warrants
Conversion Series D Preferred dividends over two
Stock years
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
$0.37 $0.3071 9,768,805 1,172,257 170,000
- -----------------------------------------------------------------------------------------------------------
$.50 $ .415 7,228,916 867,470 170,000
- -----------------------------------------------------------------------------------------------------------
$1.00 $ .83 3,614,458 433,735 170,000
- -----------------------------------------------------------------------------------------------------------
$2.00 $ 1.66 1,807,229 216,867 170,000
- -----------------------------------------------------------------------------------------------------------
$3.00 $ 2.49 1,204,819 144,578 170,000
- -----------------------------------------------------------------------------------------------------------
$4.00 $ 3.32 903,614 108,434 170,000
- -----------------------------------------------------------------------------------------------------------
$5.00 $ 4.15 722,892 86,747 170,000
- -----------------------------------------------------------------------------------------------------------
$6.00 $ 4.98 602,410 72,289 170,000
- -----------------------------------------------------------------------------------------------------------
$7.00 $5.4375 551,724 66,207 170,000
- -----------------------------------------------------------------------------------------------------------
$8.00 $5.4375 551,724 66,207 170,000
- -----------------------------------------------------------------------------------------------------------
$9.00 $5.4375 551,724 66,207 170,000
- -----------------------------------------------------------------------------------------------------------
$10.00 $5.4375 551,724 66,207 170,000
- -----------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Shares of Common Total Shares Issued Shaar Fund % of ATSI
Stock issued upon to The Shaar Fund common stock on full
conversion of conversion
series C preferred
stock
- -----------------------------------------------------------------
<S> <C> <C>
492,402 11,603,464 14.92%
- -----------------------------------------------------------------
492,402 8,758,788 11.69%
- -----------------------------------------------------------------
492,402 4,710,595 6.65%
- -----------------------------------------------------------------
492,402 2,686,498 3.90%
- -----------------------------------------------------------------
492,402 2,011,800 2.95%
- -----------------------------------------------------------------
492,402 1,674,450 2.47%
- -----------------------------------------------------------------
492,402 1,472,041 2.18%
- -----------------------------------------------------------------
492,402 1,337,101 1.98%
- -----------------------------------------------------------------
492,402 1,280,333 1.90%
- -----------------------------------------------------------------
492,402 1,280,333 1.90%
- -----------------------------------------------------------------
492,402 1,280,333 1.90%
- -----------------------------------------------------------------
492,402 1,280,333 1.90%
- -----------------------------------------------------------------
</TABLE>
17
<PAGE>
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.
. 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 beginning on page 3 shows all of the
outstanding securities that are convertible into or exercisable for ATSI's
common stock. The table on page 6 describes the features of the preferred
stock in more detail. Given the current market price of our stock, the
holders 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.
18
<PAGE>
. 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
Most of the common stock that is included in the Potential Dilution Chart
beginning on page 3 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 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. For example, on April 10, 2000 we entered into an agreement under
which we may require an investor to purchase up to 5,000,000 shares of our
common stock to an investor over an eighteen-month period at a discount. See
the paragraph following our Potential Dilution chart on page 5 of this
prospectus for more information on this financing facility. 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.
19
<PAGE>
. 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.
. 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.
. 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 relating to the probable
dilution of the common stock will tend to increase volatility in the price
of our common stock.
20
<PAGE>
. 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-off 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:
. 1,728,552 shares of common stock issued on March 13, 2000 in exchange for
convertible notes having a balance of $3,579,598;
. 533,774 shares of common stock issued on March 13, 2000 to raise funds to
retire convertible notes having a balance of $632,202;
. 370,603 shares of common stock issued on March 13, 2000 in exchange for a
note having an outstanding balance of $439,000;
21
<PAGE>
. an undetermined number of shares of common stock that may be issued upon
conversion of 10,000 shares of our series A preferred stock issued to Kings
Peak, LLC. on February 4, 2000;
. an undetermined number of shares of common stock that may be issued in
payment of dividends on the series A preferred stock issued to Kings Peak,
LLC on February 4, 2000; we do not know how many shares of common stock
will be issued upon conversion of or payment of dividends on the series A
preferred stock issued to Kings Peak on February 4, 2000. As described in
the chart on page 6 of this prospectus, the series A preferred stock is
convertible into common stock based on a floating rate that is a discount
of the common stock price;
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.
Convertible Notes
On March 17, 1997 ATSI issued notes to 23 investors for an aggregate of
$2.2 million. The notes had a maturity of March 17, 2000 and provided for
interest at 10% per annum to be paid on a semi-annual basis on March 1 and
September 1 of each year. The notes provided that ATSI could issue a series of
redeemable preferred stock and convert the notes to the preferred stock prior to
maturity. In October 1997, the holders of the notes agreed to a modification
permitting ATSI to defer payment of accrued interest until maturity.
Each note holder was also issued warrants to purchase common stock of ATSI
for no additional consideration. The warrants had an exercise price per share
of $.27, and were exercisable for three years. Note holders were issued
warrants for the purchase of 108,549 shares of common stock for each $50,000
invested in the convertible notes.
By letters to the note holders dated December 30, 1999 and January 24,
2000, ATSI offered the note holders the right to exercise outstanding warrants
to purchase ATSI's common stock by offsetting the exercise price against amounts
accrued on their note, and the right to convert any remaining balance of the
note into common stock of ATSI at a conversion price equal to a 20% discount to
the average closing price of ATSI's common stock during the month of January
2000. ATSI also agreed to register the shares of common stock issued upon
conversion of the notes. Note holders having an accrued balance of approximately
$2.27 million elected to accept ATSI's offer. Of the $2.27 million,
approximately $200,000 was applied to the exercise price of warrants held by the
note holders, and the remaining balance was converted to ATSI common stock at a
conversion price of $1.1844 resulting in the issuance of 1,728,552 shares.
The note holders who did not accept ATSI's offer were paid in full with the
proceeds of a private placement completed on January 31, 2000. ATSI issued
533,774 shares or common stock in the private placement at a purchase price of
$1.1844, the same as the conversion price offered to the converting note
holders.
22
<PAGE>
Beachcraft Note
On October 14, 1997, ATSI borrowed $1 million from the predecessor of
Beachcraft Limited Partnership and issued a note for this amount. The note had
a maturity of October 14, 2004 and provided for interest at 13% per annum. The
principal and interest were to be paid in equal quarterly installments beginning
on January 14, 1998. ATSI made scheduled payments on the note and also offset
amounts due from the holder for the exercise of warrants against amount due
under the note. The outstanding balance of the note on January 31, 2000 was
approximately $440,000. ATSI offered Beachcraft the option to convert the
outstanding balance to shares of ATSI common stock at a conversion price of
$1.1844. Beachcraft accepted the offer, and ATSI issued 319,286 shares of
common stock to Beachcraft Limited Partnership and 51,317 shares to Beachcraft's
designee Data Processing Services.
Series A Preferred Stock
On February 4, 2000, ATSI issued 10,000 shares of its series A preferred
stock to Kings Peak, LLC. ATSI agreed to register the common stock into which
the series A preferred stock may be converted.
Kings Peak may convert each share of series A preferred stock into that
number of shares of common stock that is equal to $1000 plus accrued but unpaid
dividends, divided by a conversion price that is a discount to market, as
described below. The conversion price is reset on each annual anniversary of
the issuance.
The conversion price is the greater of:
. 75% of the average of the price of ATSI's common stock for the twenty
trading days preceding the issuance of the shares, or the anniversary
of the issuance of the shares as applicable
or
. 75% of the initial conversion price.
The initial conversion price is $2.00, which is the average of the "price" of
ATSI's common stock for the twenty trading days ending on February 4, 2000.
The "price" of ATSI's common stock for each of these days is the average of the
closing price on the American Stock Exchange. The conversion price will be
reset on February 4, 2001.
The series A preferred stock provides for a dividend of 10% per annum,
payable each June, September, December, and March. Accrued but unpaid dividends
at the time of conversion will be converted to common stock using the conversion
price stated above.
If Kings Peak elects to convert all of its series A preferred stock prior
to February 4, 2001, the first anniversary of its issuance, we will issue
500,000 shares of common stock, plus shares of common stock equal to accrued but
unpaid dividends divided by the conversion price. Since we do not know when
Kings Peak will convert its preferred stock, we do not know how many shares may
be issued with respect to dividends. As of March 1, accrued but unpaid
dividends equaled approximately $8,333, with another $25,000 to accrue
quarterly. We have included 50,000 shares of common stock in the prospectus for
the conversion of dividends, which is the number of shares that would be issued
if Kings Peak converted its preferred stock on the day prior to the first
anniversary of the issue date, and we had not paid any dividends in cash during
that time.
23
<PAGE>
We do not know if Kings Peak will convert its series A preferred stock
prior to the first anniversary of it issuance. The conversion price will be
reset on the first anniversary, so if Kings Peak does not convert its preferred
stock prior to this time, we do not know how many shares of common stock we will
issue upon conversion since the conversion price floats with the market.
The terms of the series A preferred stock are described in detail in the
chart appearing on page 6 of this prospectus.
SELLING SHAREHOLDERS
There are 24 selling shareholders. The selling shareholders who acquired
their shares by conversion of convertible notes are: William H. and Deborah
M. Ford, JoAnne Ford, Mathew Clyde Gray, Elizabeth Gray, Larry P. Baker,
Emerson Banack, Jr., Ben J. Chilcutt, Dan Gostylo, William A. Jeffers, Jr.,
Peter Kilpatrick, Peter A. Leininger, Darren E. Meyer, Mary T. Meyer, Bruce
Hall, Gene Meyer, and Robert Voelker. The selling shareholders who
acquired their shares on conversion of the Beachcraft Note are Beachcraft
and Data Processing Services. The selling shareholders who acquired their
shares in the private placement of common stock to raise funds to retire
convertible debt are Beachcraft, Larry Peterson, and E. Andrew Sensenig.
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.
. The selling shareholders that acquired their shares of common stock
upon conversion of the convertible notes were issued warrants for the
purchase of ATSI common stock at the time of the issuance of the
convertible notes. See the section entitled "Convertible Notes,"
above. Each of these selling shareholders has since exercised these
warrants.
. Peter Kilpatrick and Emerson Banack, Jr. are shareholders with the law
firm Langley & Banack, Inc. and William Jeffers, Jr. is a withdrawn
shareholder with that firm. Peter Kilpatrick, Emerson Banack, Jr., and
other attorneys at Langley & Banack perform legal services for us,
primarily in connection with litigation matters. A member of our Board
of Directors, Robert B. Werner is also a shareholder with the firm.
During the twelve months ending April 28, 2000, the firm performed
services for which we have been billed approximately $87,000. Peter
Kilpatrick and Emerson Banack, Jr. have exercised warrants during the
past three years that were issued in private placements.
. E. Andrew Sensenig is a member of the Board of Directors and Vice
Chairman of Travis Morgan Securities, Inc., and is a member of the
Board of Directors of the parent of Travis Morgan. Travis Morgan
assisted us in obtaining conversion of a portion of the convertible
notes and placing the 533,774 shares of common stock that were issued
to raise funds to retire a portion of the convertible notes as
described in the section of this prospectus captioned "Convertible
Notes" on page 22. We issued Travis Morgan 118,800 shares of common
stock as a fee for these services. Mr. Sensenig has exercised warrants
during the past three years that were issued in private placements.
24
<PAGE>
. Dan Gostylo is an employee of Provident Commercial Real Estate
Services, and has acted as a broker in connection with our office
lease for approximately 15,000 square feet having a one hundred and
two-month term. Mr. Gostylo's commission in connection with this lease
was paid by the landlord. Mr. Gostylo has exercised warrants during
the past three years that were issued in a private placement. Mr.
Gostylo has also been issued common stock during the past three years
pursuant to ATSI's call of warrants that were issued in a private
placement.
. David Strolle, Larry A. Peterson and Larry Baker have each been issued
common stock during the past three years pursuant to ATSI's call of
warrants that were issued in a private placement.
The shareholders, the amount of common stock owned as of April 26, 2000, the
maximum amount of common stock that may be offered under the Registration
Statement, and the percentage ownership in ATSI upon completion of the offering
is shown in the table below.
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------
Amount of Maximum Amount of % of Common
Common Stock Amount of Common Stock Stock Owned
Name Owned as of Common Stock Owned upon upon
April 26, 2000 that may be completion of completion of
Offered offering offering
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Beachcraft Limited Partnership 3,324,301 1,659,278 1,665,023 2.50%
- ---------------------------------------------------------------------------------------------------
Data Processing Services 202,076 51,317 150,759 Less than 1%
- ---------------------------------------------------------------------------------------------------
Larry Peterson 559,286 25,329 533,957 Less than 1%
- ---------------------------------------------------------------------------------------------------
E. Andrew Sensenig 367,903 276,260 91,643 Less than 1%
- ---------------------------------------------------------------------------------------------------
William H & Deborah M. Ford 35,443 12,443 23,000 Less than 1%
- ---------------------------------------------------------------------------------------------------
JoAnne Ford 8,539 3,111 5,428 Less than 1%
- ---------------------------------------------------------------------------------------------------
Mathew Clyde Gray 6,982 1,555 5,427 Less than 1%
- ---------------------------------------------------------------------------------------------------
Elizabeth Gray 6,982 1,555 5,427 Less than 1%
- ---------------------------------------------------------------------------------------------------
Larry P. Baker 215,829 15,554 200,275 Less than 1%
- ---------------------------------------------------------------------------------------------------
Emerson Banack, Jr. 100,994 27,531 73,463 Less than 1%
- ---------------------------------------------------------------------------------------------------
Ben J. Chilcutt 574,556 62,213 512,343 Less than 1%
- ---------------------------------------------------------------------------------------------------
Dan Gostylo 167,123 11,170 155,953 Less than 1%
- ---------------------------------------------------------------------------------------------------
William A. Jeffers, Jr. 248,956 55,852 193,104 Less than 1%
- ---------------------------------------------------------------------------------------------------
Peter Kilpatrick 21,029 10,094 10,965 Less than 1%
- ---------------------------------------------------------------------------------------------------
Peter A. Leininger 55,852 55,852 0 Less than 1%
- ---------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE>
<TABLE>
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Darren E. Meyer 83,792 9,332 65,128 Less than 1%
- ---------------------------------------------------------------------------------------------------
Mary T. Meyer 83,792 9,332 65,128 Less than 1%
- ---------------------------------------------------------------------------------------------------
Bruce Hall 122,953 6,221 116,732 Less than 1%
- ---------------------------------------------------------------------------------------------------
Gene Meyer 45,216 3,111 42,105 Less than 1%
- ---------------------------------------------------------------------------------------------------
Robert Voelker 35,855 3,111 32,744 Less than 1%
- ---------------------------------------------------------------------------------------------------
Steve Tsengas 526,107 31,107 495,000 Less than 1%
- ---------------------------------------------------------------------------------------------------
Adam Vorberg 759,411 245,749 513,662 Less than 1%
- ---------------------------------------------------------------------------------------------------
Christopher Vorberg 55,852 55,852 0 Less than 1%
- ---------------------------------------------------------------------------------------------------
Kings Peak LLC 0 500,000 0 Less than 1%
- ---------------------------------------------------------------------------------------------------
</TABLE>
Explanation of Table
- --------------------
. The amount of shares listed in the table as "owned" by all selling
shareholders is their beneficial ownership of ATSI stock as represented to
the Company as of April 26, 2000.
. The amount of shares listed in the table as the maximum amount of common
stock that may be offered by Kings Peak LLC represent the number of shares
that they may purchase under the Series A preferred stock assuming a
conversion price of $2.00 per share, the initial conversion price of the
Series A preferred stock until February 4, 2001.
. The amount of shares listed in the table as the maximum amount of common
stock that may be offered by all other selling shareholders is the number
of shares being registered as a part of this prospectus representing the
shares issued to them on March 13, 2000 in exchange for convertible notes,
to raise funds necessary to pay off certain convertible notes and in
exchange for an outstanding notes payable.
. The percentage ownership of each of the selling shareholders in the table
above was calculated as the number of beneficial shares which would be held
by each shareholder assuming they sold all shares related to this
prospectus as a percentage of the Company's total shares outstanding.
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 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 26, 2000 for the registration of the common
stock are approximately $10,000.00.
26
<PAGE>
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 American Stock Exchange 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 Selling Shareholders sell the shares of common
stock offered under this prospectus or until one year following the effective
date of the Registration Statement of which this prospectus is a part, whichever
comes first. No sales may be made pursuant to this prospectus after this date
unless we amend or supplement this prospectus to indicate that we have agreed to
extend the effective period.
We cannot assure you that any of the selling shareholders will sell any or
all of the shares of common stock registered in the Registration Statement.
LEGAL MATTERS
The validity of the shares of common stock offered hereby is being passed
upon by Alice King, Esq., San Antonio, Texas. Alice King is ATSI's Corporate
Counsel and is an employee.
27
<PAGE>
EXPERTS
The financial statements and schedules incorporated by reference in this
prospectus and elsewhere in the registration statement have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firm as experts in accounting and auditing in giving said
reports.
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-K/A for the year ended July 31, 1999
. Our Amended Quarterly Reports on Form 10-Q/A 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.
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.
28
<PAGE>
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 $ 4,306.51
Legal $ 2,500.00
Printing $ 2,500.00
Miscellaneous 500.00
----------
Total: $ 9,806.51
ATSI will not pay commissions and discounts of underwriters, dealers or agents,
if any, or any transfer taxes.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, ATSI's
Amended and Restated Certificate of Incorporation includes a provision that
eliminates the personal liability of its directors for monetary damages for
breach or alleged breach of their duty of care. In addition, the DGCL and
ATSI's Bylaws provide for indemnification of ATSI's directors and officers for
certain liabilities and expenses that they may incur in such capacities. In
general, directors and officers are indemnified with respect to actions taken in
good faith in a manner reasonably believed to be in, or not opposed to, the
best interests of ATSI, and with respect to any criminal action or proceeding,
actions that the indemnitee had no reasonable cause to believe were unlawful.
ATSI has purchased insurance with respect to, among other things, the
liabilities that may arise under the provisions referred to above. The
directors and officers of ATSI are also insured against liabilities, including
liabilities arising under the Securities act of 1933, as amended, which might be
incurred by them in their capacities as directors and officers of ATSI and
against which they are not indemnified by ATSI.
In connection with this offering, Kings Peak LLC (or its assignees under a
Registration Rights Agreement signed by ATSI and Kings Peak LLC) 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
29
<PAGE>
material fact required to be stated or necessary to make the statements in this
prospectus or the Registration Statement not misleading, to the extent that such
statement or omission was made in reliance on the written information furnished
to ATSI by The Shaar Fund.
ITEM 16. EXHIBITS.
4.1 Form of letter dated December 30, 1999 from H. Douglas Saathoff, Chief
Financial Officer of American TeleSource International, Inc. to holders of
Convertible Notes (Exhibit to this Registration Statement on Form S-3
filed April 28, 2000)
4.2 Form of letter dated January 24, 2000 from H. Douglas Saathoff, Chief
Financial Officer of American TeleSource International, Inc. to holders of
Convertible Notes (Exhibit to this Registration Statement on Form S-3
filed April 28, 2000)
4.3 Certificate of Designation Preferences and Rights of 10% Series A
Cumulative Convertible Preferred Stock (Exhibit 10.43 to Annual Report on
Form 10-K for the year ending July 31, 1999 filed on October 26, 1999)
4.4 Registration Rights Agreement between American TeleSource International,
Inc. and Kings Peak, LLC dated February 4, 2000 (Exhibit to this
Registration Statement on Form S-3 filed April 28, 2000)
4.5 Form of Convertible Note for $2.2 million principal issued March 17, 1997
(Exhibit to this Registration Statement on Form S-3 filed April 28, 2000)
4.6 Form of Modification of Convertible Note (Exhibit to this Registration
Statement on Form S-3 filed April 28, 2000)
4.7 Promissory Note issued to Four Holdings Ltd. dated October 17, 2000
(Exhibit to this Registration Statement on Form S-3 filed April 28, 2000)
5.1 Opinion regarding legality
23 Consent of Arthur Andersen LLP (Exhibit to this Registration Statement on
Form S-3 filed April 28, 2000)
24 Power of Attorney (included on signature page to the Registration
Statement)
30
<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.
B. Undertaking Regarding Filings Incorporating Subsequent Exchange Act
Documents by Reference. ATSI hereby undertakes that, for purposes of
determining any
31
<PAGE>
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 28th 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 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.
32
<PAGE>
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 April 28, 2000
- --------------------------
Arthur L. Smith Chief Executive Officer
Director
/s/ H. Douglas Saathoff Chief Financial Officer April 28, 2000
- --------------------------
H. Douglas Saathoff Senior Vice President
Secretary
Treasurer
/s/Richard C. Benkendorf Director April 28, 2000
- --------------------------
Richard C. Benkendorf
/s/Carlos K. Kauachi Director April 28, 2000
- --------------------------
Carlos K. Kauachi
/s/ Murray R. Nye Director April 28, 2000
- --------------------------
Murray R. Nye
/s/ Tomas Revesz Director April 28, 2000
- --------------------------
Tomas Revesz
/s/Robert B. Werner Director April 28, 2000
- --------------------------
Robert B. Werner
33
<PAGE>
Exhibit 4.1
December 30, 1999
Name
Address
Address
To: All holders of
Convertible Notes of
American TeleSource International, Inc. ("ATSI" or "the Company")
Issued March 17, 1997
Dear NAME:
According to your records, you are the holder of $25,000 of Convertible
Notes of ATSI which are scheduled to mature on March 17, 2000. On that date, the
principal and accrued interest since the date of issuance is scheduled to be
paid to you.
The Board of Directors of ATSI has agreed to offer you the following
opportunities in lieu of receiving the cash payment due you on the scheduled
maturity date:
a.) The right to convert outstanding warrants to purchase the common
stock of ATSI held by you against the outstanding amounts owed to you
by ATSI; and
b) The right to convert any remaining outstanding principal and interest
owed to you, after exercising your rights under a) above, into common
stock of ATSI.
The above-mentioned transactions would take place effective January 31, 2000.
As of that date, our records indicate that the total principal and interest owed
you under the Convertible Note(s) will total $33,076.
The price at which your balance would be converted under b) above will
equal a 20% discount to the average closing price during the ten trading days
up through, and including, January 31, 2000.
This offer represents a private offering of securities by ATSI, and we
have therefore enclosed with this letter a Confidential Information Memorandum
which should be reviewed by you prior to making your decision regarding the
opportunity being presented to you. A subscription agreement has also been
included which must be completed by anyone deciding to exercise his option under
b) above. Any stock received as a result of exercising option a) above will be
freely tradable as the stock underlying outstanding options has been registered.
The common stock under b) above will not be registered, and may not be traded
except pursuant to Rule 144 (or other exemption from registration that may be
available to you). Rule 144 generally requires you to hold the stock for at
least one year before it may be sold. After one
<PAGE>
year, the stock may be sold in a "qualified brokers transaction," as defined in
Rule 144; after two years, the stock may be sold free from restrictions.
This offer is being made to all Convertible Noteholders as a class. Your
rights under a) and b) may be exercised individually, and are not subject to
action as a group. Your rights under a) and b) above must be exercised in full
should you choose to do so; partial exercises will not be allowed. The option
to exercise your rights under a) and b) above must be received by the Company by
January 17, 2000. A form has been attached for you to indicate your decision to
exercise, or not exercise, your rights.
The Company encourages each Convertible Noteholder to exercise his rights
under a) and b) above. Funds will be raised externally in order to pay
Convertible Noteholders who do not exercise their rights per this letter. Each
Convertible Noteholder is encouraged to call Doug Saathoff, ATSI CFO, at (210)
547-1029 in order to discuss the proposed transaction.
Sincerely,
AMERICAN TELESOURCE INTERNATIONAL, INC.
<PAGE>
Exhibit 4.2
January 24, 2000
Name
Address
Address
Address
To: All holders of Convertible Notes of
American TeleSource International, Inc. ("ATSI" or "the Company")
Issued March 17, 1997
Re: Update to letter dated December 30, 1999
Dear NAME:
I am writing in reference to the letter previously sent to you dated
December 30, 1999 in which ATSI offered you the opportunity to convert your
Convertible Note into common stock of ATSI. Based upon several discussions held
with Convertible Note holders this past week, the Company has decided to amend
its offer to convert. As such, the offers in this letter replace any offering
in the December 30, 1999 letter.
The majority of the comments I received centered around the time period
to be used to calculate the conversion price, and the fact that the stock to be
received upon conversion was to contain a legend and could not be traded except
pursuant to Rule 144 or other available exemptions.
As of the date of this letter, the Company is still offering the
Convertible Note holders the following:
a) The right to convert any outstanding $0.27 warrants to purchase the
common Stock of ATSI against the outstanding principal and interest
owed to you by ATSI; and
b) The right to convert any and all remaining outstanding principal and
interest
Owed to you, after exercising your rights under a) above, into common
stock of ATSI.
The following terms have been changed or amended from the original
offering:
- The price at which your balance would be converted under b) above
will equal a 20% discount to the average closing price during the
entire month of January 2000; and
<PAGE>
- The Company agrees to file registration statements to register your
shares issued as a result of converting under b) above in the
following manner: 33% of the issued shares on or before April 30,
2000; 33% of the issued shares on or before July 31, 2000; and 34% of
the issued shares on or before October 31, 2000.
- The option to exercise your rights under a) and b) above must be
received by the Company by January 24, 2000.
As was mentioned in the earlier letter, the shares to be issued upon
exercising your rights in a) above have already been registered. Registration
of shares under b) above will eliminate any restrictions and allow the shares to
be traded in the open market.
The transactions will still take place effective January 31, 2000. A form
has been attached for you to indicate your decision to exercise, or not
exercise, your rights per this letter. The form should be faxed to me at (210)
547-1029 or delivered to me at the Company's corporate address by January 24,
2000. If you have already responded based upon the initial offer and would like
to change your response, please use the attached form to do so. A lack of
response by any individual will be considered to be a choice NOT to exercise the
rights being offered in this letter. The Convertible Note holders wishing to
exercise their rights will be sent a subscription agreement subsequent to
January 24, 2000.
The Company encourages you to exercise your rights per this letter. Funds
will need to be raised externally in order to pay Convertible Note holders who
do not exercise their rights. I also encourage you to call me at (210) 547-1029
in order to discuss the proposed transaction, as well as the Company's progress
to date.
Sincerely,
AMERICAN TELESOURCE INTERNATIONAL, INC.
H. Douglas Saathoff
Chief Financial Officer
<PAGE>
Exhibit 4.4
REGISTRATION RIGHTS AND TRADING AGREEMENT
This Registration Rights Agreement (this "Agreement") is between American
TeleSource International, Inc. ("ATSI") a Delaware corporation, and Kings Peak
LLC a Utah limited liability company ("Kings Peak") and is effective February
___, 2000.
RECITALS
A. ATSI has issued 10,000 shares of its 10% Series A Cumulative Convertible
Preferred Stock (the "Series A Preferred Stock") to Kings Peak on February
4, 2000.
B. The Series A Preferred Stock is convertible into shares of common stock of
ATSI under the terms of the Certificate of Designation for the Series A
Preferred Stock.
C. In consideration for Kings Peak's purchase of the Series A Preferred Stock,
ATSI has agreed to register the common stock issuable upon conversion of
the Series A Preferred Stock.
Now, therefore, the parties agree as follows:
1. Definitions. The following terms, when capitalized shall have the meanings
indicated below:
"Common Stock" means the shares of ATSI common stock into which the Series A
Preferred Stock is convertible;
"Kings Peak" means Paul Kings Peak LLC and its successors and permitted assigns;
"SEC" means the United States Securities and Exchange Commission;
"Securities Act" means the Securities Act of 1933, as amended, and the related
rules of the SEC, and any successor statute and rules.
"Series A Preferred Stock" means the 10,000 shares of ATSI's 10% Series A
Cumulative, Convertible Preferred Stock issued to Paul Kings Peak on February 4,
2000.
1. Registration. (a) ATSI will prepare and file with the SEC a registration
statement or statements relating to the offer and sale of the Common Stock no
later than April 30, 2000.
(b) ATSI will work diligently to cause the SEC to declare the registration
statement effective at the earliest practical time, and will notify Kings Peak
that the registration statement has been declared effective by the SEC within 24
hours of receipt of notice from the SEC.
<PAGE>
(c) ATSI may register other securities on the registration statement
required by this Agreement.
(d) On written notice to Kings Peak, ATSI may suspend use of the prospectus
for a period not to exceed 60 days (which need not be consecutive) if the Board
of Directors of ATSI determines in good faith that it is in ATSI's best interest
to suspend the use of the prospectus for valid business reasons, including
pending mergers or other business combination transactions, the planned
acquisition or divestiture of assets, pending material corporate developments
and similar events. The notice of suspension need not state the reason for the
suspension.
2. ATSI's Other Obligations. ATSI will:
(a) file 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 for one
year from the date the registration statement is declared effective, or the time
the Common Stock covered by the registration statement has been sold in such a
manner as to be free of the transfer restrictions under the Securities Act,
whichever is shorter.
(b) provide to Kings Peak a reasonable number of copies of the prospectus
that is part of the effective registration statement, and other documents Kings
Peak may reasonably request to facilitate the disposition of the Common Stock;
(c) notify Kings Peak at the earliest possible time if it learns that a
prospectus furnished to him does not comply with the provisions of the
Securities Act, and promptly amend the registration statement and supplement the
prospectus to comply with the Securities Act;
(d) register or qualify the Common Stock under the securities laws of the
state of Utah and maintain the effectiveness of the state registration or
qualification for the same period that it maintains the registration statement
filed with the SEC;
(e) promptly notify Kings Peak of any stop order, withdrawal, suspension or
action by the SEC rescinding the effectiveness of the registration statement,
and take all lawful action to cause the registration statement to again become
effective;
(f) cause the Common Stock to be listed on the American Stock Exchange, or
other national securities exchange on which the common stock of ATSI may be
listed during the term of this Agreement;
(g) maintain commercially reasonable procedures for the registration and
transfer of the share certificates for the Common Stock;
(h) take other lawful actions requested by Kings Peak that are reasonably
necessary and customary under the circumstances to expedite and facilitate the
disposition of the Common Stock by Kings Peak;
<PAGE>
(i) bear all expenses of registration under the terms of this Agreement.
3. Kings Peak's Obligations. Kings Peak will:
(a) As a condition precedent to ATSI's obligations under this Agreement,
Kings Peak will promptly provide information and execute documents as reasonably
required by ATSI to prepare the registration statement.
(b) On receipt of notice from ATSI that a prospectus furnished to Kings
Peak is defective, Kings Peak will immediately destroy all copies of the
prospectus and discontinue disposition of the Common Stock until he receives
copies of a supplemented or amended prospectus.
(c) not use an underwriter to facilitate the disposition of the Common
Stock without ATSI's prior written consent.
4. Trading Restrictions. Kings Peak agrees that ATSI is not required to
convert the shares of Series A Preferred Stock before the following dates:
(i) 33,334 not earlier than April 30, 2000;
(ii) 33,333 not earlier than July 31, 2000; and
(iii) 33,333 not earlier than October 31, 2000.
5. Indemnification.
(a) ATSI will indemnify and hold harmless Kings Peak from and against any
losses, claims, damages, or liabilities that may be imposed on him arising out
of or based upon an untrue statement of a material fact contained in the
registration statement or an omission of 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, provided, however,
that ATSI will not be liable to Kings Peak if the untrue statement or omission
was included in the registration statement in reliance on written information
furnished by Kings Peak expressly for use in the registration statement, or the
use by Kings Peak of a prospectus if ATSI has notified Kings Peak that the
prospectus does not comply with the Securities Act..
(b) Kings Peak will indemnify and hold harmless ATSI, and its officers and
directors, from and against any losses, claims, damages, or liabilities that may
be imposed on it arising out of or based upon an untrue statement of a material
fact contained in the registration statement or an omission of 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, if
the statement or omission was included in the registration statement in reliance
on written information furnished by Kings Peak expressly for use in the
registration statement, or arising from Kings Peak's use of a prospectus which
he knows to be defective or which ATSI has stated is defective.
<PAGE>
(c) A party seeking indemnification under this Section shall provide prompt
notice of its claim for indemnification to the indemnifying party, provided,
however, that failure to give prompt notice shall not affect the indemnifying
party's obligations under this Section unless the failure materially prejudices
the indemnifying party's rights. The indemnifying party will have the right to
select counsel to defend the indemnified party in respect of any indemnified
matter under this Section, provided, however, that the counsel selected must be
reasonably satisfactory to the indemnified party. The indemnifying party will
keep the indemnified party informed of the status of any litigation or dispute
resolution procedure, and will give reasonable consideration to the suggestions
and requests of the indemnified party with respect to the conduct of the
litigation or dispute resolution procedure.
6. Assignment. Kings Peak may assign his rights under this Agreement to
a person to whom he has transferred registered ownership of the Common Stock in
compliance with the Securities Act of 1933 and other applicable law, if the
transferee agrees to be bound by the terms of this Agreement. Kings Peak will
give ATSI notice of any transfer of his rights under this Agreement prior to or
contemporaneously with the transfer of the Common Stock.
7. Notices. Notices under this Agreement must be given in writing by
facsimile and by 1st Class U.S. Mail to the following address, or other address
provided by three days' advance notice given in accordance with this section:
ATSI: H. Douglas Saathoff
ATSI
12500 Network Blvd., Suite 407
San Antonio, Texas 78249
(210) 558-6095 facsimile
Kings Peak: ------------------------------
------------------------------
------------------------------
------------------------------
------------------------------
Notices given during business hours (8:00 a.m. - 5:00 p.m. Monday through
Friday, exclusive of legal holidays) will be deemed given, delivered and
effective as of the time shown on the confirmation sheet generated by the
sending facsimile machine. Notices given after business hours will be deemed
given, delivered and effective as of the time that business hours first begin
following the time shown on the confirmation sheet generated by the sending
facsimile machine. If transmission by facsimile fails for any reason not
within the control of the sending party, notice may be given on the same day as
the attempted transmission by facsimile by hand delivery, and the notice will be
deemed given, delivered and effective as of the time of the first attempted
notice via facsimile would have been effective under the preceding sentence.
8. Limitation of Damages. If the registration statement is not filed by the
time required by Section 1, above, is not declared effective by ninety (90) days
from the filing date, or is the
<PAGE>
subject of a stop order or other SEC action rescinding its effectiveness, or if
ATSI notifies Kings Peak that a prospectus it has delivered to him pursuant to
Section 2(c) above is defective, ATSI will pay Kings Peak liquidated damages
equal to $25,000, and will pay an additional $25,000 for each subsequent 30 day
period that the registration statement has either not been filed, declared
effective, or is ineffective, as the case may be, or during which ATSI has
failed to furnish Kings Peak with an amended prospectus or supplement curing the
defect. THE LIQUIDATED DAMAGES DESCRIBED IN THIS SECTION ARE THE SOLE AND
EXCLUSIVE REMEDY BY KINGS PEAK LLC FOR BREACH OF THIS AGREEMENT.
9. Miscellaneous.
(a) This Agreement constitutes the final and complete agreement of the
parties with respect to its subject matter, and supercedes any prior
agreements, discussions or understandings, written or oral.
(b) This Agreement may be modified only by a written document that refers
specifically to this Agreement and is signed by both parties.
(c) A party's failure or delay in enforcing any provision of this
Agreement will not be deemed a waiver of that party's rights with
respect to that provision or any other provision of this Agreement. A
party's waiver of any of its rights under this Agreement is not a
waiver of any of its other rights with respect to a prior,
contemporaneous or future occurrence, whether similar in nature or
not.
(d) This Agreement shall be governed by the laws of the State of Texas,
and Kings Peak agrees to submit to the jurisdiction of the courts of
the State of Texas for all purposes. Sole and exclusive venue for any
dispute or disagreement arising under or relating to this agreement
shall be in a court sitting in Bexar County, San Antonio, Texas.
(e) This Agreement may be executed in counterparts, which together will
be deemed an original.
(f) This Agreement shall be binding upon and inure to the benefit of the
successors and assigns of the parties hereto.
(g) If any provision of this Agreement is determined by a court of
competent jurisdiction to be invalid or unenforceable, such
determination shall not affect the validity or enforceability of any
other part or provision of this Agreement, unless such invalidity
shall have deprived a party of substantially all of the consideration
such party was to receive hereunder.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above.
<PAGE>
AMERICAN TELESOURCE KINGS PEAK LLC
INTERNATIONAL, INC.
By: /s/ H. Douglas Saathoff By: /s/ Paul Moore
---------------------------- ---------------------------
H. Douglas Saathoff on behalf of Kings Peak LLC
Chief Financial Officer
<PAGE>
Exhibit 4.5
CONVERTIBLE NOTE
$_________.00 San Antonio, Texas March ___, 1997
FOR VALUE RECEIVED, American TeleSource International, Inc., a Texas
corporation ("Maker"), promises to pay to the order of ________________________
("Payee"), at _______________________________________________________________,
the principal sum of __________________________________ and No/100 United States
Dollars, together with interest (which shall accrue but not compound) on the
unpaid principal amount of this Note from day to day outstanding, at the rate of
10% per annum, such interest being payable on a semi-annual basis on March 1 and
September 1 of each year. Subject to the terms hereof, including conversion of
this Note as provided in Section 1, unpaid principal of this Note, together with
accrued and unpaid interest thereon, shall be due and payable on the third
anniversary of the date hereof (the "Maturity Date").
1. Conversion of Note.
(a) This Note is one of a series of Convertible Notes issued by
Maker to certain qualified persons in the aggregate principal amount of up to
$5.0 million (individually, a "Convertible Note," and collectively, the
"Convertible Notes"). The Convertible Notes are being issued in contemplation of
the authorization of a class of 10% Cumulative Redeemable Preferred Stock, with
such rights, preferences and limitations as are set forth on Exhibit A hereto
(the "Preferred Stock") of (a) American TeleSource International Inc., an
Ontario, Canada corporation and the sole shareholder of Maker ("ATSI Canada") or
(b) after consummation of a Plan of Arrangement under Ontario law (or other
similar reorganization) pursuant to which the shareholders of ATSI Canada will
surrender their shares in exchange for shares of a wholly-owned subsidiary
incorporated under the laws of Delaware for the primary purpose of effecting
such reorganization ("ATSI Delaware"), of ATSI Delaware.
(b) Upon the authorization of the Preferred Stock by ATSI Canada or
ATSI Delaware, as applicable, Maker may, at its option, cause this Note to
convert automatically (without further action by Payee) on or before the
Maturity Date into that number of shares of Preferred Stock equal to (a) the sum
of the unpaid principal amount of this Note plus accrued and unpaid interest
thereon, divided by (b) $1,000.00. No fractional shares of Preferred Stock
shall be issued and any amounts otherwise representing a fractional portion of a
share shall be paid by Maker to Payee upon conversion.
(c) In order to effect the conversion of this Note, Maker shall
deliver to Payee, at the place for payment, written notice thereof at least five
days prior to conversion. Such notice shall set forth the scheduled effective
date of the conversion, the number of shares of Preferred Stock to be issued
upon conversion and the mechanics of conversion, and shall be accompanied by
certified copies of corporate authorizations and charter documents which, in the
reasonable opinion of Payee's counsel, evidence the establishment of the
Preferred Stock and the authority to issue such Preferred Stock upon conversion
of this Note. Maker shall cause to be delivered to Payee, within 10 days after
the effective date of the conversion, one or more certificates representing the
number of shares of Preferred Stock into which this Note has converted and, if
applicable, a check representing any fractional portion of a share of Preferred
Stock.
2. Prepayments. Maker may prepay this Note in whole or in part at any
time without penalty or premium. Prepayments shall be applied first to accrued
and unpaid interest on this Note, then to the unpaid principal amount of this
Note. If Maker desires to prepay any other Convertible Note, then Maker shall
simultaneously prepay this Note in the same proportion as the prepayment amount
of such other Convertible Note bears to the unpaid principal amount of such
other Convertible Note.
3. Default.
(a) If Maker defaults in the payment of this Note, and the default
continues for at least 10 days after Payee gives Maker written notice of the
default, then Payee may declare the unpaid principal amount and
<PAGE>
accrued and unpaid interest on this Note immediately due. Maker and each surety,
endorser and guarantor waive all demands for payment, presentations for payment,
notices of intention to accelerate maturity, notices of acceleration of
maturity, protests and notices of protest, to the extent permitted by law.
(b) If this Note is given to an attorney for collection, or if suit
is brought for collection, or if it is collected through probate, bankruptcy or
other judicial proceeding, then, in addition to other amounts due, Maker shall
pay Payee all costs of collection, including reasonable attorneys' fees and
court costs of up to 10% of all amounts due.
(c) Neither a delay on the part of Payee in the exercise of any
power or right under this note, nor a single or partial exercise of any such
power or right, shall operate as a waiver thereof. Enforcement by Payee of any
of its rights hereunder shall not constitute an election by it of remedies so as
to preclude the exercise of any other remedy available to it.
4. Maximum Interest Rate. Regardless of any provision contained herein
or in any other instrument or agreement concerning the debt evidenced by this
Note, interest on such debt shall not exceed the maximum amount of nonusurious
interest that may be contracted for, taken, reserved, charged or received under
law; any interest in excess of that maximum amount shall be credited on the
principal of the debt or, if that has been paid, refunded. On any acceleration
or required or permitted prepayment, any such excess shall be canceled
automatically as of the acceleration or prepayment or, if already paid, credited
on the principal of the debt or, if the principal of the debt has been paid,
refunded. In determining whether or not the interest paid or payable, under any
specific contingency, exceeds the maximum amount of nonusurious interest, Maker
and Payee shall, to the maximum extent permitted under applicable law, (a)
characterize any non-principal payment as an expense, fee or premium rather than
as interest, (b) exclude voluntary prepayments and the effects thereof, and (c)
spread the total amount of interest throughout the entire contemplated term
hereof.
5. Amendment. The terms of this Note may be waived or amended by the
written consent of the holders of 80% of the aggregate unpaid principal amount
of the Convertible Notes outstanding at the time. Any such waiver or amendment,
if effected in accordance herewith, shall be binding upon Payee, whether or not
Payee consented thereto. Notwithstanding the foregoing, no amendment to the
amount due, the interest rate or the Maturity Date of this Note shall be
effective with respect to this Note without Payee's written consent.
6. Assignment. This Note is assignable by Maker to an affiliate with
which Maker effects a Plan of Arrangement under Ontario law (or other similar
reorganization). Following such an assignment, assignee shall be solely
responsible for the indebtedness evidenced hereby and Maker's other obligations
hereunder.
7. Entire Agreement. This Note embodies the final, entire agreement of
Maker and Payee with respect to the indebtedness evidenced by this Note and
supersedes any and all prior commitments, agreements, representations and
understandings, whether written or oral, relating to the indebtedness evidenced
by this Note.
8. GOVERNING LAW. THIS NOTE IS DELIVERED AND IS INTENDED TO BE PAID AND
PERFORMED IN THE STATE OF TEXAS, AND THE LAWS OF SUCH STATE SHALL GOVERN THE
CONSTRUCTION, VALIDITY, ENFORCEMENT, AND INTERPRETATION HEREOF.
IN WITNESS WHEREOF, the undersigned has executed and delivered this Note as
of the date first written above.
AMERICAN TELESOURCE INTERNATIONAL, INC.
a Texas corporation
By:
--------------------------------------------------
Name:
------------------------------------------------
Title:
-----------------------------------------------
<PAGE>
EXHIBIT A
TO CONVERTIBLE NOTE
10% Cumulative Redeemable Preferred Stock
Issuer: American TeleSource International Inc., an Ontario, Canada
corporation, or, following the Plan of Arrangement under Ontario
law (or similar reorganization), American TeleSource
International, Inc., a Delaware corporation (as the case may be,
the "Company").
Securities 10% Cumulative Redeemable Preferred Stock, $.01 par value per
share ("Preferred Stock"). The shares have a stated value of
$1,000 per share.
Dividends: The shares of Preferred Stock are entitled to receive semi-annual
dividends at the rate of 10% per annum, based on their stated
value. Dividends accrue (but do not compound) from the date of
issuance and are payable solely in shares of Preferred Stock,
valued at their stated value, within 30 days after March 1 and
September 1 of each year. Shares of Preferred Stock issued as
dividends are not entitled to additional dividends. Shares of
Preferred Stock do not participate in dividends, if any, on
shares of Common Stock.
Conversion: The shares of Preferred Stock are not convertible.
Redemption: The shares of Preferred Stock are redeemable at the Company's
option at any time at a price equal to their stated value, plus
accrued and unpaid dividends (payable in cash). All shares of
Preferred Stock outstanding on the third anniversary of the issue
date of the Convertible Notes from which the Preferred Stock is
convertible must be redeemed by the Company.
Liquidation: In the event of a liquidation, dissolution or winding up of the
Company, the shares of Preferred Stock are entitled to receive a
liquidation preference in an amount equal to their stated value,
plus accrued and unpaid dividends (payable in cash). Any
redemption must be made on a pro rata basis with respect to each
holder based on the number of shares held. Shares of Preferred
Stock do not participate in liquidating distributions, if any, on
shares of Common Stock.
Voting: The shares of Preferred Stock are entitled to vote as a class to
approve (1) the redemption of any securities of the Company other
than the Preferred Stock (excluding redemptions of warrants
pursuant to call provisions, redemptions of securities owned by
employees pursuant to arrangements approved in advance by the
Company's board, and other similar permitted redemptions), (2)
the declaration or payment of dividends on securities of the
Company other than the Preferred Stock, (3) the issuance of
securities of the Company senior in right of liquidation or
redemption to the Preferred Stock, (4) the merger of the Company
with another corporation or the sale of substantially all of the
Company's assets (other than the proposed Plan of Arrangement or
transactions in which the Company's shareholders continue to own
more than 50% of the successor corporation), and (5) the
reclassification of the shares of Preferred Stock. Other than the
foregoing, the shares of Preferred Stock are non-voting except to
the extent required by applicable law.
Antidilution: The shares of Preferred Stock will convert into shares of
preferred stock, with the same terms, of any corporation with
which the Company effects a plan of arrangement or other
reorganization.
<PAGE>
Exhibit 4.6
MODIFICATION OF COVERTIBLE NOTE
This Modification of Convertible Note ("Modification") modifies certain
terms of that certain Convertible Note of American TeleSource International,
Inc., a Texas corporation, dated March 17, 1997, in the principal amount of
$___________, payable to ________________(the "Note"). Capitalized terms used in
this Modification have the meanings assigned to them in the Note.
For good and valuable consideration, Payee agrees as follows:
1. Accrued interest on the unpaid principal amount of the Note shall not
be due and payable until the Maturity Date (subject to prepayment as
provided in Section 2 of the Note).
2. Payee represents to Maker that Payee has not transferred the Note or
any interest in the Note to any other person and that this
Modification is binding upon Payee and Payee's successors and assigns.
3. The Note, as modified, is in full force and effect.
4. This Modification is made pursuant to Section 5 of the Note. Subject
to the agreement of the holders of at least 80% of the aggregate
unpaid principal amounts of the Convertible Notes outstanding, accrued
interest on the unpaid principal amount of each Convertible Note,
whether or not the holder thereof consented to such modification,
shall not be due and payable until the Maturity Date (subject to
prepayment as provided in Section 2 of the Convertible Note).
This Modification has been signed as of ________________, 1997, by the
Payee named below.
- -----------------------------------
[Name of Holder--natural person]
[Name of Holder--corporation]
By:
--------------------------------
Name:
------------------------------
Title:
-----------------------------
<PAGE>
Exhibit 4.7
PROMISSORY NOTE
$1,000,000.00 Date: October 14, 1997
For value received, the undersigned American Telesource International, Inc.
(the "Borrower"), at 12500 Network Blvd, Suite 407, San Antonio, Texas 78249,
promises to pay to the order of Four Holdings, Ltd., (the "Lender"), at P.O. Box
150, Design House, Leeward Highway, Providenciales, Turks & Caicos Islands,
B.W.I., (or at such other place as the Lender may designate in writing) the sum
of $1,000,000.00 with interest from October 14, 1997, on the unpaid principal at
the rate of 13.00% per annum.
In addition, the Lender shall receive 250,000 Common Stock Purchase Warrants
(the "Warrants") of the Borrower (see Attachment "A"). Said warrants will be
priced at $3.56 per warrant and will be callable after a period not less than 12
months when the closing price of the Borrower's stock has closed over $10.00 for
a period of 30 or more consecutive days.
Unpaid principal after the Due Date shown below shall accrue interest at a rate
of 21.00% annually until paid.
The unpaid principal and accrued interest shall be payable in quarterly
installments beginning on January 14, 1998, and continuing until October 14,
2004 (the "Due Date"), at which time the remaining unpaid principal or principal
and interest shall be due in full.
All payments on this Note shall be applied first in payment of accrued interest
and any remainder in payment of principal.
The Borrower promises to pay a late charge of $2,500.00 for each installment
that remains unpaid more than 10-day (s) after its due date. This late charge
shall be paid as liquidated damages in lieu of actual damages, and not as a
penalty.
If any installment is not paid when due, the remaining unpaid balance and
accrued interest shall become due immediately at the option of the Lender.
The Borrower reserves the right to prepay this Note (in whole or in part) prior
to the due date with no prepayment penalty.
If any payment obligation under this Note is not paid when due, the Borrower
promises to pay all costs of collection, including reasonable attorney fees,
whether or not a lawsuit is commenced as part of the collection process.
If any of the following events of default occur, this Note and any other
obligations of the Borrower to the Lender, shall become due immediately, without
demand or notice:
<PAGE>
1) the failure of the Borrower to pay the principal and any accrued interest
in full on or before the Due Date;
2) the filing of bankruptcy proceedings involving the Borrower as a Debtor;
3) the application for appointment of a receiver for the Borrower;
4) the making of a general assignment for the benefit of the Borrower's
creditors;
5) the insolvency of the Borrower; or
6) the misrepresentation by the Borrower to the Lender for the purpose of
obtaining or extending credit.
If any one or more of the provisions of this Note are determined to be
unenforceable, in whole or in part, for any reason, the remaining provisions
shall remain fully operative.
All payments of principal and interest on this Note shall be paid in the legal
currency of the United States. Borrower waives presentment for payment,
protest, and notice of protest and nonpayment of this Note.
The company shall not effect any such consolidation or merger unless prior to or
simultaneously with the consummation thereof the survivor or successor
corporation resulting from such consolidation or merger shall assume by written
instrument delivered to the Lender all obligations present and due under the
terms of the Note.
No renewal or extension of this Note, delay in enforcing any right of the Lender
under this Note, or assignment by Lender of this Note shall affect the liability
of the Borrower. All rights of the Lender under this Note are cumulative and
may be exercised concurrently or consecutively at the Lender's option.
This Note shall be construed in accordance with the laws of the State of Texas.
Signed this _______day of _______________, 19_____, at _______________________,
__________________________.
Borrower:
American Telesource International, Inc.
By:
-----------------------------------
H. Douglas Saathoff
Chief Financial Officer
<PAGE>
Exhibit 5.1
April 28, 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
3,357,929 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 Amended and Restated Bylaws (the "Bylaws");
3. Convertible Notes issued to 23 investors dated March 17, 1997,
each as modified in October, 1997 (the "Convertible Notes");
4. Form of letters from H. Douglas Saathoff, Chief Financial Officer
of ATSI to 23 investors dated December 30, 1999 and January 24,
2000 (the "Debt Conversion Offer Letters);
5. Promissory Note issued by ATSI to Four Holdings, Ltd. dated
October 14, 1997 in the original principal amount of $1 million
(the Four Holdings Note");
6. ATSI's Certificate of Designation, Preferences and Rights of 10%
Series A Cumulative Convertible Preferred Stock (the "Series A
Certificate of Designation");
7. Registration Rights Agreement between ATSI and Kings Peak, LLC
dated February 4, 2000 (the Kings Peak Registration Agreement");
8. Certificate of H. Douglas Saathoff, Secretary of ATSI, certifying
ATSI's Board of Directors adoption of resolutions authorizing the
conversion of the balance due under various Convertible Notes to
common stock, the conversion of the balance due under the Four
Holdings Note to common stock, the issuance of shares of common
stock in a private placement to raise funds to retire balances due
under various convertible notes, and the issuance of 10,000 shares
of series A preferred
<PAGE>
stock to an investor.
9. Records of the accounting and treasury department of ATSI
regarding the balances due under the Convertible Notes and the
Four Holdings Note; and
10. Certificate of Good Standing for ATSI issued by the Secretary of
State of the State of Delaware dated April 26, 2000.
In such examination, we have assumed the genuineness of all signatures and
the authenticity of all documents, instruments, records, and certificates
submitted to me as originals.
Based on my review of these documents, it is my opinion that the Shares
issued upon conversion of the Convertible Notes and the Four Holdings Note have
been duly authorized, validly issued, fully paid and nonassessable, and that the
Shares issuable to Kings Peak LLC pursuant to the terms of the series A
preferred stock issued on February 4, 2000.
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
<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-KA for the year
ended July 31, 1999 and to all references to our Firm included in this
registration statement.
/s/ ARTHUR ANDERSEN LLP
San Antonio, Texas
April 28, 2000
