U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
[ X ] QUARTERLY REPORT UNDER SECTION 12 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1999.
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM __________ TO ________.
Commission file number 21143
CONVERGENCE COMMUNICATIONS, INC.
--------------------------------
(Exact name of small business issuer as specified in its charter)
Nevada 87-0545056
------------------------------- -----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
------------------------------ --------
(Address of Principal Executive Offices) (Zip Code)
(801) 328-5618
--------------
(Issuer's telephone number)
Not Applicable
----------------
(Former name, former address and former fiscal year,
if changed since last report)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes X No
--- ----
As of October 31, 1999, 11,738,277 shares of registrant's Common Stock, par
value $.001 per share, 101,379 shares of the registrant's Series B Preferred
Stock, par value $.001 per share, and 6,395,577 shares of the registrant's
Series C Preferred Stock, par value $.001 per share, were outstanding.
<PAGE>
PART I: FINANCIAL INFORMATION
---------------------
ITEM 1. FINANCIAL STATEMENTS REQUIRED BY FORM 10-QSB
The accompanying unaudited consolidated financial statements of
Convergence Communications, Inc. (the "Company") have been prepared in
accordance with generally accepted accounting principles for interim financial
reporting and pursuant to the rules and regulations of the Securities and
Exchange Commission. They do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. These financial statements should be read in conjunction with Note 1
herein and the consolidated financial statements and notes thereto included in
the Company's annual report on Form 10-KSB for the year ended December 31, 1998,
which are incorporated herein by reference. The accompanying financial
statements have not been examined by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of management, all
adjustments (consisting of normal recurring entries) necessary for the fair
presentation of the Company's results of operations, financial position and
changes therein for the periods presented have been included. The results of
operations for the three and nine months ended September 30, 1999 may not be
indicative of the results that may be expected for the year ending December 31,
1999.
[THIS SPACE INTENTIONALLY LEFT BLANK]
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND DECEMBER 31, 1998
- --------------------------------------------------------------------------------------------------------------
September 30, December 31,
1999 1998
--------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 543,510 $ 4,315,281
Accounts receivable - net 624,161 432,868
Note proceeds due from affiliate - 5,000,000
Inventory 380,973 205,408
Prepaid license fees - 57,359
Other current assets 275,264 115,801
--------------- --------------
Total current assets 1,823,908 10,126,717
INVESTMENT IN CENTURION 845,955 845,955
PROPERTY AND EQUIPMENT - net 18,351,638 8,524,521
INTANGIBLE ASSETS - net 19,582,353 22,650,040
OTHER ASSETS 969,087 325,811
--------------- --------------
TOTAL ASSETS $ 41,572,941 $ 42,473,044
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued liabilities $ 5,995,340 $ 3,603,165
Notes payable 4,861,599 8,676,722
Notes payable (payable to related parties) 7,165,925 -
Foreign bank lines of credit outstanding - 27,281
Accrued consulting fees (payable to related parties) 522,240 340,629
Due to affiliates 835,138 1,074,855
Unearned revenue 386,568 373,486
--------------- --------------
Total current liabilities 19,766,810 14,096,138
LONG-TERM LIABILITIES:
Long-term debt (payable to related parties) 6,069,249 1,224,504
Subordinated exchangeable promissory notes (payable to related parties) 10,000,000 10,000,000
Notes payable 3,497,500 3,987,268
Accrued foreign severance 224,286 135,091
--------------- --------------
Total long-term liabilities 19,791,035 15,346,863
MINORITY INTEREST IN SUBSIDIARIES 1,288,180 2,345,517
--------------- --------------
Total liabilities 40,846,025 31,788,518
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY* :
Series "B" Preferred stock; $0.001 par value; 750,000 shares authorized:
101,374 shares issued and outstanding in 1999 and 1998. 101 101
Common stock; $0.001 par value; 100,000,000 shares authorized:
11,738,277 shares issued and outstanding in 1999 and 1998. 11,738 11,738
Additional paid-in capital 27,349,360 26,179,739
Accumulated deficit (26,605,221) (15,486,537)
Accumulated other comprehensive loss (29,062) (20,515)
--------------- --------------
Total stockholders' equity 726,916 10,684,526
--------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 41,572,941 $ 42,473,044
=============== ==============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------------
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
NET REVENUES $ 6,455,538 $ 1,249,446 $ 38,648
COST OF SERVICE 2,371,382 1,073,862 24,106
--------------- -------------- ---------------
GROSS MARGIN 4,084,156 175,584 14,542
OPERATING EXPENSES:
Professional fees 2,028,151 1,380,187 229,571
Depreciation and amortization 3,661,625 1,673,461 235,903
Leased license expense 66,796 123,447 61,370
General and administrative 6,606,920 2,477,689 490,145
Stock-based compensation expense 1,015,101 - -
--------------- -------------- ---------------
Total 13,378,593 5,654,784 1,016,989
--------------- -------------- ---------------
OPERATING LOSS (9,294,437) (5,479,200) (1,002,447)
OTHER INCOME AND (EXPENSES):
Interest income 82,458 251,321 34,839
Interest expense (3,029,268) (333,926) (116,861)
--------------- -------------- ---------------
Total (2,946,810) (82,605) (82,022)
--------------- -------------- ---------------
NET LOSS BEFORE INCOME TAX AND MINORITY INTEREST (12,241,247) (5,561,805) (1,084,469)
INCOME TAX 134,774 - -
--------------- -------------- ---------------
NET LOSS BEFORE MINORITY INTEREST (12,376,021) (5,561,805) (1,084,469)
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 1,257,337 259,063 8,665
--------------- -------------- ---------------
NET LOSS $ (11,118,684) $ (5,302,742) $ (1,075,804)
=============== ============== ===============
Net loss per basic common share* $ (0.92) $ (0.47) $ (0.15)
=============== ============== ===============
Net loss per diluted common share* $ (0.92) $ (0.47) $ (0.15)
=============== ============== ===============
Weighted-average common shares*
Basic 12,022,728 11,356,162 7,204,602
=============== ============== ===============
Diluted 14,108,533 12,191,132 10,589,750
=============== ============== ===============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- ----------------------------------------------------------------------------------------------------------------------
Three Months Three Months Three Months
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997
--------------- -------------- ---------------
<S> <C> <C> <C>
NET REVENUES $ 2,310,963 $ 1,204,535 $ 38,648
COST OF SERVICE 931,577 876,309 24,106
--------------- -------------- ---------------
GROSS MARGIN 1,379,386 328,226 14,542
OPERATING EXPENSES:
Professional fees 715,548 669,912 138,919
Depreciation and amortization 1,240,640 807,906 187,353
Leased license expense 21,967 40,410 28,884
General and administrative 2,172,790 1,243,215 306,826
Stock-based compensation expense 381,092 - -
--------------- -------------- ---------------
Total 4,532,037 2,761,443 661,982
--------------- -------------- ---------------
OPERATING LOSS (3,152,651) (2,433,217) (647,440)
OTHER INCOME AND (EXPENSES):
Interest income 3,329 57,166 34,839
Interest expense (1,508,433) (276,797) (47,348)
--------------- -------------- ---------------
Total (1,505,104) (219,631) (12,509)
--------------- -------------- ---------------
NET LOSS BEFORE INCOME TAX AND MINORITY INTEREST (4,657,755) (2,652,848) (659,949)
INCOME TAX 100,000 - -
--------------- -------------- ---------------
NET LOSS BEFORE MINORITY INTEREST (4,757,755) (2,652,848) (659,949)
MINORITY INTEREST IN LOSS OF SUBSIDIARIES 503,381 250,987 3,237
--------------- -------------- ---------------
NET LOSS $ (4,254,374) $ (2,401,861) $ (656,712)
=============== ============== ===============
Net loss per basic common share* $ (0.35) $ (0.21) $ (0.08)
=============== ============== ===============
Net loss per diluted common share* $ (0.35) $ (0.21) $ (0.08)
=============== ============== ===============
Weighted-average common shares*
Basic 12,022,728 11,693,557 8,691,374
=============== ============== ===============
Diluted 14,120,621 12,528,527 8,691,924
=============== ============== ===============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
- ------------------------------------------------------------------------------------------------------------------------------------
Series "A" Preferred Stock Series "B" Preferred Stock
----------------------------- -----------------------------
Total Shares * Amount Shares * Amount
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 $ (661,018)
Reverse acquisition of TIC:
Exchange of TIC common shares for CCI
Series "A" Preferred shares 14,571 685,063 $ 685
Addition of CCI common stock 86,990
Exchange of CVV common stock for CCI common
shares and Series "B" Preferred shares 7,096,500 101,374 $ 101
Issuance of CCI common stock and Series
"A" Preferred shares for cash 10,000,000 150,380 150
Issuance of warrants below fair value 657,143
Issuance of CCI common stock and Series
"A" Preferred shares for cash 300,000 4,083 4
Issuance of options for common shares and
Series "A" Preferred shares below fair value 1,479,074
Net loss for the year ended December 31, 1997 (4,594,294)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 14,378,966 839,526 839 101,374 101
Comprehensive loss:
Net loss for the year ended December 31, 1998 (10,230,796)
Other comprehensive loss consisting of
foreign currency translation adjustment (20,515)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss (10,251,311) - - - -
Issuance of CCI common stock and Series
"A" Preferred shares for cash 4,956,626 91,180 91
Conversion of Series "A" Preferred shares into
common shares - (930,706) (930)
Exchange of Telecom common stock for CCI
common shares 600,000
Issuance of options for common shares
below fair value 1,000,245
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 10,684,526 - - 101,374 101
Comprehensive loss:
Net loss for the nine months ended
September 30, 1999 (11,118,684)
Other comprehensive loss consisting of
foreign currency translation adjustment (8,547)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss (11,127,231) - - - -
Stock-based compensation expense activity 1,015,101
Interest expense from issuance of warrants 154,520
------------- ------------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1999 $ 726,916 - $ - 101,374 $ 101
============= ============= ============= ============= =============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999 AND
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
CONTINUED
- ------------------------------------------------------------------------------------------------------------------------------------
Common Stock Additional Accumulated
---------------------------- Paid-in Accumulated Other Compre-
Shares * Amount Capital Deficit hensive Loss
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 428,571 $ 429 $ (661,447)
Reverse acquisition of TIC:
Exchange of TIC common shares for CCI
Series "A" Preferred shares (428,571) (429) $ 14,315
Addition of CCI common stock 1,041,494 1,041 85,949
Exchange of CVV common stock for CCI common
shares and Series "B" Preferred shares 450,563 451 7,095,948
Issuance of CCI common stock and Series
"A" Preferred shares for cash 228,658 229 9,999,621
Issuance of warrants below fair value 657,143
Issuance of CCI common stock and Series
"A" Preferred shares for cash 24,284 24 299,972
Issuance of options for common shares and
Series "A" Preferred shares below fair value 1,479,074
Net loss for the year ended December 31, 1997 (4,594,294)
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1997 1,744,999 1,745 19,632,022 (5,255,741)
Comprehensive loss:
Net loss for the year ended December 31, 1998 (10,230,796)
Other comprehensive loss consisting of
foreign currency translation adjustment $ (20,515)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss - - - (10,230,796) (20,515)
Issuance of CCI common stock and Series
"A" Preferred shares for cash 600,504 600 4,955,935
Conversion of Series "A" Preferred shares into
common shares 9,307,060 9,307 (8,377)
Exchange of Telecom common stock for CCI
common shares 85,714 86 599,914
Issuance of options for common shares
below fair value 1,000,245
------------- ------------- ------------- ------------- -------------
BALANCE, DECEMBER 31, 1998 11,738,277 11,738 26,179,739 (15,486,537) (20,515)
Comprehensive loss:
Net loss for the nine months ended September 30, 1999 (11,118,684)
Other comprehensive loss consisting of
foreign currency translation adjustment (8,547)
------------- ------------- ------------- ------------- -------------
Total comprehensive loss - - - (11,118,684) (8,547)
Stock-based compensation expense activity 1,015,101
Interest expense from issuance of warrants 154,520
------------- ------------- ------------- ------------- -------------
BALANCE, SEPTEMBER 30, 1999 11,738,277 $ 11,738 $ 27,349,360 $(26,605,221) $ (29,062)
============= ============= ============= ============= =============
* Retroactively restated for the 1 to 3.5 reverse stock split approved by the Company's shareholders on August 17, 1998.
See notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
- ---------------------------------------------------------------------------------------------------------------
Nine Months Nine Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
1999 1998 1997
------------- ------------ --------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(11,118,684) $(5,302,742) $ (1,075,804)
Adjustments to reconcile net loss to net cash used in
development activities:
Depreciation and amortization 3,661,625 1,673,461 235,903
Minority interest in loss of subsidiaries (1,057,337) (259,063) (8,665)
Stock-based compensation expense 1,015,101 - -
Amortization of discount on notes payable 588,525 244,508 -
Imputed interest expense for warrants 154,520 - -
Change in assets and liabilities:
Accounts receivable - net (192,668) 27,435 -
Due from affiliates 5,000,000 76,523 (40,127)
Inventory (176,419) 18,064 -
Prepaid license fees 57,359 (41,759) (44,567)
Other current assets (159,463) 11,688 -
Other assets (643,278) (289,420) 585,396
Accounts payable and accrued liabilities 2,484,256 710,822 (338,186)
Accrued consulting fees 181,611 (7,407) -
Due to affiliates (240,874) 146,913 100,000
Unearned revenue 13,082 - -
Accrued foreign severance 89,195 - -
------------- ------------ --------------
Net cash provided by (used in) operating
activities (343,449) (2,990,977) (586,050)
------------- ------------ --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in Centurion - - (1,648,455)
Reverse acquisition of WCCI - - 56,582
Acquisition of CVV (net of cash acquired) - - (200,000)
Acquisition of interests in Chispa Dos (net of cash acquired) - (2,341,074) -
Acquisition of IAN (net of cash acquired) - (961,412) -
Purchases of property and equipment (10,940,574) (1,605,959) -
------------- ------------ --------------
Net cash used in investing activities (10,940,574) (4,908,445) (1,791,873)
------------- ------------ --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock - 3,161,661 1,800,686
Proceeds from issuance of Series A preferred stock - 1,794,965 8,199,314
Increase in minority interest from issuance of subsidiary
common stock 200,000 - -
Proceeds from related party note 11,935,422 60,510 58,960
Payments on related parties borrowings (52,500) - (175,319)
Payments on foreign bank line of credit (27,281) - -
Proceeds from promissory notes 3,746,475 - 2,985,600
Payments on promissory notes (8,284,799) - (2,253,217)
------------- ------------ --------------
Net cash provided by financing activities 7,517,317 5,017,136 10,616,024
------------- ------------ --------------
EFFECT OF EXCHANGE RATES ON CASH (5,065) (579) -
------------- ------------ --------------
NET INCREASE (DECREASE) IN CASH (3,771,771) (2,882,865) 8,238,101
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 4,315,281 6,171,515 8,902
------------- ------------ --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 543,510 $ 3,288,650 $ 8,247,003
============= ============ ==============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for interest $ 276,236 $ - $ -
============= ============ ==============
Cash paid during the period for income tax $ 86,133 $ - $ -
============= ============ ==============
See notes to consolidated financial statements.
</TABLE>
<PAGE>
CONVERGENCE COMMUNICATIONS, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
(Unaudited)
1. Basis of Presentation
---------------------
Convergence Communications, Inc. (the "Company") is a provider of data
and video telecommunications service to business and residential customers over
metropolitan area networks ("MAN") in Latin American.
The consolidated financial statements of the Company include the
accounts of the Company's subsidiaries, including (i) a 44.03% interest in
Chispa Dos, Inc. ("Chispa") which is a holding company for three subsidiaries
that provide multi-channel television and Internet services in El Salvador (the
"El Salvador Entities"); (ii) a 100% interest in Interamerican Telecom, Inc.,
the parent company of Interamerican Net de Venezuela, S.A. ("Inter@net"), which
is providing Internet services in Venezuela; (iii) a 78.14% interest in Caracas
Viva Vision TV, S.A. ("CVV"), a local multi-point distribution service ("LMDS")
wireless communications system in Venezuela, (iv) a 100% interest in Wireless
Communications Holding - Guatemala, S.A. ("WCH - Guatemala"), a corporation
which holds LMDS license rights in Guatemala, (v) a 100% interest in Sociedad
Television Interactiva, S.A. ("TISA"), a corporation that intends to operate a
wireless telecommunications system in Costa Rica, (vi) a 90% interest in
Wireless Communications Panama, S.A. ("WC - Panama"), which is acting as the
operating company for an LMDS system in Panama, (vii) a 95% interest in
Convergence Communications de Mexico, S.A. ("CCI Mexico"), which will act as the
operating company for a telecommunications system in Mexico and which owns fiber
optic network capacity in Mexico City, (viii) an 80% interest in WCI de
Argentina ("WCIA"), which holds a value added license to provide
telecommunications services in Argentina, (ix) a 94.9% interest in Auckland
Independent Television Services, Ltd. ("AITS"), which holds license and lease
rights in two multi-channel, multi-point distribution service ("MMDS") channels,
and (x) a 100% interest in Transworld Wireless Television, Inc. ("TWTV"), a
corporation that holds four MMDS channels and a leased transmitter in Park City,
Utah. All significant intercompany accounts and transactions have been
eliminated in consolidation. All capitalized terms not defined in this report
have the meanings given them in the Company's annual report on Form 10-KSB for
the year ended December 31, 1998.
2. Net loss per common share and common share equivalent
-----------------------------------------------------
Net loss per common share and common share equivalents is computed by
both the basic method, which uses the weighted average number of common shares
and the common stock equivalents on a voting basis for the Series "B" preferred
stock outstanding, and the diluted method, which includes the dilutive common
shares from stock options and warrants, as calculated using the treasury stock
method.
3. Use of Estimates in Preparing Financial Statements
--------------------------------------------------
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
4. Debt Obligations
----------------
December 1998 Convertible Notes - In December 1998, the Company
borrowed $5 million from each of FondElec Essential Services Growth Fund L.P.
("FondElec") and Internexus, S.A. ("Internexus") (see the Company's report on
Form 10-KSB for the year ended December 31, 1998 for a more detailed
description). In October 1999, (i) FondElec exchanged the $5 million of
principal represented by its note into 666,666 shares of the Company's newly
designated Series C Convertible Preferred Stock (the "Series C Stock") and was
paid $419,178 of accrued interest in cash, and (ii) Internexus exchanged the
principal and accrued interest on its note, totaling $5,419,178, into 722,556
shares of Series C Stock. Under the terms of the December notes, FondElec and
Internexus each received warrants to acquire 227,311 shares of the Company's
common stock. The warrants are accompanied by demand and "piggy-back"
registration rights. See Items 2 and 5 below and the Company's report on Form
8-K dated November 2, 1999 for a more detailed description of these
transactions.
FondElec and Internexus are shareholders of the Company, and, pursuant
to agreements among the Company and certain of its shareholders, a designee for
each of FondElec and Internexus currently sits on the Company's Board of
Directors.
El Salvador Acquisition Note Refinancing - In May 1999, Chispa obtained
a long-term loan from a third party lender totaling $4,335,000, of which a
portion ($3,607,134) was used to pay the second note payable payment to the
sellers of the El Salvador Entities. The loan is due in May 2004, bears interest
at LIBOR plus 4.75% quarterly and has mandatory annual payments. In conjunction
with the third party loan, a loan that FondElec made to Chispa in the amount of
$4,769,497 was refinanced under the same terms as the third party loan, except
that the FondElec loan was subordinated to the third party lender's position and
the due date for the FondElec loan was changed to January 1, 2000, with an
annual renewal until the third party lender is repaid (see the Company's report
on Form 10-QSB for the quarter ended June 30, 1999 for a more detailed
description of these loan transactions).
Under the terms of the loans, the Company is required to refrain from
engaging in certain types of business activities (including sales of its assets,
mergers or other fundamental corporate transactions) without the consent of the
lenders. The loans are secured by the assets and capital stock of Cablevisa,
S.A. de C.V. and Multicable, S.A. de C. V., which are the two companies
providing telecommunications service to subscribers in El Salvador.
MetroNet Transaction Loan - The Company financed the purchase of the
MetroNet acquired network capacity agreement through a $2,615,925 loan from
FondElec and a $2,550,000 loan from Internexus (see the Company's report on Form
10-QSB for the quarter ended June 30, 1999 for a more detailed description). In
October 1999, the Company repaid the amounts due under the FondElec loan,
together with accrued interest totaling $489,698, and Internexus exchanged the
amounts of its loan principal and interest totaling $3,027,357, into 403,648
shares of the Company's Series C Stock (see Item 5 below). In conjunction with
the MetroNet transaction loans, FondElec and Internexus also received warrants
to acquire 49,053 and 47,817 shares, respectively, of the Company's common
stock. The warrants are accompanied by demand and "piggy-back" registration
rights.
FondElec Loan Transaction - On August 6, 1999, the Company borrowed $1
million from FondElec (see the Company's report on Form 10-QSB for the quarter
ended June 30, 1999 for a more detailed description). In October 1999, the
Company repaid the principal and $24,932 of accrued interest (see Item 5 below).
In connection with the loan, FondElec also acquired five-year warrants to
purchase 10,688 shares of the Company's common shares at an exercise price of
$7.50 per share. The warrants are accompanied by demand and "piggy-back"
registration rights.
Internexus Loan Transactions - On September 3, 1999, and October 1,
1999, the Company borrowed $1 million and $500,000, respectively, from
Internexus (see the Company's report on Form 8-K dated October 6, 1999 for a
more detailed description). In October 1999, Internexus converted the principal
and $20,301 of accrued interest under the loans into 202,707 shares of Series C
Stock (see Item 5 below). In connection with the loans, Internexus also acquired
five-year warrants to purchase 7,516 shares of the Company's common shares at an
exercise price of $7.50 per share. The warrants are accompanied by demand and
"piggy-back" registration rights.
5. CVV Financial Results
---------------------
The Company owns approximately 78% of the stock of CVV, a Venezuelan
corporation that acts as the operating company for a multi-channel television
system in Caracas, Venezuela. The Company reports the operating results of CVV
on a consolidated basis. During the four months immediately proceeding April
1999, CVV has generated losses of approximately $25,000 per month. On July 28,
1999 (after repeated requests by the Company for CVV's financial information for
the period covered by this report), Donald Williams, the president of CVV,
notified the Company that CVV's monthly financial information was current only
through April 1999, and declined to release any operating information to the
Company. The Company is currently pursuing two arbitration proceedings against
Mr. Williams. See the Company's annual report on Form 10-KSB for the period
ended December 31, 1998. As a result, the financial information set forth in
this report does not include actual operating result information for CVV. The
Company has, however, included estimates for CVV's operating results during the
period, based on its historical operating results. The Company believes CVV's
operations are not material to its consolidated financial operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion and analysis relates to the financial
condition and results of operations of the Company for the nine months ended
September 30, 1999 and 1998. This information should be read in conjunction with
the Company's consolidated financial statements and the notes related thereto
appearing elsewhere in the document.
A. OVERVIEW
--------
The Company is a provider of data and video telecommunications services
to business and residential customers over MANs in Latin America. From its
inception, the Company has focused on providing telecommunications services in
emerging markets, primarily in Latin America, using a high speed transmission
network within and across national borders. The Company intends to capitalize on
the rapidly growing demand for telecommunications services in countries emerging
from developing and state-controlled economies and where there is growing
liberalization of regulations governing the provision of telecommunications
services.
As part of the Company's business strategy, it expects to continue to
expand through additional significant acquisitions and strategic alliances. The
Company believes that additional attractive acquisition opportunities currently
exist in Latin America and it is continually evaluating these opportunities.
Certain of these transactions, if consummated, may be material to the Company's
operations and financial condition. Those acquisitions may not be successfully
integrated into the Company's business operations or result in projected
benefits.
B. MATERIAL CHANGES IN RESULTS OF OPERATIONS
-----------------------------------------
Nine months ended September 30, 1999 compared to the nine months ended September
30, 1998:
For the nine months ended September 30, 1999, the Company had revenues
of $6,455,538 as compared to $1,249,446 for the same period in 1998, for an
increase of $5,206,092. The increase is primarily related to the inclusion of
the full nine months of revenues from the El Salvador Entities and Inter@net
operations (1998 includes revenues from the El Salvador Entities from July 17,
1998 and Inter@net from August 17, 1998), which were acquired in the third
quarter of 1998.
The Company's cost of service increased $1,297,520, from $1,073,862 for
the nine months ended September 30, 1998, to $2,371,382 in 1999. The increase is
primarily related to the additional revenues the Company earned in 1999. The
Company's gross margin was $4,084,156 for the nine months ended September 30,
1999, compared to $175,584 for the same period in 1998.
Operating expenses for the nine months ended September 30, 1999 were
$13,378,593 compared to $5,654,784 for 1998, for an increase of $7,723,809. This
increase was primarily due to an increase in general and administrative and
professional fees related to the Company's acquisitions, the addition of new
employees, the additional depreciation and amortization from the Company's
acquired operations and the recognition of stock-based compensation expense for
options with exercise prices below fair market value. The Company's operating
loss was $9,294,437 for the nine months ended September 30, 1999, compared to
$5,479,200 for the nine months ended September 30, 1998.
Interest income for the nine months ended September 30, 1999 was
$82,458, compared to $251,321 in 1998. The $168,863 decrease is primarily
related to the lower cash balances in 1999. Interest expense increased
$2,695,342 from $333,926 for the nine months ended September 30, 1998 to
$3,029,268 for the nine months ended September 30, 1999. The increase was due
primarily to the interest expense from the debt used to acquire the El Salvador
Entities ("Chispa Acquisition Debt") and the fiber optic network capacity in
Mexico City the Company acquired in June 1999 (see the Company's report on Form
8-K dated September 23, 1999 for a more detailed description), the accrual of
interest expense for the subordinated exchangeable promissory notes the Company
issued in December 1998 and the recording of imputed interest expense for
warrants issued in conjunction with the December 1998 notes.
Income tax expense was $134,774 for the nine months ended September 30,
1999, which was related to the El Salvador Entities. There was no income tax
expense in 1998. Minority interest in loss of subsidiaries was $1,257,337 for
the nine months ended September 30, 1999, compared to $259,063 for the nine
months ended September 30, 1998 for an increase of $998,274. The increase was
primarily due to the recording of the minority interest for the El Salvador
Entities for a full nine months in 1999.
As a result of the foregoing, the Company's net loss for the nine
months ended September 30, 1999 was $11,118,684, compared to $5,302,742 for
1998, for an increase of $5,815,942.
Nine months ended September 30, 1998 compared to the nine months ended September
30, 1997:
For the nine months ended September 30, 1998, the Company had revenues
of $1,249,446, which includes revenues from the El Salvador acquisitions from
July 17, 1998 and the Inter@net acquisition from August 17, 1998. This compares
to revenues of $38,648 for the nine months ended September 30, 1997. The 1997
revenues were generated from the multi-channel television service provided in
Caracas, Venezuela by CVV, for the period from August 17, 1997 (date of
acquisition) to September 30, 1997. The cost of service for the nine months
ended September 30, 1998 was $1,073,862, compared to $24,106 for the nine months
ended September 30, 1997.
Operating expenses for the nine months ended September 30, 1998 were
$5,654,784 compared to $1,016,989 for the same period in 1997, for an increase
of $4,637,795. This increase was primarily due to costs associated with
negotiating and completing the Acquisitions, start-up expenses associated with
the Company's current telecommunications projects and the depreciation,
amortization and lease expense from the Company's telecommunications assets and
subscriber rights. The Company's operating loss was $5,479,200 for the nine
months ended September 30, 1998, compared to $1,002,447 for the same period in
1997.
Interest income for the nine months ended September 30, 1998 was
$251,321, compared to $34,839 for the same period in 1997, for an increase of
$216,482. The increase was primarily due to higher cash balances related to cash
received for equity investments in August 1997 and February 1998. Interest
expense increased $217,065 from $116,861 for the nine months ended September 30,
1997, to $333,926 for the same period in 1998. The increase was due primarily to
interest associated with the notes payable related to the El Salvador and
Inter@net acquisitions.
Minority interest in loss of subsidiaries was $259,063 for the nine
months ended September 30, 1998, compared to $8,665 for the same period in 1997,
for an increase of $250,398. The increase primarily relates to the loss
attributable to the minority shareholder's interest in Chispa Dos.
As a result of the foregoing, the Company's net loss for the nine
months ended September 30, 1998 was $5,302,742, compared to $1,075,804 for the
nine months ended September 30, 1997, for an increase in net loss of $4,226,938.
C. LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The telecommunications industry is capital intensive. In order for the
Company to successfully compete, it will require substantial capital to continue
to develop its networks and meet the funding requirements of its operations
(including losses from operations), as well as to provide capital for its
acquisitions and business development initiatives. The Company expects that it
will spend over $200 million over the next two years to meet its capital
requirements as it implements its business plan.
Since inception, the Company has funded its cash requirements at the
parent company level through debt and equity transactions. The proceeds from
these transactions were primarily used to fund the Company's investments in, and
acquisition of, start-up network operations, to provide working capital, and for
general corporate purposes, including the expenses incurred in seeking and
evaluating new business opportunities. The Company's foreign subsidiary
interests have been financed by the Company through a combination of equity
investments and shareholder loans from the Company.
As of September 30, 1999, the Company had current assets of $1,823,908,
compared to $10,126,717 as of December 31, 1998, for a decrease of $8,302,809.
The decrease in current assets was primarily due to a decrease in note proceeds
due from affiliate and a decrease in cash. The note proceeds due from affiliate
was received in the form of cash in the first week of January 1999 and then cash
totaling $8,771,771 was used to make capital expenditures and purchase
inventory, pay accounts payable and pay corporate expenses associated with the
development of the Company's telecommunications operations during the nine
months ended September 30, 1999.
The Company had current liabilities of $19,766,810 as of September 30,
1999, compared to $14,096,138 as of December 31, 1998, for an increase of
$5,670,672. The increase in current liabilities was due to an increase in
accounts payable for equipment purchases and operating expenses, an increase in
accrued liabilities for accrued interest on the Company's December 1998 notes,
an increase in related party accrued consulting and an increase in related party
notes payable in conjunction with the MetroNet transaction and two bridge notes
from current shareholders (see Note 4 above). Long term debt increased
$4,444,172, from $15,346,863 at December 31, 1998 to $19,791,035 at September
30, 1999. The increase was due primarily to the refinancing of the Chispa
Acquisition Debt through FondElec, a shareholder in the Company and Chispa, and
a third party commercial lender.
The Company's principal sources of funds are its available resources of
cash and cash equivalents. At September 30, 1999, the Company had cash and cash
equivalents of $543,510. The cash flow generated by the Company's operations and
projected network launches will not be sufficient to cover the Company's
projected operating expenses, general and administrative expenses and capital
expenditures. The Company also expects acquisitions will constitute a major part
of its business strategy, so it is likely the Company will seek additional
financing in the future for these purposes.
The Company's ability to provide the services contemplated by its
business plan will be dependent upon the Company obtaining substantial
additional sources of funds. As noted below, the Company has recently completed
a $109.5 million private equity and credit facility financing. While the Company
believes that it may be able to obtain financing through additional equity or
debt financing or otherwise, no assurances can be given that any such financing
will be available, or that the Company will be able to obtain any such financing
on favorable terms. Also, the actual amount and timing of the Company's future
capital requirements may differ materially from its current estimates. In
particular, the accuracy of the Company's estimates is subject to changes and
fluctuations in the Company's revenues, operating costs and development
expenses, which can be affected by its ability to (1) effectively and
efficiently manage the build-out of the MANs in each of its markets, (2) obtain
infrastructure contracts, rights-of-way, licenses, interconnection agreements
and other regulatory approvals necessary to complete and operate the MANs, (3)
negotiate favorable contracts with suppliers, including large volume discounts
on purchases of capital equipment and (4) access markets, attract sufficient
numbers of customers and provide and develop services for which customers will
subscribe. The Company's revenue and costs are also dependent upon a number of
factors that are not within its control, such as political, economic and
regulatory changes, changes in technology, increased competition and various
factors such as strikes, weather, and performance by third parties in connection
with our operations. Due to the uncertainty of these factors, the Company's
actual revenues and costs may vary from expected amounts, possibly to a material
degree, and those variations are likely to affect the Company's future capital
requirements. In addition, if the Company expands its operations at an
accelerated rate or consummates acquisitions, its funding needs will likely
increase, possibly to a significant degree, and it would, therefore, expend its
capital resources sooner than currently expected. If the Company's capital
resources prove to be insufficient, it will need to raise additional capital to
execute its current business plan and to fund expected operating losses, as well
as to consummate future acquisitions and exploit opportunities to expand and
develop its businesses.
To the extent the Company acquires the amounts necessary to fund its
business plan through the issuance of equity securities, the then-current
shareholders of the Company may experience dilution in the value per share of
their equity securities. The acquisition of funding through the issuance of debt
could result in a substantial portion of the Company's cash flow from operations
being dedicated to the payment of principal and interest on that indebtedness,
and could render the Company more vulnerable to competitive and economic
downturns. Financing could also be obtained by the Company's subsidiaries or
affiliates from third parties, although there can be no assurance the Company's
subsidiaries or affiliates will be able to obtain the financing required to make
planned capital expenditures, provide working capital or meet other cash needs
on terms which are economically acceptable to the Company.
The Company has taken steps which it believes will improve its
short-term and ongoing liquidity and cash flow, including the following:
- On October 15, 1999, the Company entered into an agreement with six
accredited investors for a $109.5 million private equity and credit facility
financing package. On October 18, 1999, the Company closed the first portion of
these transactions and sold 4,400,000 shares of its Series C Preferred stock to
three of the accredited investors for a total of $33 million in cash. The
Company also exchanged approximately $15 million of debt it previously issued to
two of the accredited investors into 1,995,577 shares of Series C Stock. See
Note 4 above and Items 2 and 5 below.
- The Company is currently conducting a formal bid and proposal process
for the selection of a technology partner that would provide a vendor financing
package for the Company's capital equipment, professional engineering services
and systems integration expenditures.
D. THE YEAR 2000 ISSUE
-------------------
The Company has completed a review of its computer systems and
operations to determine the extent to which its systems will be vulnerable to
potential errors and failures as a result of the "year 2000" problem. The year
2000 problem results from the use of computer programs which were written
employing only two digits (rather than four digits) to define applicable years.
On January 1, 2000, any clock or date recording mechanism, including
date-sensitive software which uses only two digits to represent the year, could
recognize a date using "00" as the year "1900", rather the year "2000". This
could result in system failures or miscalculations, causing disruptions of
operations, including, among other things, a temporary inability to process
transactions, send invoices, provide services or engage in similar activities.
These failures, miscalculations, and disruptions could have a material adverse
effect on the Company's business, operations and financial condition.
The Company has concluded, based on its review of its operations and
computer systems, that its significant computer programs and operations will not
be materially affected by the year 2000 problem and that the programs that will
be affected can be properly modified or replaced by the end of 1999 at an
estimated cost of approximately $100,000. Under a reasonably likely worst-case
scenario, the Company's computer systems and operations could be materially
affected by the year 2000 problem. In addition to its own operations and
computer systems, the Company relies on operations and computer systems of
third-party customers, financial institutions, vendors and other parties with
and through which it conducts business (such as national telephone systems under
the Company's interconnect agreements, and the owners of communications
backbones utilized by the Company).
The Company intends to prioritize its year 2000 efforts to protect, to
the extent possible, its business and operations. The Company's first priority
will be to protect its mission-critical operations--such as those systems and
applications that are vital to the provision by the Company of voice, video and
data switching, processing and transport services to customers--from incurring
material service interruptions that could occur as the result of the year 2000
transition. To this end, the Company has attempted to identify any element
within its business operations (including elements relating to third party
relationships) that could be impacted by the year 2000 date change, and has
attempted to determine the risks to its continuing business operations as a
result of an adverse effect resulting from that date change.
The Company generally requires that its key vendors and suppliers
warrant in writing that they are year 2000 ready. The Company has purchased or
acquired most of its mission-critical systems from such third-party vendors.
Unfortunately, like other telecommunications providers (and, in particular,
telecommunications providers operating outside of the United States), the
Company's products and services are dependent upon third parties which may not
be fully year 2000 compliant. The Company has attempted to identify the vendors
and third-parties with which it has contractual relationships that may not be
year 2000 compliant by the end of 1999, and has adopted contingency plans which
it believes will mitigate any adverse impact to its business operations
resulting from those vendors' or third-parties' inability to perform in
accordance with their contractual obligations. These contingency plans include
the preparation and use of backup copies of financial records, installing
portable diesel generators, determining the availability and reliability of
alternate networks, and scheduling additional phone center, network operating
center, and repair personnel.
Although the Company's efforts to be Year 2000 compliant are intended
to minimize the adverse effects of the Year 2000 issue on its business and
operations, the actual effects of the issue will not be known until 2000.
Difficulties in implementing the remediation or prevention phases or failure by
the Company's major vendors, third party network service providers, and other
material service providers and customers to adequately address their respective
Year 2000 issues in a timely manner could have a material adverse effect on the
Company's business, results of operations, and financial conditions.
E. SPECIAL NOTE REGARDING FORWARD LOOKING STATEMENTS
-------------------------------------------------
Certain statements contained in "Management's Discussion and Analysis"
constitute forward-looking statements concerning the Company's operations,
economic performance and financial condition. Because those statements involve
risks and uncertainties, actual results may differ materially from those
expressed or implied by those forward-looking statements.
In addition, any statements that express or involve discussions as to
expectations, beliefs, plans, objectives, assumptions or future events or
performance are not historical facts and may be forward-looking and,
accordingly, those statements involve estimates, assumptions and uncertainties
which could cause actual results to differ materially from those expressed in
the forward-looking statements. Accordingly, those types of statements are
qualified in their entirety by reference to, and are accompanied by, the factors
discussed throughout this report. Among the key factors that have a direct
bearing on the Company's results of operations are the potential risk of delay
in implementing the Company's business plan; the political, economic and legal
aspects of the markets in which the Company operates; competition; and the
Company's need for additional substantial financing. The Company has no control
over some of these factors.
The factors described in this report could cause the Company's actual
operating results to differ materially from those expressed in any
forward-looking statements of the Company made by or on behalf of the Company.
Persons reviewing this report, therefore, should not place undue reliance on
those forward-looking statements. Further, to the extent this report contains
forward-looking statements, they speak only as of the date of this report, and
the Company undertakes no obligation to update any forward-looking statement or
statements to reflect the occurrence of unanticipated events. New factors may
emerge from time to time, and it is not possible for management to predict all
of such factors. Further, management cannot assess the impact of each such
factor on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements.
PART II: OTHER INFORMATION
-----------------
ITEM 1. LEGAL PROCEEDINGS
See the section entitled "Legal Proceedings" in the Company's reports
on Form 8-K dated November 2, 1999, Form 10-QSB for the quarters ended June 30,
1999 and March 31, 1999 and the Company's report on Form 10-KSB for the year
ended December 31, 1998.
ITEM 2. CHANGES IN SECURITIES
In conjunction with the equity financing described in Item 5 below, on
October 12, 1999, the Company's Board of Directors designated the Series C Stock
as a new series of the Company's authorized preferred stock. The certificate
designating the rights and preferences of the Series C Stock was filed with the
Nevada Secretary of State's Office on October 13, 1999 and declared effective on
October 14, 1999.
The Series C Stock consists of 14,250,000 shares of preferred stock,
par value $.001 per share, and has the following general rights and preferences:
- It votes with the outstanding shares of the Company's common stock
and Series B Preferred Stock (unless otherwise required by law), and has one
vote per share.
- It is convertible into shares of the Company's common stock,
initially on a one-for-one basis. The conversion ratio is subject to adjustment
for fundamental corporate transactions. Conversion is generally optional, but is
mandatory upon the occurrence of a Disposition Event.
- It has a liquidation preference which is superior to the Company's
common shares, but subordinate to the Company's Series B Preferred Stock. The
initial liquidation preference is $7.50 per share.
- It is not redeemable.
- Its holders are entitled to receive cash dividends or distributions
of property when, as and if declared by the Board of Directors. If the Company
declares a dividend or distribution on its common stock, it is required to pay a
dividend or distribution to the holders of the Series C Stock in an amount equal
to what they would have received had the holders converted their Series C Stock
into common stock.
- Its holders have a preemptive right to purchase their prorata share
of any new securities issued by the Company. The preemptive rights do not apply
to issuances of stock to management or employees, any merger or similar
transaction approved by the Board of Directors, to securities issued in a stock
split or dividend, or certain other transactions approved by the Board of
Directors. The preemptive rights terminate on the effective date of a public
offering meeting certain size requirements.
See the Company's report on Form 8-K dated November 2, 1999 and the
exhibit thereto for a more detailed description of the Series C Stock.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MATTERS SUBMITTED TO A VOTE OF THE COMPANY'S SHAREHOLDERS
None.
ITEM 5. OTHER INFORMATION
Equity and Debt Financing - On October 18, 1999, the Company closed the
first portion of a $109.5 million private equity and credit facility financing
package with six accredited investors. At the closing, the Company received $33
million in cash from the sale of 4,400,000 shares of its Series C Stock from
three of the six accredited investors and exchanged approximately $15 million of
debt it previously issued to two of the accredited investors into 1,995,577
shares of Series C Stock. Two of these parties are obligated to purchase, for
cash, an additional 2,666,666 shares of Series C Stock for $20 million at a
second closing that will be held after the parties receive clearance under the
Hart-Scott-Rodino Antitrust Improvement Act of 1976, as amended (the "HSR
Laws"). The parties expect clearance under the HSR Laws from the Department of
Justice and the Federal Trade Commission in November 1999. Another party is
obligated to purchase 666,666 shares of Series C Stock for $5 million in cash if
it joins in the execution of the Agreement by November 19, 1999.
Under the terms of the agreement, one of the parties also agreed to (i)
invest, at the second closing, $5.25 million dollars in Chispa, a controlled
subsidiary of the Company which conducts telecommunications operations in El
Salvador, for approximately 32.64% of the outstanding stock of Chispa, and (ii)
to negotiate in good faith with the Company the terms of a joint venture
pursuant to which each party will invest $5 million to conduct
telecommunications operations in the Republic of Colombia. The same investor
also entered into a long-term $26 million credit facility with InterAmerica Net
de Venezuela, S.A., the Company's wholly-owned Venezuelan operating subsidiary.
See the Company's report on Form 8-K dated November 2, 1999 for a more detailed
description of these transactions.
ITEM 6. EXHIBITS, FINANCIAL STATEMENTS, SCHEDULES AND REPORTS ON FORM 8-K
A. EXHIBITS.
--------
Exhibit No. Exhibit
- ----------- -------
10.14 Participation Agreement, dated October 15, 1999, among
Telematica EDC, C.A., TCW/CCI Holding LLC, Glacier
Latin-America Ltd., the International Finance Corporation,
FondElec Essential Services Growth Fund, L.P., Internexus S.A.
(collectively, the "Investors"), the Company and other parties
10.15 Option Agreement, dated October 18, 1999, among the Company and
the Investors
10.16 Form of Series C Warrant, dated October 18, 1999, as issued in
favor of each Investor
10.17 CCI Shareholders' Agreement, dated October 18, 1999, among the
Company, the Investors, and other parties
10.18 Amended and Restated Registration Rights Agreement, dated
October 18, 1999, among the Company, the Investors and other
parties
10.24 Unofficial English Translation of Venezuela Financing
Agreement, dated October 18, 1999, between a Subsidiary of the
Company and one of the Investors
27.1 Financial Data Schedule
B. REPORTS ON FORM 8-K
-------------------
The Company filed two reports on Form 8-K since the filing of the
Company's report on Form 10-QSB for the quarter ended June 30, 1999.
1. On October 6, 1999, the Company filed a report on Form 8-K
describing loans totaling $1.5 million it had secured from
Internexus.
2. On November 2, 1999, the Company filed a report on Form 8-K
describing a private equity and debt financing transaction
involving six accredited investors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONVERGENCE COMMUNICATIONS, INC.
Date: November 15, 1999 BY /s/ JERRY SLOVINSKI
-----------------------------
Jerry Slovinski
Chief Financial Officer
<PAGE>
Exhibit No. Exhibit
- ----------- -------
10.14 Participation Agreement, dated October 15, 1999, among
Telematica EDC, C.A., TCW/CCI Holding LLC, Glacier
Latin-America Ltd., the International Finance Corporation,
FondElec Essential Services Growth Fund, L.P., Internexus S.A.
(collectively, the "Investors"), the Company and other parties
10.15 Option Agreement, dated October 18, 1999, among the Company and
the Investors
10.16 Form of Series C Warrant, dated October 18, 1999, as issued in
favor of each Investor
10.17 CCI Shareholders' Agreement, dated October 18, 1999, among the
Company, the Investors, and other parties
10.18 Amended and Restated Registration Rights Agreement, dated
October 18, 1999, among the Company, the Investors and other
parties
10.24 Unofficial English Translation of Venezuela Financing
Agreement, dated October 18, 1999, between a Subsidiary of the
Company and one of the Investors
27.1 Financial Data Schedule
PARTICIPATION AGREEMENT
among
CONVERGENCE COMMUNICATIONS, INC.,
a Nevada, United States of America corporation,
TELEMATICA EDC, C.A.,
a Venezuelan compania anonima,
TCW/CCI HOLDING LLC,
a Delaware limited liability company,
INTERNATIONAL FINANCE CORPORATION,
an international organization established by Articles of Agreement
among its member countries
GLACIER LATIN-AMERICA LTD.,
a British Virgin Islands International Business Company
FONDELEC ESSENTIAL SERVICES GROWTH FUND, L.P.,
a Cayman Islands exempt limited partnership,
INTERNEXUS S.A.,
an Argentine sociedad anonima,
and
LANCE D'AMBROSIO, TROY D'AMBROSIO
and the
ESTATE OF GEORGE S. D'AMBROSIO
Dated: October 15, 1999
<PAGE>
TABLE OF CONTENTS
Page
1. Definitions...........................................................2
2. The Transactions......................................................2
(a) The Transactions.............................................2
(b) The Closing and the Subsequent Closing.......................6
(c) Deliveries at the Closing....................................6
(d) Deliveries at the Subsequent Closing.........................9
3. Representations and Warranties of Investors..........................10
(a) Organization of the Investors...............................11
(b) Authorization of Transaction................................11
(c) Noncontravention............................................11
(d) Brokers' Fees...............................................12
(e) Investment Intent...........................................12
(f) Restrictive Legend..........................................12
(g) Accredited Investor.........................................13
(h) HSR Warranty............................................... 14
4. Representations and Warranties of the Company Concerning
the Company and its Subsidiaries.....................................14
(a) Organization, Qualification and Corporate Power.............14
(b) Authorization of Transaction................................15
(c) Capitalization..............................................15
(d) Noncontravention............................................16
(e) Intellectual Property; Permits and Licenses.................17
(f) Financial Statements; Financial Condition...................20
(g) Taxes.......................................................21
(h) Employees and Labor Contracts...............................21
(i) Environmental Laws and Regulations..........................22
(j) Litigation..................................................22
(k) Bankruptcy..................................................22
(l) Ordinary Course.............................................23
(m) Brokers.....................................................23
(n) Contracts...................................................23
(o) Compliance with Laws........................................23
(p) Business Plan and Use of Proceeds...........................24
(q) Complete Statements.........................................24
(r) Reports.....................................................24
(s) Related Party Transactions..................................25
(t) Foreign Corrupt Practices Act...............................25
(u) No Bank Regulation..........................................25
(v) Property; Assets............................................25
(w) Employee Benefits...........................................26
(x) U.S. Employee Plans.........................................26
(y) Insurance...................................................27
(z) IFC Policies................................................27
(aa) HSR Warranty................................................27
5. Pre-Closing Covenants................................................27
(a) General.....................................................28
(b) Notices and Consents........................................28
(c) Operation of Business.......................................28
(d) Preservation and Conduct of Business........................28
(e) Full Access.................................................28
(f) Notice of Developments......................................29
6. Conditions to Obligations............................................29
(a) Conditions to Obligations of Each Investor at the Closing...29
(b) Conditions to Obligations of the Company at the Closing.....30
(c) Conditions to Obligations at the Subsequent Closing.........30
7. Indemnity............................................................31
8. Termination..........................................................34
(a) Termination of Agreement....................................34
(b) Effect of Termination.......................................35
(c) Specific Performance........................................35
9. D'Ambrosio Participation.............................................35
10. Removal of Legend;Use of Proceeds....................................36
11. Miscellaneous........................................................36
(a) Press Releases and Public Announcements.....................36
(b) No Third Party Beneficiaries................................36
(c) Entire Agreement............................................36
(d) Succession and Assignment...................................36
(e) Counterparts................................................37
(f) Headings....................................................37
(g) Notices.....................................................37
(h) Governing Law...............................................39
(i) Amendments and Waivers......................................40
(j) Severability................................................40
(k) Expenses....................................................40
(l) Construction................................................40
(m) Incorporation of Attachments and Exhibits...................41
(n) Disputes....................................................41
(o) Special IFC Covenants.......................................42
(p) Reporting to IFC............................................42
<PAGE>
PARTICIPATION AGREEMENT
THIS PARTICIPATION AGREEMENT (this "Participation Agreement") is
entered into as of October 15, 1999, among CONVERGENCE COMMUNICATIONS, INC., a
Nevada, United States of America corporation (the "Company"), TELEMATICA EDC,
C.A., a Venezuelan compania anonima, ("Telematica"), TCW/CCI HOLDING LLC, a
Delaware, United States of America limited liability company ("TCW");
INTERNATIONAL FINANCE CORPORATION, an international organization established by
Articles of Agreement among its member countries, ("IFC"), and GLACIER
LATIN-AMERICA LTD., a British Virgin Islands International Business Company
("Glacier"), FONDELEC ESSENTIAL SERVICES GROWTH FUND, L.P., a Cayman Islands
exempt limited partnership ("FondElec"), INTERNEXUS S.A., an Argentine sociedad
anonima ("Internexus"), and, for purposes of Section 9 below, LANCE D'AMBROSIO,
TROY D'AMBROSIO and the ESTATE OF GEORGE S. D'AMBROSIO (the latter three being
sometimes referred to collectively herein as the "D'Ambrosios"). Telematica,
TCW, IFC, Glacier, FondElec and Internexus are sometimes referred to
collectively as the "Investors" and individually as an "Investor", and the
Company and the Investors are sometimes referred to collectively as the
"Parties" and singularly as a "Party".
A. The Company, directly or through wholly-owned or controlled
subsidiaries, is engaged in the business of providing data
transmission services, domestic and international telephony,
subscriber cable television, value-added telecommunications
services and services for access to and use of the Internet in
Latin America (together, the "Telecommunications Business"),
and proposes to continue to carry out and to further expand
and develop such Telecommunications Business in the manner and
to the extent set out in the business plan and budget attached
as Exhibits A and B (the "Business Plan" and "Budget",
respectively) to the Company's letter addressed to all
Investors and dated October 15, 1999 and previously delivered
to them ("Disclosure Letter") and for such purposes requires
additional capital;
B. The Investors individually desire to participate or to
participate further in the Telecommunications Business and
toward that end intend to invest in the Company;
C. FondElec is a shareholder in the Company and is the holder of
a certain Subordinated Exchangeable Promissory Note from the
Company, dated December 23, 1998, in the original principal
amount of Five Million United States Dollars (US$5,000,000)
(the "FondElec December Note"), and FondElec proposes to
capitalize and, therefore, convert and exchange the principal
amount of the FondElec December Note for equity securities of
the Company;
D. Internexus is a shareholder in the Company and the holder of
(i) a certain Subordinated Exchangeable Promissory Note from
the Company, dated December 23, 1998, in the original
principal amount of Five Million United States Dollars
(US$5,000,000) (the "Internexus December Note"); (ii) a
certain Promissory Note from the Company, dated June 12, 1999,
in the original principal amount of Two Million Five Hundred
and Fifty Thousand United States Dollars (US$2,550,000) (the
"MetroNet Note"), and (iii) certain Promissory Notes from the
Company dated September 3, 1999 and October 2, 1999, in the
respective original principal amounts of One Million United
States Dollars (US$1,000,000) and Five Hundred Thousand United
States Dollars (US$500,000) (the "Bridge Notes"), and proposes
to capitalize and, therefore, convert and exchange the
principal amount of, and accrued interest on, the Internexus
December Note, the MetroNet Note and the Bridge Notes for
equity securities of the Company; and
E. The Parties are entering into this Participation Agreement and
the other agreements and instruments entered into or delivered
in connection herewith to memorialize the terms for such
investments and conversions.
NOW, THEREFORE, the Parties agree as follows:
1. Definitions.
Capitalized terms used in this Participation Agreement have the
meanings ascribed to them in the Schedule of Definitions attached to
this Participation Agreement as Schedule 1, unless the context
otherwise requires. The definition of terms defined in the singular
shall apply to the plural, and the definition of terms defined in the
plural shall apply to the singular.
2. The Transactions.
(a) The Transactions
The Parties confirm their intention that, on and subject to
the terms and conditions of this Participation Agreement, they
shall carry out the following transactions, and enter into and
deliver the following agreements and instruments (such
agreements and instruments herein referred to collectively as
the "Transaction Documents") at a closing to occur on October
18, 1999 the ("Closing") and, where appropriate, at a further
closing (the "Subsequent Closing") to occur within five
Business Days following the satisfaction of the conditions set
out in Section 6(c), in each case as provided for in Section
2(b) below:
(i) the entering into, at the Closing, between each of
Telematica, TCW, IFC and Glacier, and the Company of
a Stock Purchase Agreement in the form of Exhibit A
to this Participation Agreement (each a "CCI Stock
Purchase Agreement" and, collectively, the "CCI Stock
Purchase Agreements"), and the purchase and sale,
pursuant to such CCI Stock Purchase Agreements, of
7,733,332 shares in the aggregate of Series C
Convertible Preferred Stock issued by the Company and
having the rights and preferences set out in Schedule
2 to this Participation Agreement (the "Rights and
Preferences of Series C Shares") for an aggregate
purchase price, in cash or other immediately
available funds, of Fifty-Eight Million United States
Dollars (US$58,000,000), such purchases and sales of
Series C Shares to occur as follows:
(A) the purchase by and sale to Telematica of an
aggregate of 3,333,333 Series C Shares
pursuant to its CCI Stock Purchase
Agreement, 2,000,000 being purchased and
sold at the Closing and 1,333,333 being
purchased and sold at the Subsequent
Closing, in each case for a purchase price
per share of Seven and 50/100 United States
Dollars (US$7.50), being an aggregate
purchase price of Twenty Five Million United
States Dollars (US$25,000,000), Fifteen
Million United States Dollars
(US$15,000,000) being payable at the Closing
and Ten Million United States Dollars
(US$10,000,000) being payable at the
Subsequent Closing,
(B) the purchase by and sale to TCW of an
aggregate of 3,333,333 Series C Shares
pursuant to its CCI Stock Purchase
Agreement, 2,000,000 being purchased and
sold at the Closing and 1,333,333 being
purchased and sold at the Subsequent
Closing, in each case for a purchase price
per share of Seven and 50/100 United States
Dollars (US$7.50), being an aggregate
purchase price of Twenty Five Million United
States Dollars (US$25,000,000), Fifteen
Million United States Dollars
(US$15,000,000) being payable at the Closing
and Ten Million United States Dollars
(US$10,000,000) being payable at the
Subsequent Closing,
(C) the purchase by and sale to IFC of 666,666
Series C Shares pursuant to its CCI Stock
Purchase Agreement, at the Subsequent
Closing, for a purchase price per share of
Seven and 50/100 United States Dollars
(US$7.50), being an aggregate purchase price
of Five Million United States Dollars
(US$5,000,000) payable at the Closing, and
(D) the purchase by and sale to Glacier of
400,000 Series C Shares, pursuant to its CCI
Stock Purchase Agreement, at the Closing,
for a purchase price per share of Seven and
50/100 United States Dollars (US$7.50),
being an aggregate purchase price of Three
Million United States Dollars (US$3,000,000)
payable at the Closing,
and the commitment by the Company to apply the
proceeds of such sale in the manner set out in
Schedule 3 to this Participation Agreement;
(ii) the conversion by Internexus, at the Closing, of the
principal and interest amounts of the Internexus
December Note, the MetroNet Note and the Bridge Notes
into 1,328,911 Series C Shares and the conversion by
FondElec, at the Closing, of the principal amount of
the FondElec December Note into 666,666 Series C
Shares;
(iii) the entering into, at the Closing, by the Investors,
and the Company of an Option Agreement in the form of
Exhibit B to this Participation Agreement (the
"Option Agreement"), granting an option to each
Investor to acquire further Series C Shares within
nine months following the Closing Date, on the same
terms and conditions as set out in the CCI Stock
Purchase Agreement attached hereto as Exhibit A,
except that the maximum number of Series C Shares
acquired by each Investor shall be 40% of the number
to be acquired by it as contemplated in subsection
2(a)(i), in the case of Telematica, TCW, IFC and
Glacier, or 40% of the number received upon
conversion as contemplated in subsection 2(a)(ii), in
the case of FondElec and Internexus;
(iv) the granting to each Investor of a Series C Warrant
in the form of Exhibit C to this Participation
Agreement (each a "Series C Warrant" and,
collectively, the "Series C Warrants"), providing for
the issuance by the Company of 2,432,226 shares of
Common Stock, such grants to occur as follows:
(A) the grant to Telematica, as to 500,000
shares, at the Closing, and as to 333,333,
at the Subsequent Closing,
(B) the grant to TCW, as to 500,000 shares, at
the Closing, and as to 333,333, at the
Subsequent Closing,
(C) the grant to IFC, as to 166,666 shares, at
the Subsequent Closing,
(D) the grant to Glacier, as to 100,000 shares,
at the Closing,
(E) the grant to Internexus, as to 332,228
shares, at the Closing, and
(F) the grant to FondElec, as to 166,666 shares,
at the Closing;
(v) the granting to each of FondElec and Internexus, at
the Closing, of a FondElec/Internexus Warrant in the
form of Exhibit D to this Participation Agreement
(each, a "FondElec/Internexus Warrant"), providing
for the issuance to each of them, in each case at the
same time and for the same price as the Series C
Warrants are subject to exercise, as to 260,000
shares each of Common Stock;
(vi) the entering into, at the Closing, among the Company,
the Investors, and the D'Ambrosios of a CCI
Shareholders' Agreement in the form of Exhibit E to
this Participation Agreement (the "CCI Shareholders'
Agreement") for the purpose of setting out how the
Investors and the D'Ambrosios will exercise their
rights as shareholders with respect to, among other
matters, corporate governance, the election of
directors and the disposition of their Company
Equity;
(vii) the entering into, at the Closing, among the
Investors, the Company, the D'Ambrosios and certain
other parties of an Amended and Restated Registration
Rights Agreement in the form of Exhibit F to this
Participation Agreement (the "Registration Rights
Agreement") for the purpose of setting out the rights
of the Investors, the D'Ambrosios and such other
parties to require or join in the registration of
their shares of common stock of the Company under
U.S. Securities Laws;
(viii) the entering into, at the Closing, among Telematica,
FondElec, WCI de Cayman, Inc., a Cayman Islands
limited liability company and a Subsidiary ("WCI")
and Chispa Dos Inc., a Cayman Islands limited
liability company ("CCI Salvador") of a Subscription
and Refinance Agreement in the form of Exhibit G to
this Participation Agreement (the "Salvador
Subscription Agreement"), and the purchase, at the
Subsequent Closing, through the subscription of
unissued shares of CCI Salvador common stock, by
Telematica from CCI Salvador, and the sale by CCI
Salvador to Telematica, of 59.1550 shares of common
stock of CCI Salvador (the "Salvador Shares", as
further described in the Salvador Subscription
Agreement) for a purchase price, in cash or other
immediately available funds of Five Million Five
Hundred Twenty-Five Thousand United States Dollars
(US$5,525,000); the contribution, at the Subsequent
Closing, by WCI to CCI Salvador of Nine Hundred One
Thousand Seven Hundred and Sixty United States
Dollars (US$901,760) of its accounts receivable from
CCI Salvador in exchange and in subscription for
9.6549 shares of common stock of CCI Salvador; and
the payment, at the Subsequent Closing, by CCI
Salvador, utilizing a portion of the proceeds of the
sale of the Salvador Shares, of Three Million Eight
Hundred Sixty-Four Thousand Five Hundred Twenty-Nine
United States Dollars (US$3,864,529) to repay Three
Million Five Hundred Thousand United States Dollars
(US$3,500,000) of the principal amount of that
certain Promissory Note of CCI Salvador made to
FondElec and dated March 3, 1999 ("Salvador Note"),
and accrued interest thereon through October 14,
1999;
(ix) the entering into, at the Closing, among CCI
Salvador, Telematica, WCI, FondElec and the other
shareholders of CCI Salvador of an Amended and
Restated Salvador Shareholders' Agreement in the form
of Exhibit H to this Participation Agreement (the
"Salvador Shareholders' Agreement"), for the purpose
of setting out how Telematica and such other
shareholders will manage the business of CCI
Salvador, and provisions regarding the disposition of
their equity interests in CCI Salvador; and
(x) the entering into, at the Closing, between the
Company and an affiliate of Telematica of a letter of
intent in the form of Exhibit I to this Participation
Agreement ("Colombia Letter of Intent").
(b) The Closing and the Subsequent Closing
. Subject to the satisfaction or waiver by the appropriate
Party or Parties of the conditions set out in Section 6, the
closing of the transactions contemplated by this Participation
Agreement to occur at the Closing and the Subsequent Closing
shall take place at the offices of Thelen Reid & Priest LLP in
New York City, New York.
(c) Deliveries at the Closing
. At the Closing, the Parties will deliver the following,
subject to the satisfaction or waiver by the appropriate Party
or Parties of the conditions set out in Sections 6(a) and
6(b):
(i) each of Telematica, TCW, IFC and Glacier will deliver
or cause to be delivered the following:
(A) to the Company, the Investor's CCI Stock
Purchase Agreement, duly executed and
delivered by it, together with
(1) in the case of Telematica, Fifteen
Million United States Dollars
(US$15,000,000),
(2) in the case of TCW, Fifteen Million
United States Dollars
(US$15,000,000), and
(3) in the case of Glacier, Three
Million United States Dollars
(US$3,000,000);
(B) to the Company and each of the other parties
thereto, the CCI Shareholders' Agreement,
duly executed and delivered by it; and
(C) to the Company and each of the other parties
thereto, the Registration Rights Agreement,
duly executed and delivered by it;
(ii) Internexus will deliver or cause to be delivered the
following:
(A) to the Company and each of the other parties
thereto, the CCI Shareholders' Agreement,
duly executed and delivered by it;
(B) to the Company and each of the other parties
thereto, the Registration Rights Agreement,
duly executed and delivered by it; and
(C) to the Company, the Internexus December
Note, the MetroNet Note and the Bridge
Notes, in each case duly marked as cancelled
and paid in full;
(iii) FondElec will deliver or cause to be delivered the
following:
(A) to the Company, the FondElec December Note
duly marked as cancelled and paid in full;
(B) to the Company and each of the other parties
thereto, the CCI Shareholder Agreement, duly
executed and delivered by it;
(C) to the Company and each of the other parties
thereto, the Registration Rights Agreement,
duly executed and delivered by it; and
(D) to CCI Salvador and each of the other
parties thereto, the Salvador Subscription
Agreement, duly executed and delivered by
FondElec; and
(iv) Telematica will deliver or cause to be delivered the
following:
(A) to CCI Salvador and each of the other
parties thereto, the Salvador Subscription
Agreement, duly executed and delivered by
it;
(B) to CCI Salvador and each other party
thereto, the Salvador Shareholders'
Agreement, duly executed and delivered by
it;
(C) to the Company, the Colombia Letter of
Intent, duly executed and delivered by it.
(v) the Company will deliver or cause to be delivered the
following:
(A) to each of Telematica, TCW, and Glacier, its
corresponding CCI Stock Purchase Agreement,
duly executed and delivered by the Company,
together with certificates representing
Series C Shares as follows:
(1) to Telematica, 2,000,000 Series C
Shares,
(2) to TCW, 2,000,000 Series C Shares,
and
(3) to Glacier, 400,000 Series C Shares;
and a certified copy of the
resolutions of the Company's Board
of Directors, resolving to apply the
proceeds of the sale of such shares
in the manner described in Schedule
3 to this Participation Agreement;
(B) To Internexus, certificates representing
1,328,911 Series C Shares;
(C) To FondElec, certificates representing
666,666 Series C Shares;
(D) to the Investors, the Option Agreement, duly
executed and delivered by the Company;
(E) to each of Telematica, TCW, Glacier,
Internexus and FondElec, a Series C Warrant,
duly executed and delivered by the Company
with respect to the following appropriate
number of shares of Common Stock:
(1) as to Telematica, 500,000 shares,
(2) as to TCW, 500,000 shares,
(3) as to Internexus, 332,228 shares,
(4) as to Glacier, 100,000 shares, and
(5) as to FondElec, 166,666 shares;
(F) to each of FondElec and Internexus, its
FondElec/Internexus Warrant, duly executed
and delivered by the Company;
(G) to the Investors and each other party
thereto, the CCI Shareholders' Agreement,
duly executed and delivered by the Company
and by each other party thereto other than
the Investors;
(H) to the Investors and each other party
thereto, the Registration Rights Agreement,
duly executed and delivered by the Company;
(I) to Telematica, the Salvador Subscription
Agreement, duly executed and delivered by
CCI Salvador and WCI;
(J) to CCI Salvador, Telematica and FondElec,
and the other parties thereto, the Salvador
Shareholders' Agreement, duly executed and
delivered by the Company and by each party
thereto other than Telematica and FondElec;
(K) to Telematica, the Colombia Letter of
Intent, duly executed and delivered by the
Company;
(L) to FondElec, $419,178.08 as repayment of the
unpaid interest portions of the FondElec
December Note;
(M) to the Investors, opinions of counsel in the
form of Exhibit J-1, Exhibit J-2 and Exhibit
J-3, each addressed to all Investors and
each dated the Closing Date; and
(N) to IFC, a certificate to the effect that the
proceeds of the sale of the Series C Shares
to IFC shall not, when received, be in
reimbursement of, and shall not be used for,
expenditures in the territories of any
country other than less-developed countries
in which IFC is actively pursuing operations
(as described in its 1999 annual report) or
for goods produced in or services supplied
from any such country.
(d) Deliveries at the Subsequent Closing
. At the Subsequent Closing, the Parties will deliver the
following, subject only to the satisfaction, as to the
appropriate Party, of the conditions set out in Section 6(c):
(i) Telematica will deliver or cause to be delivered:
(A) to the Company, Ten Million United States
Dollars (US$10,000,000), and
(B) to CCI Salvador, Five Million Five Hundred
Twenty Five Thousand United States Dollars
(US$5,525,000);
(ii) TCW will deliver to the Company Ten Million United
States Dollars (US$10,000,000);
(iii) FondElec will deliver or cause to be delivered to CCI
Salvador a partial release of the Salvador Note, in
the form of Exhibit K hereto, acknowledging receipt
of Three Million Eight Hundred Sixty Four Thousand
Five Hundred Twenty Nine United States Dollars
(US$3,864,529) in payment of Three Million Five
Hundred Thousand United States Dollars (US$3,500,000)
of the principal amount thereof, and of interest
accrued thereon through October 14, 1999;
(iv) IFC will deliver or cause to be delivered to the
Company Five Million United States Dollars
(US$5,000,000);
(v) The Company will deliver or cause to be delivered the
following:
(A) To Telematica:
(1) Certificates representing 1,333,333
Series C Shares,
(2) A Series C Warrant with respect to
333,333 shares of Common Stock, and
(3) Certificates representing the
Salvador Shares;
(B) To TCW:
(1) Certificates representing 1,333,333
Series C Shares, and
(2) A Series C Warrant with respect to
333,333 Shares of Common Stock;
(C) To IFC:
(1) Certificates representing 666,666
Series C Shares, and
(2) A Series C Warrant with respect to
166,666 shares;
(D) To each of Telematica, TCW and IFC, an
opinion of counsel in the form of Exhibit L,
addressed to each of them and dated the
Subsequent Closing Date; and
(E) To FondElec, Three Million Eight Hundred
Sixty Four Thousand Five Hundred Twenty-Nine
United States Dollars (US$3,864,529).
(F) to CCI Salvador, an acknowledgment by WCI in
the form of Exhibit M of the contribution to
capital of Nine Hundred One Thousand Seven
Hundred and Sixty United States Dollars
(US$901,760) by means of the capitalization
and conversion of inter-company debt owing
by CCI Salvador to WCI;
3. Representations and Warranties of Investors
. Each Investor, as to itself, represents and warrants to the Company
and to each other Investor, with the understanding that the Company and
each other Investor is being induced into entering into this
Participation Agreement and the other Transaction Documents in reliance
on such representations and warranties, that the statements contained
in this Section 3, with respect to such Investor only, are true,
correct and complete in all material respects as of the date of this
Participation Agreement and will be true, correct and complete in all
material respects as of the Closing Date and, if such Investor
participates in the Subsequent Closing, that the statements contained
in Sections 3(e), 3(f) and 3(g) will be true, correct and complete in
all material respects as of the date of the Subsequent Closing. Each
such representation and warranty shall survive the Closing and the
Subsequent Closing, as appropriate, and shall continue in force for a
period of 24 months from the Closing Date.
(a) Organization of the Investors
It is duly organized, validly existing, and in good standing
under the laws of the place of its organization.
(b) Authorization of Transaction
. It has full power and authority to execute and deliver this
Participation Agreement and each Transaction Document to which
it is a party and to perform its obligations hereunder and
thereunder, and as of the Closing Date, and this Participation
Agreement each such Transaction Document delivered at the
Closing and as of the date of the Subsequent Closing, each
such Transaction Document, if any, delivered at the Subsequent
Closing, shall have been duly authorized and executed by it
and constitute its valid and legally binding obligation,
enforceable under Applicable Law in accordance with its terms,
except as may be limited by bankruptcy, reorganization,
moratorium, fraudulent conveyance and insolvency laws and by
other laws affecting the rights of creditors generally and
except as may be limited by the availability of equitable
remedies. There is no requirement of Applicable Law that any
notice be given, nor any filing, authorization, consent, or
approval of any governmental authority be obtained in order
that it may execute, deliver and consummate the transactions
contemplated by this Participation Agreement and each other
Transaction Document to which it is a party, except that if
the representing and warranting Investor is Telematica or TCW,
it excepts from the foregoing representation and warranty the
filing and waiting period requirements applicable pursuant to
the HSR Act for the transactions contemplated to be performed
or caused to be performed by it at the Subsequent Closing.
(c) Noncontravention
. Neither the execution nor the delivery by it of this
Participation Agreement or of any other Transaction Document
to which it is or becomes a party, nor the performance of its
obligations hereunder or thereunder will (i) violate any
Applicable Law to which it is subject or any provision of its
charter or other organization documents or bylaws or (ii)
conflict with, result in a breach of, constitute a default
under, result in the acceleration of, create in any party the
right to accelerate, terminate, modify, or cancel, or require
any notice under any material contract to which it is a party
or by which it or any of its property may be bound.
(d) Brokers' Fees
. It has not incurred any liability or obligation to pay any
fees or commissions to any broker, finder, or agent with
respect to the transactions contemplated hereunder or under
any other Transaction Document to which it is or becomes a
party for which any other Party could become liable.
(e) Investment Intent
. It understands that the Series C Shares, the Series C
Warrants and the Option, and in case of the representations
being made by Telematica, the Salvador Shares, and, in the
case of the representations being made by FondElec or
Internexus, the FondElec/Internexus Warrants (collectively
sometimes referred to as the "Securities") have not been
registered under the United States Securities Act of 1933, as
amended (the "Securities Act"). It is acquiring the Securities
without a view to or for sale in connection with any
distribution thereof inside the United States within the
meaning of Regulation S under the Securities Act or other
exemptions from the registration requirements of the
Securities Act. It understands that the Securities will
constitute "restricted securities" under the Securities Act,
and may not be resold without registration under, or the
availability of an exemption from, the registration
requirements of the Securities Act and similar state laws. It
is familiar with Securities and Exchange Commission Regulation
S and Rule 144, as presently in effect, and understands the
resale limitations imposed thereby and by the Securities Act.
(f) Restrictive Legend
. It understands that the certificate or certificates
evidencing the Series C Shares may bear legends in
substantially the following form:
THE CORPORATION IS AUTHORIZED TO ISSUE MORE THAN ONE CLASS OF
STOCK. THE CORPORATION WILL FURNISH WITHOUT CHARGE TO THE
HOLDER OF THIS CERTIFICATE UPON REQUEST THE POWERS,
DESIGNATIONS, PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL OR OTHER SPECIAL RIGHTS OF EACH CLASS OF THE
CORPORATION'S STOCK OR SERIES THEREOF AND THE QUALIFICATIONS,
LIMITATIONS OR RESTRICTIONS OF SUCH PREFERENCES AND/OR RIGHTS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"). THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE IN
THE UNITED STATES IN VIOLATION OF THE SECURITIES ACT AND MAY
NOT BE SOLD, MORTGAGED, PLEDGED OR HYPOTHECATED OR OTHERWISE
TRANSFERRED WITHIN THE UNITED STATES WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SHARES UNDER THE SECURITIES
ACT OR THE DELIVERY TO THE CORPORATION OF AN OPINION OF
COUNSEL THAT REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES
ACT.
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A SHAREHOLDERS' AGREEMENT DATED OCTOBER 15, 1999
BY AND BETWEEN THE SHAREHOLDER, THE CORPORATION AND CERTAIN
OTHER HOLDERS OF COMMON AND PREFERRED STOCK OF THE CORPORATION
WHICH PROVIDES RESTRICTIONS ON THE TRANSFERABILITY OF THE
SHARES REPRESENTED BY THIS CERTIFICATE. BY ACCEPTING ANY
INTEREST IN THE SECURITIES REPRESENTED BY THIS CERTIFICATE,
THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO
AND SHALL BE BOUND BY ALL THE PROVISIONS OF SAID SHAREHOLDERS'
AGREEMENT. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.
It understands the certificates or agreements representing the
Securities other than the Series C Shares may bear legends in
substantially the form of the second and third paragraphs set
forth above.
(g) Accredited Investor
. It is an "accredited investor," as that term is defined in
Regulation D promulgated under the Securities Act, can bear
the risk of its investment in the Securities that it proposes
to acquire, and has such knowledge and experience in financial
and/or business matters that it is capable of evaluating the
merits and risks of an investment in such Securities.
(h) HSR Warranty
. The premerger notification and report form, and any and all
appendices and attachments thereto, filed or to be filed by
it, if any under the HSR Act ("HSR Form") with the Federal
Trade Commission ("FTC") and the Antitrust Division of the
Department of Justice, was prepared and assembled in
accordance with the instructions issued by the FTC. To the
best of its knowledge, the information contained in the HSR
Form is true, correct and complete in accordance with the HSR
Act and its regulations. Each Investor, other than Telematica
and TCW, represents that the HSR Act does not require it to
file an HSR Form.
4. Representations and Warranties of the Company Concerning the Company
and its Subsidiaries
. The Company represents and warrants to each Investor, with the
understanding that each of them is being induced to enter into this
Participation Agreement and the other Transaction Documents to which
such Investor is a party in reliance on such representations and
warranties, that the statements contained in this Section 4 are true,
correct and complete in all material respects as of the date of this
Participation Agreement and will be true, correct and complete in all
material respects as of the Closing Date and that the statements
contained in Sections 4(a), 4(b), 4(c), 4(d), 4(f) (except as approved
by budget or action taken by the Board of Directors), 4(j), 4(k), 4(t)
and 4(z) will be true, correct and complete in all material respects as
of the Subsequent Closing except, in each case, as otherwise set out in
the Disclosure Letter. Each such representation and warranty shall
survive the Closing (and as to those made as of the Subsequent Closing,
the Subsequent Closing), and shall continue in force and effect for a
period of 24 months from the Closing Date (and as to those made as of
the Subsequent Closing), except that (i) the representations and
warranties set out in clause (j) below with respect to claims or
lawsuits shall not expire, (ii) the representations and warranties set
out in clause (i) below with respect to environmental claims shall
continue in force and effect for a period of 60 months from the Closing
Date, and (iii) the representations and warranties set out in clauses
(c), (g), (h) and (o) below shall continue in force and effect through
the expiration of the statute(s) of limitation for claims related
thereto.
(a) Organization, Qualification and Corporate Power
. Each of the Company and its Subsidiaries is a corporation
duly organized, validly existing, and in good standing under
the laws of the place of its organization, and each of the
Company and the Subsidiaries is duly authorized to conduct
business and is in good standing under the laws of each
jurisdiction where such qualification is required, and has all
requisite corporate power and authority to own and operate its
properties and to carry on its business as now conducted and
as contemplated to be conducted in the Business Plan. The
articles of incorporation, bylaws and any other organizational
documents of the Company and its Subsidiaries that the Company
previously delivered to each Investor were true, correct and
complete as of the date of delivery, and are true, correct and
complete as of the date hereof, and will be true, correct and
complete as of the Closing Date and as of the Subsequent
Closing Date.
(b) Authorization of Transaction
. Each of the Company, CCI Salvador and CCI Venezuela
(together sometimes referred to herein as the "CCI Companies",
and individually as a "CCI Company") has full power and
authority to execute and deliver the Participation Agreement
and each Transaction Document to which it is a party and to
perform its obligations hereunder and thereunder, and as of
the Closing Date and as of the Subsequent Closing Date this
Participation Agreement and each such Transaction Document
shall have been duly authorized and executed by the
appropriate CCI Company and constitute its valid and legally
binding obligation, enforceable in accordance with its terms,
except as may be limited by bankruptcy, reorganization,
moratorium, fraudulent conveyance and insolvency law and by
other laws affecting the rights of creditors generally and
except as may be limited by the availability of equitable
remedies. Other than with respect to the Company's filing
under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), there is no requirement of
Applicable Law that any notice be given, nor any filing,
authorization, consent, or approval of any governmental
authority be obtained by the Company or its Subsidiaries in
order that each CCI Company may execute, deliver and
consummate the transactions contemplated by this Participation
Agreement and each other Transaction Document to which it is a
party.
(c) Capitalization
. All of the authorized and outstanding shares of the capital
stock of the Company and each Subsidiary and the ownership
thereof (including, without limitation, the ownership
interests of FondElec and Internexus in the Company) are
described in the Disclosure Letter. All of the issued and
outstanding shares of stock of the Company and of each of the
Subsidiaries have been duly authorized, are validly issued,
fully paid, and are non-assessable, are owned by the Company
(with respect to the stock of the Subsidiaries), and the
holders thereof (with respect to the stock of the Company),
free of claims, charges or encumbrances, and were not issued
in violation of any preemptive rights. Other than the Series C
Warrants, the FondElec/Internexus Warrants and the options
provided for in the Option Agreement, there are no outstanding
or authorized options, warrants, purchase rights, preemptive
rights, subscription rights, conversion rights, exchange
rights, or other contracts or commitments that could require
any CCI Company or any of their respective subsidiaries to
issue, sell, or otherwise cause to become outstanding any
additional or other capital stock. Neither the Company nor any
Subsidiary is under any obligation (contingent or otherwise)
to repurchase or otherwise acquire, redeem or retire any of
its equity interests or any warrants, options or other rights
to acquire its equity interests. Neither the Company nor any
of its Subsidiaries is a party or subject to any agreement or
understanding, and, to the best of their Knowledge, there is
no agreement or understanding between any Persons that affects
or relates to the voting or giving of written consents with
respect to any security or the voting by a director of the
Company or any of its Subsidiaries. The Series C Shares, the
Series C Warrants, the FondElec/Internexus Warrants, the
Options and the Common Stock and Series C Shares to be issued
upon the exercise of those Securities, when issued, sold and
delivered by the Company in accordance with the terms of the
CCI Stock Purchase Agreements, the Series C Warrant, the
FondElec/Internexus Warrant or the Option Agreement, as
appropriate, will be duly authorized and validly issued, fully
paid and non-assessable shares of the capital stock of the
Company with the rights, preferences and privileges described
in Schedule 1 of the CCI Shareholders' Agreement. Upon
issuance, sale or delivery, each Investor will receive good
and marketable title to the Securities, free and clear of all
claims and Liens, other than those arising under the
Transactions Documents. The Salvador Shares, when issued, sold
and delivered by CCI Salvador in accordance with the terms of
the Salvador Subscription Agreement, will be duly authorized
and validly issued, fully paid and non-assessable shares of
capital stock of CCI Salvador with the rights, preferences and
privileges described in Schedule 1 thereto, and will be free
and clear of all adverse claims other than those arising under
the Transaction Documents.
(d) Noncontravention
. Neither the execution and delivery of this Participation
Agreement or any Transaction Document to which any CCI Company
is a party, nor the performance of its obligations hereunder
or thereunder, will (i) violate any Applicable Law to which
the Company or any of its Subsidiaries is subject or any
provision of the charter or organizational document of the
Company or any of its Subsidiaries or (ii) conflict with,
result in a breach of, constitute a default under, result in
the acceleration of, create in any party the right to
accelerate, terminate, modify, or cancel, or require any
notice under any Material Contract to which it is a party or
by which it or any of its property may be bound, or (iii) will
with respect to the approval by the directors of such company
of the transactions contemplated by the Transaction Documents
to which it is a party constitute a violation by any such
director of any fiduciary duty that it owes to such company or
to a third party, as a consequence of which the Company or any
of its Subsidiaries is obligated to indemnify such director,
(iv) give rise to any claims against the Company or the
Subsidiaries, or (v) result in the creation of any Lien on the
Securities (other than as created by the Transaction
Documents) or any assets of the Company or its Subsidiaries.
(e) Intellectual Property; Permits and Licenses.
(i) Intellectual Property.
(A) The Disclosure Letter sets forth for all
Intellectual Property, as defined
hereinafter, owned by the Company or any of
its Subsidiaries: a complete and accurate
list of all U.S. and foreign (i) patents and
patent applications; (ii) trademark and
servicemark registrations (including
internet domain registrations), trademark
and servicemark applications, and material
unregistered servicemarks and trademarks;
and (iii) copyright registrations, copyright
applications, and material unregistered
copyrights. As used herein, the term
"Intellectual Property" means all
trademarks, service marks, trade names,
internet domain names, designs, logos,
slogans and general intangibles of like
nature, together with goodwill,
registrations and affiliations relating to
the foregoing, registered and unregistered
patents; copyrights (including registrations
and applications of any of the foregoing);
Software (as defined below); confidential
information, technology, know-how,
inventions, processes, formulae, algorithms,
models and methodologies (collectively
"Trade Secrets") in each case used in the
Telecommunication Business as conducted or
contemplated to be conducted, and any
licenses to use any of the foregoing;
"Software" means any and all (i) computer
programs, including any and all software
implementation of algorithms, models and
methodologies, whether in source code or
object code, (ii) databases and
computations, including any and all data and
collections of data, (iii) all
documentation, including user manuals and
training materials, relating to any of the
foregoing, and (iv) the content and
information contained in any web site.
(B) The Disclosure Letter lists all material
Software, other than off-the-shelf or
commercially available software purchased
for less than Twenty-Five Thousand United
States Dollars (US$25,000), which is owned,
licensed, leased, or otherwise used by the
Company or any of its Subsidiaries, and
identifies which Software is owned,
licensed, leased, or otherwise used, as the
case may be.
(C) The Disclosure Letter sets forth a complete
and accurate list of all agreements granting
or obtaining any right to use or practice
any rights under any Intellectual Property
other than off-the-shelf or commercially
available software set forth in paragraph
(B) above, to which the Company or any of
its Subsidiaries is a party or otherwise
bound, as licensee or licensor thereunder,
including license agreements, settlement
agreements, and covenants not to sue
(collectively, the "IP License Agreements").
(D) The Company or its Subsidiaries own or have
the right to use all Intellectual Property,
free and clear of all liens, claims,
charges, encumbrances or security interests,
except that the acquisition of the assets of
Metrotelecom, S.A., a Guatemalan corporation
("Metrotelecom") or of its subsidiaries has
not been consummated by the Company or any
Subsidiary, the rights of the Company or its
Subsidiaries in connection with Metrotelecom
being as set out in the Disclosure Letter.
(E) Any Intellectual Property owned or, to the
Knowledge of the Company or any Subsidiary,
used, by the Company or its Subsidiaries is
valid and subsisting in full force and
effect and has not been cancelled, expired
or abandoned.
(F) To the Knowledge of the Company or any
Subsidiary, the Telecommunications Business
as currently and as contemplated to be
conducted does not infringe on any
Intellectual Property of any third party.
(G) The consummation of the transactions
contemplated hereby by the Company and its
Subsidiaries will not result in the loss or
impairment of the Company or any of its
Subsidiaries' rights to own or use any of
the Intellectual Property, nor will it
require the consent of any third party,
including for the avoidance of doubt any
Governmental Authority, in respect of any
Intellectual Property.
(H) The IP License Agreements are valid and
binding obligations of all parties thereto,
enforceable in accordance with their terms,
and there exists no event or condition which
will result in a violation or breach of, or
constitute a default by any party under any
such IP License Agreement.
(I) The Company and each of its Subsidiaries
takes measures consistent with commercial
practices to protect the confidentiality of
Trade Secrets, including requiring its key
employees and other key parties having
access thereto to execute written
non-disclosure agreements. To the Knowledge
of the Company, no Trade Secret has been
disclosed and the Company has not authorized
the disclosure to any third party other than
pursuant to a non-disclosure agreement in
favor of the Company and the applicable
Subsidiary with respect to such Trade
Secrets.
(J) To the Knowledge of the Company or any
Subsidiary, no third party is
misappropriating, infringing, diluting or
violating any Intellectual Property owned by
the Company or any of its Subsidiaries, the
misappropriation, infringement, dilution or
violation of which would have a material
adverse effect on the Company's operation or
its Subsidiaries, either individually or in
the aggregate.
(K) Year 2000. (a) As of the date of this
Agreement; all Date Data and Date-Sensitive
Systems owned by the Company and its
Subsidiaries is Year 2000 Compliant (as
defined below). As used herein, "Date Data"
means any data of any type that includes
date information or which is otherwise
derived from, dependent on or related to
date information. "Date-Sensitive System"
means any Software, microcode or hardware
system or component, including any
electronic or electronically controlled
system or component, that uses or processes
any Date Data and that is installed, in
development or on order by the Company or
any of its Subsidiaries for their internal
use or for the use of third parties, or
which the Company or any of its Subsidiaries
sell, lease, license, assign or otherwise
provide to any third party. "Year 2000
Compliant" means (i) with respect to Date
Data, that such data is in proper format and
accurate for all dates, including for those
before, on and after December 31, 1999 and
(ii) with respect to Date-Sensitive Systems,
that each such system accurately processes
all Date Data, including for dates before,
on and after December 31, 1999, without loss
of any functionality or performance,
including but not limited to calculating,
comparing, sequencing, storing and
displaying such Date Data (including all
leap year considerations), when used as a
standalone system or in combination with
other Software or hardware.
(ii) Permits and Licenses. The Company or its Subsidiaries
own and possess all licenses, permits, concessions and
other authorizations required by law in connection
with carrying out the Telecommunications Business as
conducted as of the Closing Date and all of such
licenses, permits, concessions and other
authorizations are in full force and effect, and no
violations are or have been recorded in respect
thereof, nor is any proceeding pending which threatens
to suspend, revoke or limit any such license, permit,
concession or other authorizations, and no such
licenses, permits, concessions or authorizations will
be adversely affected by this Participation Agreement
or by the Transaction Documents. No CCI Company has
the Knowledge of any circumstance, event or set of
facts that constitute (or, with the passage of time or
the giving of notice, or both, would constitute) a
violation of or a breach or default under any such
license, permit, concession or authorization. The
Disclosure Letter sets forth a list, arranged by
country, of all such licenses, permits, concessions
and other authorizations.
(f) Financial Statements; Financial Condition
. Attached hereto as Exhibit N are the Company's audited
consolidated and consolidating financial statements (including
related statements of income, changes in shareholders' equity
and cash flow) for the year ended December 31, 1998 and its
unaudited consolidated and consolidating financial statements
for the six months ended June 30, 1999 (together, the
"Financial Statements"). The Financial Statements have been
prepared in accordance with United States GAAP (except in
certain instances for the absence of footnotes, and with
respect to the unaudited portions of the Financial Statements,
except for normal year end audit adjustments consistent with
prior Company practice), present fairly the financial
condition of the Company as of the dates set forth therein and
the results of operations for such periods, and are correct
and complete in all material respects. Since June 30, 1999,
neither the Company nor any of its Subsidiaries has done any
of the following or permitted any of the following to occur:
(i) suffered any material adverse change in its assets or
liabilities, business, financial condition, results of
operations or prospects; (ii) incurred any material
liabilities (other than liabilities disclosed in the Financial
Statements and Disclosure Letter, adequately provided for in
the Financial Statements or disclosed in any related notes
thereto, incurred in connection with this Participation
Agreement or the other documents described herein, or incurred
in the ordinary course of business consistent with past
practices without the occurrence of a material adverse
consequence) or (iii) altered its assumptions underlying or
methods of calculating, any bad debt, contingency or other
reserves; (iv) entered into any settlement to avoid or
terminate a judicial dispute; (v) written down the value of
any material inventory, notes or accounts receivable; (vi)
canceled any material debts or waived any material rights;
(vii) sold, transferred, or otherwise disposed of any of its
material properties or rights, or breached or permitted the
breach (or suffered to occur any event which with the passage
of time or the giving of notice would constitute a breach) of
any contract material to its business as presently being
conducted; (viii) granted any material increase in the
compensation or benefits of officers or employees; (ix) made
any material capital expenditure or commitment for additions
to property, plant, equipment or intangible capital assets;
(x) declared any dividend in respect of shares of the Company
or any of its Subsidiaries; (xi) made any change in any method
of accounting or accounting practice; or (xii) entered into
any agreement with any shareholder of the Company or of any
Subsidiary or any affiliate of such shareholder or agreed to
take any action described in this paragraph. Since December
31, 1998, the Company has not, directly or indirectly,
declared, paid or set aside for payment any dividend or any
other transactions similar to a dividend involving a
distribution on any of its securities of any class, or,
directly or indirectly, redeemed, purchased or otherwise
acquired any of its shares or securities or agreed to do any
of the foregoing.
(g) Taxes
. The Company and each Subsidiary have (i) duly filed all tax
reports and returns required to be filed by any of them in
accordance with Applicable Law and all such reports and
returns are true, complete and accurate in all material
respects and (ii) has duly paid all taxes and other charges
due by it to federal, state, local or foreign taxing
authorities, including, without limitation, those due in
respect of the properties, income, licenses, sales or payrolls
of any of them; the reserves for taxes reflected in the
Financial Statements are adequate in conformity with United
States GAAP; there are no tax liens upon any property or
rights of the Company or any of its Subsidiaries; and there
are no material liabilities (other than as is set forth in the
Financial Statements) for taxes and there are no extensions or
claims or to the Knowledge of the Company, audits or
investigations pending with regard to the Company's or its
Subsidiaries' tax liabilities. The acquisition by the Company
or a Subsidiary of the assets of Metrotelecom or its
subsidiaries will not cause the Company or any Subsidiary to
become liable for any tax or other liabilities of Metrotelecom
or its subsidiaries for, or arising with respect to, any
period prior to such acquisition. Neither the Company nor any
Subsidiary has been subject to any tax audit or has been
notified by any Governmental Authority that it will be subject
to any tax audit.
(h) Employees and Labor Contracts
. There are no labor or employment proceedings against the
Company or any of its Subsidiaries pending in any labor court
or other body or authority and no unsatisfied labor judgments
against any of them, and each is in compliance with all
material applicable laws regarding hiring, employment and
employment termination practices, including, without
limitation, laws, regulations, and judicial and administrative
decisions relating to wages, hours, conditions of work,
conditions of employment (including applicable discrimination
statutes, laws and regulations) collective bargaining, health
and safety, payment of social security, payroll, withholding
and other taxes, workers' compensation, and insurance
requirements. Neither the Company nor any Subsidiary is a
party to or bound by any employment contract, deferred
compensation agreement, bonus plan, consulting agreement,
incentive plan, profit sharing plan, retirement agreement or
other employee compensation agreement, except as set forth on
the Disclosure Letter. The Company has entered into written
employment contracts with the persons set forth in the
Disclosure Letter and has previously provided the Investor
copies of those employment agreements, all of which are valid
and binding and are in full force and effect. The transactions
contemplated by this Participation Agreement shall not entitle
any employee of the Company or any of its Subsidiaries to any
severance, termination, indemnity, payments in lieu of notice
or similar related payments.
(i) Environmental Laws and Regulations
. The business of the Company and each of the Subsidiaries is
and has been conducted in compliance with all Environmental
Laws. The operations of, and the buildings and property owned,
leased or used by the Company and each of the Subsidiaries
comply with all such Environmental Laws. There is no existing
practice, action or activity of the Company or any Subsidiary
and no existing condition relating to any of the properties or
assets owned or used by the Company or any Subsidiary which
might require clean up or remediation or give rise to any
civil or criminal liability under, or violate or prevent
compliance with, any such Environmental Laws or any health or
occupational safety or other applicable statute, regulation,
ordinance or decree. Neither the Company nor any Subsidiary
has received any notice from any governmental authority
revoking, canceling, materially modifying or refusing to renew
any permit, license or authorization or providing written
notice of violations under any such Environmental Laws.
(j) Litigation
. There is no suit, claim, action, proceeding or investigation
pending or, to the Knowledge of the Company, threatened (or
any basis therefor known to the Company) which, either in any
case or in the aggregate, might result in a material adverse
change or in any impairment of the right or ability of the
Company or any Subsidiary to carry on their respective
businesses as now conducted or as proposed to be conducted or
in any liability on the part of the Company or any Subsidiary,
either individually or taken as a whole and none which
questions the validity of this Participation Agreement or any
Transaction Document or any action taken or to be taken in
connection herewith. Neither the Company nor any of the
Subsidiaries is a party or subject to the provisions of any
order, injunction, judgement or decree of any court or
government agency or instrumentality (other than government
decrees of general applicability) which might adversely affect
their respective businesses; and there is no action suit,
proceeding or investigation by the Company or any Subsidiary
currently pending or which the Company or any Subsidiary
intends to initiate which may reasonably be expected to
materially adversely affect their respective businesses.
(k) Bankruptcy
. Neither the Company nor any Subsidiary has filed any
voluntary petitions admitting its bankruptcy or requesting a
reorganization, nor have any petitions alleging insolvency
been filed against the Company or any Subsidiary, nor have any
of them been judicially declared to be bankrupt or insolvent,
nor is any of them insolvent or in the state of being
liquidated or dissolved.
(l) Ordinary Course
. Since the date of the Offering Memorandum, as defined below,
the Company and each Subsidiary has carried on its business in
the ordinary course in substantially the same manner as
reflected in the Reports, following operations and investment
policies consistent with past practices, and will continue to
do so until the Closing.
(m) Brokers
. Neither the Company nor any of its Subsidiaries will be
liable directly or indirectly to pay any brokerage fee,
commission, finder's fee or financial advisory or similar fee
by reason of the transactions contemplated by any Transaction
Document to any person claiming such compensation by reason of
any agreement or relationship with the Company or any of its
shareholders or any affiliate thereof or with any Subsidiary
or any of its shareholders or any affiliate thereof.
(n) Contracts
. Except for those agreements listed in the Disclosure Letter,
true, correct and complete copies of which have been delivered
to each Investor (and made available to FondElec and
Internexus), none of the Company or any Subsidiary is a party
to (i) any agreement, arrangement, understanding or contract,
whether formal or informal, written or oral, requiring payment
of an amount in excess of Twenty-Five Thousand United States
Dollars (US$25,000) per annum (or its equivalent in other
currencies), (ii) any license, distribution, confidentiality
or similar agreements, (iii) any employment or consulting
agreements requiring a payment of an amount in excess of Fifty
Thousand United States Dollars (US$50,000) per annum (or its
equivalent in other currencies), (iv) any collective
bargaining, severance or similar agreements or other
agreements with labor unions, (v) any agreements with
suppliers or customers not in the ordinary course of business,
or (vi) any agreement not in the ordinary course of business
or not made at arm's length or which would otherwise be
material in any respect to any aspect of the Company's or any
Subsidiary's business or operations. All agreements,
arrangements, understanding and contracts listed in the
Disclosure Letter are valid and binding obligations, in full
force and effect in all respects and are being performed by
the Company or its Subsidiary, as appropriate, and, to the
Knowledge of the Company by all other parties thereto, in
accordance with their terms in all material respects.
(o) Compliance with Laws
. The Company and the Subsidiaries have operated and are
operating their business in compliance in all material
respects with all Applicable Laws, and neither the Company nor
any Subsidiary is in violation of, or in default under, any
term of its organizational documents or of any judgment,
decree, writ, statute, governmental rule or regulation
applicable to the Company or any of its Subsidiaries or to
which they or any of them is bound, except to the extent that
such violations or defaults would not (i) affect the validity
or enforceability of any Transaction Document, or (ii) impair
the ability of the Company to perform any material obligation
which the Company has under any Transaction Document, or (iii)
have any material adverse effect in its assets, liabilities,
business, financial condition, result of operations or
prospects.
(p) Business Plan and Use of Proceeds
. The Business Plan was prepared by the Company in good faith,
and is based on assumptions, projections, expressions of
opinion and estimates for which the Company believes there was
a reasonable basis in light of existing market conditions,
political and economic conditions, technology, demographics,
competition and regulatory environment. The purchase price
received by the Company for the Series C Shares sold to
Investors will be used by the Company only for the purposes
set forth in the Use of Proceeds Summary attached in Schedule
3 to this Participation Agreement.
(q) Complete Statements
. No representation or warranty of the Company in this
Participation Agreement contains any untrue statement of a
material fact, and the representations and warranties of the
Company (together with the Disclosure Letter and the Reports),
taken as a whole, do not omit any statement necessary in order
to make any material statements or descriptions contained
herein or therein in light of the circumstances in which they
were made, not misleading or incomplete.
(r) Reports
. The Company has made all filings required of it under the
Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended. The Company has made
available to each Investor each such report prepared by it
since December 31, 1998, including its Annual Report on Form
10-KSB for the year ended December 31, 1998 in the form
(including exhibits, annexes and any amendments thereto) filed
with the Securities and Exchange Commission (the "SEC"), as
well as its private offering memorandum (the "Offering
Memorandum") dated April, 1999 (collectively, but not
including any such reports filed subsequent to the date
hereof, its "Reports"). As of their respective dates, the
Reports did not contain any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements made therein, in
light of the circumstances in which they were made, not
misleading and no statement of material fact that was true and
not misleading as of the date of the Report in which it was
made is untrue or misleading as of the date hereof in light of
events or changes in circumstances occurring since the date of
the Report which are not otherwise disclosed in the Reports or
the Disclosure Letter. Each of the consolidated balance sheets
included in or incorporated by reference into the Reports
(including the related notes and schedules) fairly presents
the consolidated financial position of the Company and its
Subsidiaries as of its date and each of the consolidated
statements of income and of cash flows included in or
incorporated by reference into its Reports (including any
related notes and schedules) fairly presents the consolidated
results of operations, retained earnings and cash flows, as
the case may be, of it and its Subsidiaries for the periods
set forth therein (subject, in the case of unaudited
statements, to notes and normal year-end audit adjustments
that will not be material in amount or effect), in each case
in accordance with United States GAAP consistently applied
during the periods involved, except as may be noted therein.
(s) Related Party Transactions
. No officer, director, or stockholder of the Company and its
Subsidiaries or any affiliate thereof, or any member of their
immediate families is directly or indirectly interested in any
contract, agreement, arrangement or transaction with the
Company or any Subsidiary.
(t) Foreign Corrupt Practices Act
. None of the Company nor any of the Subsidiaries or any of
their respective officers, employees, directors,
representatives or agents acting at the direction of the
Company or any of the Subsidiaries, acting in such a capacity,
has taken any action in violation of any anti-bribery,
anti-corruption or criminal laws of the United States,
Guatemala, El Salvador, Venezuela, Costa Rica, Panama, Mexico,
Argentina or New Zealand, including the Foreign Corrupt
Practices Act of 1977 of the United States, as amended, and
including, but not limited to, the making of improper
payments, directly or indirectly, in the form of cash or
otherwise, to officials of any governmental authority.
(u) No Bank Regulation
. Neither of the Company nor any Subsidiary is a bank subject
to regulation as a bank or entered into agreements with any
governmental authority charged with the supervision or
regulation of banks or bank holding companies or engaged in
the insurance of bank deposits.
(v) Property; Assets.
(i) The Disclosure Letter sets forth a complete and
accurate list of (i) all of the real property owned by
the Company or a Subsidiary (the "Owned Real
Property") and (ii) all of the real property leased or
subleased by the Company or a Subsidiary from a third
party requiring a payment in excess of Fifty Thousand
United States Dollars (US$50,000) per year (the
"Leased Real Property" and, together with the Owned
Real Property, the "Real Property"). The Company or
its Subsidiaries have (i) (A) good and marketable
title to its interest in the applicable Owned Real
Property and (B) a valid leasehold interest in the
Leased Real Property as provided in the applicable
lease agreements (the "Real Property Leases") and (ii)
with respect to any other material property and
assets, good and marketable title to its interest in
such property and assets, in each case, free and clear
of all Liens, except for (A) Liens, encumbrances,
defects, exceptions, easements, rights of way,
restrictions, covenants, claims or other similar
charges listed or identified in the Disclosure Letter
with respect to the applicable Real Property and (B)
Liens, encumbrances, defects, easements, rights of
way, restrictions, covenants, claims or other similar
charges, whether or not of record, which do not,
individually or in the aggregate, materially impact
the use or operation of the Real Property in
connection with the Telecommunications Business
consistent with the current use thereof.
(ii) All of the Real Property, machinery, fixtures,
vehicles, equipment and other personal property owned
or leased by the Company or any Subsidiary is in
satisfactory repair and operating condition, ordinary
wear and tear excepted.
(iii) With respect to the Leased Real Property, neither the
Company nor any of its Subsidiaries has received a
written notice of (i) any monetary default or other
material default thereunder or (ii) non-compliance
with any Applicable Laws.
(iv) Neither the Company nor any Subsidiary has received
any written notice from any Governmental Authority
with respect to the Real Property of any violations
of any Applicable Laws, which violation is not in the
process of being cured or contested in good faith
(w) Employee Benefits
. Except as set forth in the Disclosure Letter, neither the
Company nor any Subsidiary has any employees in the United
States. With respect to all of the employee benefit plans of
the Company and its Subsidiaries (a) such plans are in
material compliance with any Applicable Laws, including
relevant tax laws, and the requirements of any trust deed
under which they are established, (b) all employer and
employee contributions to each such plan required by law or by
the terms of such plan have been made, or, if applicable,
accrued, in accordance with normal accounting practices; and
(c) the fair market value of the assets of each funded plan,
the liability of each insurer for any plan funded through
insurance or the book reserve established for any plan,
together with any accrued contributions, is sufficient to
procure or provide for the accrued benefit obligations with
respect to all current and former participants in such plan.
(x) U.S. Employee Plans
. No employee benefit plan, policy, arrangement or agreement
is maintained for the benefit of any US employee of the
Company (each, a "Plan"), no Plan is intended to be
"qualified" within the meaning of Section 401(a) of the
Internal Revenue Code, no Plan is subject to Title IV of
Employee Retirement Income Security Act ("ERISA") and no
liability under Title IV of ERISA has been incurred by the
Company that has not been satisfied in full, and no condition
exists that presents a material risk to the Company of
incurring a material liability thereunder.
(y) Insurance
. The Company and each of the Subsidiaries is insured with
respect to the matters set forth in the Disclosure Letter. All
such insurance is in full force and effect, and neither the
Company nor any of the Subsidiaries is in default thereunder
and all claims thereunder have been correctly filed in a due
and timely manner. A list of all insurance policies held by
the Company and each of the Subsidiaries with coverages in
excess of One Million United States Dollars (US$1,000,000) is
set forth in the Disclosure Letter.
(z) IFC Policies
. To the best of its Knowledge, neither the Company nor any
Subsidiary is in violation of any of the policies set forth in
Exhibit O (the "IFC Policies") and neither the Company nor any
Subsidiary has received or is aware of any complaint, order,
directive, claim, citation or notice from any Governmental
Authority with respect to any matter of the Company's or such
Subsidiary's compliance with the relevant environmental,
health and safety laws and regulations in effect in any
Country such as, without limitation, air emissions, discharges
to surface water or ground water, noise emissions, solid or
liquid waste disposal, or the use, generation, storage,
transportation or disposal of toxic or hazardous substances or
wastes.
(aa) HSR Warranty
. The HSR Form filed or to be filed by the Company under the
HSR Act with the FTC and the Antitrust Division of the
Department of Justice, was prepared and assembled in
accordance with instructions issued by the FTC. To the best of
its Knowledge, the information contained in the HSR Form is
true, correct and complete in accordance with the HSR Act and
its regulations, subject to the recognition that reasonable
estimates have been made because books and records do not
provide the required data.
5. Pre-Closing Covenants
. The Parties agree as follows with respect to the period, if any,
between the execution of this Participation Agreement and the Closing
Date and, if appropriate, the Subsequent Closing Date:
(a) General
. Each of the Parties will use its reasonable best efforts to
take all actions and to do all things necessary in order to
consummate the transactions contemplated by this Participation
Agreement (including the satisfaction, but not the waiver, of
the closing conditions set forth in section 6 below) and the
other Transaction Documents.
(b) Notices and Consents
. Each of the Parties will give any notices, make any filings
and use its reasonable best efforts to obtain any
authorizations, consents, and approvals necessary to
consummate the transactions described herein. Each of TCW,
Telematica, and the Company shall use its best efforts to make
a proper filing, and to cause the waiting period to expire or
terminate under the HSR Act, and to take all other actions
necessary to permit the consummation of the transactions
contemplated by the Participation Agreement and the other
Transaction Documents under the HSR Act.
(c) Operation of Business
. The Company will not, and will not cause or permit any
Subsidiary to, prior to the Closing, engage in any practice,
take any action, or enter into any transaction outside the
ordinary course of business. Without limiting the generality
of the foregoing, the Company will not, and will not cause or
permit any Subsidiary, to take any action described in clauses
(ii) through (xii), or the last sentence of the second
paragraph, of Section 4(f).
(d) Preservation and Conduct of Business
. The Company will keep its business and properties
substantially intact, including each Subsidiary's present
operations, physical facilities, working conditions, and
relationships with lessors, licensors, suppliers, customers,
subscribers and employees and operate and carry on the
Telecommunications Business in the ordinary course of
business.
(e) Full Access
. The Company will permit, and the Company will cause each of
the Subsidiaries to permit, representatives of the Investors
to have full and complete access at all reasonable times, and
in a manner so as not to interfere with the normal business
operations of such entities, to all premises, properties,
personnel, books, records (including tax records), contracts,
and documents of or pertaining to each of such entities for
the purpose of enabling the Investors or their representations
to verify the accuracy of the representations and warranties
contained herein, to verify that the covenants of this
Participation Agreement have been complied with and to
determine whether the conditions to Investors' performance set
forth herein have been satisfied.
(f) Notice of Developments
. The Company will give prompt written notice to the Investors
of any of the following that occur prior to the Subsequent
Closing or the termination of this Agreement under the
provisions of Section 8:
(i) any material adverse development causing or
potentially causing a breach of any of the
representations and warranties set forth in Section 4
above,
(ii) any event which constitutes a material default in any
of the terms, conditions or provisions of any
Material Contract, or
(iii) any other event or condition which could reasonably
be expected to have a material adverse effect on the
assets, operations, operating results, customer or
employee relations, business or financial condition
or prospects of the Company or of any Subsidiary.
Each Investor will give prompt written notice to the other
Parties of any material adverse development that occurs prior
to the Closing and causes a breach of any of its own
representations and warranties in Section 3 above. No
disclosure by any Party pursuant to this Section 5(f),
however, shall be deemed to amend or supplement the Disclosure
Letter or prevent or cure any misrepresentation, breach of
warranty, or breach of covenant.
6. Conditions to Obligations.
(a) Conditions to Obligations of Each Investor at the Closing
. The obligation of each Investor to consummate or cause to be
consummated the transactions to be performed at the Closing as
described in the appropriate clauses of Section 2(c) is
subject to the satisfaction or waiver by it of the following
conditions:
(i) Each other Party shall consummate or cause to be
consummated the transactions contemplated in the
appropriate clauses of Section 2(c) to be performed
at the Closing;
(ii) the representations and warranties of the Company set
forth in Section 4, and the representations and
warranties of each other Investor set forth in
Section 3, shall have been true and correct at the
execution hereof and shall be true and correct in all
respects at and as of the Closing Date as if made on
the Closing Date;
(iii) the Company and each other Investor shall have
performed and complied with all of its covenants
hereunder in all material respects through the
Closing Date;
(iv) there have been received by the Investor opinions of
counsel to the Company, in substantially the form(s)
set forth in Exhibit J, addressed to all Investors
and dated as of the Closing Date; and
(v) no court or Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgement,
decree, injunction or other order (whether temporary,
preliminary or permanent) that continues in effect
and restrains, enjoins or otherwise prohibits
consummation of the transactions to be performed at
the Closing.
(b) Conditions to Obligations of the Company at the Closing
. The obligation of the Company to consummate or cause to be
consummated the transactions to be performed at the Closing as
described in Section 2(c)(v) is subject to the satisfaction or
waiver of the following conditions:
(i) each Investor shall consummate or cause to be
consummated the transactions contemplated in the
appropriate clauses of Section 2(c) to be performed
by it at the Closing;
(ii) the representations and warranties set forth in
Section 3 above shall be true and correct in all
material respects as to each Investor at and as of
the Closing Date;
(iii) no court or Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgement,
decree, injunction or other order (whether temporary,
preliminary or permanent) that continues in effect
and restrains, enjoins or otherwise prohibits
consummation of the transactions to be performed at
the Closing; and
(iv) each Investor shall have performed and complied with
all of its respective covenants hereunder in all
material respects through the Closing Date as if made
on that Closing Date.
(c) Conditions to Obligations at the Subsequent Closing
. The obligation of any Party (the "Performing Party") to
consummate or cause to be consummated the transaction to be
performed at the Subsequent Closing as described in Section
2(d) is subject to the satisfaction or waiver by such Party of
the following conditions:
(i) each other Party shall consummate or cause to be
consummated the transactions contemplated in the
appropriate clauses of Section 2(d) to be performed
by it at the Subsequent Closing;
(ii) no court or Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any
law, statute, ordinance, rule, regulation, judgement,
decree, injunction or other order (whether temporary,
preliminary or permanent) that continues in effect
and restrains, enjoins or otherwise prohibits
consummation of the transactions to be performed at
the Subsequent Closing;
(iii) any filing and waiting period requirements applicable
pursuant to the HSR Act to the transactions
contemplated to be performed or caused to be
performed by the Performing Party shall have expired
or been terminated; and
(iv) the representations and warranties of each other
Party made as of the Subsequent Closing Date, (i)
with respect to the Investors, in connection with
Sections 3(e), 3(f), and 3(g), and (ii) with respect
to the Company in connection with Sections 4(a),
4(b), 4(c), 4(d), 4(f) (except as approved by budget
or action taken by the Board of Directors), 4(j),
4(k), 4(t) and, to the extent the condition relates
to the IFC's obligations at the Subsequent Closing,
4(z), shall be true, correct and complete at and as
of the Subsequent Closing Date as if made on the
Subsequent Closing Date.
7. Indemnity. If any of the representations and warranties of the Company
in this Participation Agreement or any Transaction Document is untrue
or inaccurate as of the Closing Date or as of the date of the
Subsequent Closing, or if any claim or lawsuit described in the
Disclosure Letter is not settled as described therein, or if the
Company or any of its Subsidiaries becomes a party to litigation
arising out of events occurring before the Closing Date (any of the
foregoing here referred to as an "Indemnity Event"), the provisions of
Section 7(a) and, if appropriate, Section 7(b) shall apply:
(a) If, as a result of the Indemnity Event, the Company or any
Subsidiary incurs a liability or otherwise suffers a loss in
value, and such liability or loss in value is not fully offset
by the value of any asset or benefit received by the Company
or a Subsidiary in connection with the Indemnity Event (the
extent to which not so offset being referred to herein as the
"Negative Delta") then, subject to the limitations set out in
Sections 7(d) and 7(e), the Company shall issue to each
Investor, as an indemnity, an additional number of shares of
the Company's stock having the same rights and preferences as
the Series C Shares or, if any of the Series C Shares acquired
pursuant to this Participation Agreement have been converted
by such Investor, an additional number of shares of Common
Stock, ("Indemnity Shares") calculated as follows:
(i) first, each Investor shall receive by way of
indemnity a number of Indemnity Shares determined by
multiplying the Negative Delta by the Investor's
percentage of the equity of the Company acquired in
the transactions contemplated by this Agreement
(being the Series C Shares acquired at the Closing or
the Subsequent Closing, those acquired or subject to
acquisition in the exercise of the rights granted
under the Option Agreement, and those issued or
issuable to it pursuant to the Series C Warrants or
the FondElec/Internexus Warrants), and dividing the
sum by the Fair Value (taking into account the
issuance of the Indemnity Shares) of a share of
Common Stock;
(ii) second, each of FondElec and Internexus shall receive
by way of indemnity a number of additional Indemnity
Shares determined by multiplying the Negative Delta
by its percentage of the equity of the Company
obtained by it prior to the Closing or in the
exercise of rights obtained by it prior to the
Closing as reflected in Schedule 1 to the CCI
Shareholders' Agreement, and dividing that product by
the Fair Value (taking into account the issuance of
the Indemnity Shares) of a share of Common Stock;
(iii) third, each Investor shall receive by way of
indemnity such a number of additional Indemnity
Shares as shall be required to restore the Investor
to the percentage ownership of the Company that it
would have had if no shares had been issued pursuant
to clause (ii) above; and
(iv) fourth, each of FondElec and Internexus shall receive
by way of indemnity such a number of additional
Indemnity Shares as shall be required to restore it
to the percentage ownership of the Company that it
would have had if no shares had been issued pursuant
to clause (i) above.
An example of the foregoing indemnity calculations is set out in
Exhibit P, and the Parties acknowledge that the method implicit in that
example is to be used in making the calculations called for above. It
is the Parties' intention and agreement that the indemnity to FondElec
and Internexus be in lieu of the indemnities extended to them in
connection with their various transactions with the Company prior to
the Closing, and each of FondElec and Internexus (on behalf of itself
and all parties which could claim by or through it) hereby waives all
rights to make, and releases the Company from, indemnity obligations
under all prior indemnity agreements or provisions.
(b) To the extent the Indemnity Event is not manifested in the
Company, or any of its Subsidiaries, incurring a liability or
suffering a loss in value not fully offset by the value of
assets or benefits received in connection with the Indemnity
Event, but nonetheless an Investor or any of its directors,
officers, employees, agents or representatives (each, an
"Indemnitee") suffers a loss or incurs liability as a result
of the Indemnity Event, then the Company shall, subject to the
limitations set out in Sections 7(d) and 7(e), indemnify such
Indemnitee for the loss by making a payment to it in cash
equal to the amount of the loss.
(c) If there occurs a disagreement between any Indemnitee and
the Company as to the application of this Section 7, the
matter shall be the subject of dispute resolution in the
manner set out in Section 11(n).
(d) Claims under this Section 7 that are based on a breach of
the Company's representations and warranties may be made only
if notice of such breach is given by any Investor to the
Company during the period of validity of such representations
and warranties as set out in Section 4. No claim may be made
pursuant to Section 7(a) with respect to a given Indemnity
Event, unless either (i) the Negative Delta resulting from
such event exceeds One Hundred Thousand Dollars (US$100,000),
or (ii) such Negative Delta, when added to the Negative Delta
resulting from earlier events as to which an indemnity
pursuant to Section 7(a) has not been satisfied, exceeds Two
Hundred Fifty Thousand Dollars (US$250,000). No claim may be
made pursuant to Section 7(b) with respect to a given
Indemnity Event unless either (i) the loss suffered by all
Indemnitees by reason of such Indemnity Event for which a
claim may be made under Section 7(b) exceeds One Hundred
Thousand Dollars (US$100,000), or (ii) if such loss, when
added to the losses suffered by all Indemnitees by reason of
Indemnity Events as to which an indemnity pursuant to Section
7(b) has not been satisfied, exceeds Two Hundred and Fifty
Thousand Dollars (US$250,000).
(e) The Company shall not have any obligation to indemnify an
Indemnitee, whether under Section 7(a) or Section 7(b), to the
extent that the loss suffered by the Indemnitee results from
the breach of the relevant Investors' representations,
warranties or agreements in the Participation Agreement or any
other Transaction Document, or the Indemnitees' gross
negligence or willful misconduct. The Company's obligations to
issue stock by way of indemnity as set out in Section 7(a)
shall constitute the sole remedy for breach of contract
available to the Indemnitees by reason of the happening of any
Indemnity Event, except to the extent Section 7(b) is
applicable.
(f) At such time as the Company is obligated to indemnify any
Indemnitee under Section 7(a) or Section 7(b), the Company
shall also reimburse such Indemnitee for its reasonable
attorney's fees and other out-of-pocket expenses of the
Indemnitee, if any, incurred in enforcing its rights under
Section 7.
8. Termination.
(a) Termination of Agreement
. The Parties may terminate this Participation Agreement as
provided below:
(i) The Parties may terminate this Participation
Agreement as to all Parties by mutual written
consent;
(ii) Any Investor may terminate this Participation
Agreement as to itself if,
(A) prior to the Closing,
(1) the Company or any other Investor
has breached any of its
representations, warranties, or
covenants contained in this
Participation Agreement in any
material respect,
(2) such Investor has notified the
Company and each other Investor of
the breach prior to the Closing, and
(3) the breach has continued without
cure for a period of two business
days after the notice of breach, or
(B) if the Closing shall not have occurred on or
before October 28, 1999, or, with respect to
the Subsequent Closing only, if the
Subsequent Closing shall have not occurred
on or before January 18, 2000; (unless the
failure results primarily from such Investor
breaching any representation, warranty, or
covenant contained in this Participation
Agreement); or
(C) this Participation Agreement has been
terminated as to any other Investor.
(iii) The Company may terminate this Participation
Agreement as to a given Investor if
(A) (1) such Investor has breached any of
its representations, warranties, or
covenants contained in this
Participation Agreement in any
material respect,
(2) the Company has notified the
Investor of the breach, and
(3) the breach has continued without
cure for a period of two business
days after the notice of breach, or
(B) if the Closing shall not have occurred on or
before October 28, 1999, or, with respect to
the Subsequent Closing only, if the
Subsequent Closing shall have not occurred
on or before January 18, 2000 (unless the
failure results primarily from the Company
itself breaching any representation,
warranty, or covenant contained in this
Participation Agreement).
(b) Effect of Termination
. If any Party terminates this Participation Agreement
pursuant to Section 8(a) above, all rights and obligations of
the Party hereunder shall terminate without any liability of
any Party to any other Party, except for any liability of the
terminating Party resulting from a breach that occurs prior to
the termination. A termination as to a given Investor as
contemplated in clause (ii) or clause (iii) of Section 8(a)
shall not have the effect of removing such Investor's
performance from among the conditions precedent to any other
Party's obligation hereunder as set out in Section 6, and each
other Parties shall be obligated to proceed with its
respective transactions contemplated hereunder only if and
when all of the conditions to their obligations set out in
Section 6 are either fully performed, or expressly waived by
the Party.
(c) Specific Performance
. Nothing in this Participation Agreement shall be interpreted
to preclude any Party's right to seek and obtain specific
performance of the terms of this Participation Agreement or
any equitable remedy.
9. D'Ambrosio Participation
. Subject to the satisfaction or waiver of the conditions to the
Company's obligation to consummate the transactions contemplated hereby
as set forth in Section 6(b), each of the D'Ambrosios agrees to execute
and deliver the CCI Shareholder's Agreement at the Closing. Each
D'Ambrosio hereby represents and warrants to the Company and each
Investor that (i) he or it has full power and authority to execute and
deliver the CCI Shareholders' Agreement and to perform his or its or
obligations thereunder, (ii) the CCI Shareholders' Agreement, when
executed and delivered by him or it, will constitute his or its legally
binding obligation, enforceable in accordance with its terms, except as
may be limited by bankruptcy, reorganization, moratorium, fraudulent
conveyance and insolvency laws and by other laws affecting the rights
of creditors generally, and except as may be limited by the
availability of equitable remedies, (iii) there is no requirement of
Applicable Law that any notice be given, nor any filing, authorization,
consent or approval or any governmental agency be obtained in order
that he or it may execute and deliver the CCI Shareholders' Agreement,
and (iv) neither the execution nor the delivery by him or it of the CCI
Shareholders' Agreement will violate any Applicable Laws to which he or
to which it is subject or conflict with, result in the breach of,
constitute a default under, result in the acceleration of or create in
any party the right to accelerate, terminate, modify or cancel, any
agreement to which he or to which it is subject.
10. Removal of Legend;Use of Proceeds.
. The Company agrees to remove, at the request of an Investor, any
legend placed on the Investor's certificate covering any securities
issued pursuant to this Participation Agreement or any of the
Transaction Documents in order to comply with the requirements of U.S.
Securities Laws at such time as no longer required thereby. The Company
agrees that the purchase price received by the Company for the Series C
Shares sold to Investors will be used by the Company only for the
purposes set forth in the Use of Proceeds Summary attached in Schedule
3 to the Participation Agreement.
11. Miscellaneous.
(a) Press Releases and Public Announcements
. No Party shall issue any press release or make any public
announcement relating to the subject matter of this
Participation Agreement without the prior written approval of
each other Party; provided, however, that any Party may make
any public disclosure it believes in good faith that it is
required by applicable law or any listing or trading agreement
concerning its publicly-traded securities (in which case the
disclosing Party will advise the other Parties and afford such
Parties a reasonable opportunity under the circumstances to
comment prior to making the disclosure).
(b) No Third Party Beneficiaries
. This Participation Agreement shall not confer any rights or
remedies upon any person or entity other than the Parties,
their related Indemnitees and their respective successors and
permitted assigns.
(c) Entire Agreement
. The English language version of this Participation Agreement
and other Transaction Documents (including the documents
referred to herein) constitutes the entire agreement among the
Parties and supersedes any prior understandings, agreements,
or representations by or among the Parties, written or oral
(including, specifically, any letter of intent or letter or
understanding between the Parties), to the extent they relate
in any way to the subject matter hereof.
(d) Succession and Assignment
. This Participation Agreement shall be binding upon and inure
to the benefit of the D'Ambrosios and the Parties and their
respective successors and permitted assigns. Neither any
D'Ambrosio nor any Party may assign either this Participation
Agreement or any of its rights, interests, or obligations
hereunder without the prior written approval of the other
Parties, except to a Person to whom a Transfer of Company
Equity is made free of the restrictions of Sections 2 and 3 of
the CCI Shareholders' Agreement.
(e) Counterparts
. This Participation Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but
all of which together will constitute one and the same
instrument. For purposes of this Participation Agreement, the
delivery of a counterpart signature by telephonic facsimile
transmission shall be deemed the equivalent of the delivery of
an original counterpart signature.
(f) Headings
. The section headings contained in this Participation
Agreement are inserted for convenience only and shall not
affect in any way the meaning or interpretation of this
Participation Agreement.
(g) Notices
. All notices, requests, demands, claims, and other
communications hereunder will be in writing. Any notice,
request, demand, claim, or other communication hereunder shall
be deemed duly given when actually received, whether
personally delivered, transmitted by fax or sent by reputable
air courier (such as Federal Express or DHL) and addressed to
the intended recipient as set forth below:
If to the Company:
Convergence Communications, Inc.
c/o Lance D'Ambrosio
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
Fax: (801) 532-6060
Copy to:
Parsons Behle & Latimer
201 South Main Street, Suite 1800
Salt Lake City, Utah 84111
Attention: Scott R. Carpenter, Esq.
Fax: (801) 536-6111
If to Telematica:
Telematica EDC, C.A.
Avenida Vollmer, San Bernardino - Apartado 2299
Caracas 1010-A-Venuezala
Attention: Norberto Corredor
Fax: 011-582-502-3477
Copy to:
Angel Gabriel Viso
Viso Rodriguez Cottin Medina Garrido & Associados
Torre Banvenez
Av. Francisco Solano, Sabana Grande
Caracas 1050, Venezuela
Fax: 011-582-762-4562
Arnold & Porter
555 Twelfth Street, N.W.
Washington, D.C. 20004-1206
Attention: Bruce A. Adams
Fax: (202) 942-5999
If to TCW:
TCW/CCI Holding LLC
200 Park Avenue, Suite 2100
New York, New York 10166
Attention: Mr. Mario Baeza
Telephone: (212) 771-4147
Fax: (212) 771-4155
Copy to:
Skadden, Arps, Slate, Meagher & Flom LLP
919 Third Avenue
New York, New York 10022
Attention: Mr. Paul Schnell
Telephone: (212) 735-2322
Fax: (212) 735-7485
If to IFC:
International Finance Corporation
2121 Pennsylvania Avenue, NW
Washington, D.C. 20433 USA
Attention: Umberto Pisoni
Telephone: (202) 473-9143
Fax: (202) 974-4403
If to Glacier:
Glacier Latin-America Ltd.
2999 NE 191 Street, #404
Aventura, FL 33180
Attention: Mr. Gregorio Berliavsky
Telephone: (305) 935-6511
Fax: (305) 935-6512
If to FondElec:
FondElec Essential Services Growth Fund, L.P.
333 Ludlow Street
Stamford, CT 06902
Attention: George Sorenson
Gaston Acosta Rua
Fax: (203) 326-4578
If to Internexus:
Jorge Fucaraccio and/or
Pedro Schiller
Internexus S.A.
Peron 925, Piso 1
C1038AAS Buenos Aires
Argentina
Fax: 5411-4320-7560
Copy to:
Bazan-Cambre &Orts
Florida 234-Piso 4
C1005AAF-Buenos Aires
Argentina
Fax: 5411-4325-3564
Any Party may send any notice, request, demand, claim, or
other communication hereunder to the intended recipient at the
address set forth above using any other means (including
personal delivery, messenger service, telecopy, telex,
ordinary mail, or electronic mail), but no such notice,
request, demand, claim, or other communication shall be deemed
to have been duly given unless and until it actually is
received by the intended recipient. Any Party may change the
address to which notices, requests, demands, claims, and other
communications hereunder are to be delivered by giving the
other Parties notice in the manner herein set forth.
(h) Governing Law
. This Participation Agreement shall be governed by and
construed in accordance with the domestic laws of the state of
New York, United States of America, without giving effect to
any choice or conflict of law provision or rule (whether of
the state of Utah or any other jurisdiction) that would cause
the application of the laws of any jurisdiction other than the
state of New York.
(i) Amendments and Waivers
. This Participation Agreement may be amended, extended or
modified by a writing signed by the Investors, the D'Ambrosios
and the Company. No waiver shall be deemed to have been made
unless in writing, nor shall any waiver by any Party of any
default, misrepresentation, or breach of warranty or covenant
hereunder, whether intentional or not, be deemed to extend to
any prior or subsequent default, misrepresentation, or breach
of warranty or covenant hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such
occurrence.
(j) Severability
. Any term or provision of this Participation Agreement that
is invalid or unenforceable in any situation in any
jurisdiction shall not affect the validity or enforceability
of the remaining terms and provisions hereof or the validity
or enforceability of the offending term or provision in any
other situation or in any other jurisdiction.
(k) Expenses
. Each of the Parties will bear its own costs and expenses
(including legal fees and expenses) incurred in connection
with this Participation Agreement and the transactions
contemplated hereby.
(l) Construction
. The Parties have participated jointly in the negotiation and
drafting of this Participation Agreement. In the event an
ambiguity or question of intent or interpretation arises, this
Participation Agreement shall be construed as if drafted
jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the
authorship of any of the provisions of this Participation
Agreement. The Parties intend that each representation,
warranty, and covenant contained herein shall have independent
significance. If any Party has breached any representation,
warranty, or covenant contained herein in any respect, the
fact that there exists another representation, warranty, or
covenant relating to the same subject matter (regardless of
the relative levels of specificity) which the Party has not
breached shall not detract from or mitigate the fact that the
Party is in breach of the first representation, warranty, or
covenant.
(m) Incorporation of Attachments and Exhibits
. The Schedules and Exhibits identified in this Participation
Agreement are incorporated herein by reference and made a part
hereof.
(n) Disputes.
(i) The provisions of this Section 11(n) shall be the
sole and exclusive method for resolving disputes
between the Parties or their successors or assigns
arising under or relating to the transactions
contemplated by this Participation Agreement or any
other Transaction Documents. In the event there is a
dispute under this Participation Agreement or any
Transaction Documents, the Parties shall meet with
one another and diligently attempt to resolve their
disagreements. If they are unable to do so, then upon
request of any Party to the dispute, they will
conciliate the dispute, utilizing a single
conciliator pursuant to the ICC Rules of Optional
Conciliation in a proceeding to take place in New
York, New York, and carried out in the English
language. If, after 60 calendar days, the mediation
is not successful, then any Party to the dispute may
bring arbitration to resolve the dispute as
contemplated in this Section 11(n).
(ii) Assuming negotiations and mediation are unsuccessful,
any Party to the dispute may submit the disagreement
to binding arbitration by making a written demand for
arbitration. The arbitration shall occur before a
panel of three arbitrators in New York, New York, and
shall be governed by the Rules of Arbitration of the
International Chamber of Commerce including, in the
event of more than two Parties to the dispute,
Article 10 of such rules. To assure predictability,
the arbitrators shall be persons selected by the
Parties with experience in telecommunication issues
and commercial transactions. The arbitrators shall
base their decision on the terms and conditions of
this Participation Agreement, and shall not vary the
same, New York statutory law, and judicial precedent,
and will include in the award findings of fact and
conclusions of law upon which the award is based.
Subject to the limitation set out in the Indemnity
clause above, the arbitrators may grant such legal or
equitable relief as they deem to be appropriate,
including money damages, specific performance and
injunctive relief.
(iii) Questions of whether the dispute is subject to
arbitration shall also be decided by the panel of
arbitrators.
(iv) Any Party may request and obtain from a court of
competent jurisdiction provisional or ancillary
remedies for relief such as an injunction or the
appointment of a receiver, but the institution of a
judicial proceeding will not constitute a waiver of
the right of such Party to submit a dispute to
arbitration. Judgment upon an arbitration award may
be entered in any court having jurisdiction. Subject
to the award of the arbitrators, each Party shall pay
an equal share of the arbitrators' fees, except the
arbitrators shall have the power to award all
expenses (including attorney's fees, costs and expert
witness fees) to the prevailing Party, as determined
by the arbitrators. All matters relative to the
arbitration, including the result thereof, shall be
maintained as confidential by all Parties to this
Participation Agreement, except as required to obtain
judgment upon an arbitration award or otherwise as
required by law.
(o) Special IFC Covenants.
(i) The Company and its Subsidiaries shall design,
construct, operate, maintain and monitor all of their
sites, plant, equipment and facilities:
(A) in accordance with the IFC Policies;
provided, however, that such obligation
shall not be deemed to require the Company
or any Subsidiary to perform an
environmental assessment of projects
proposed nor shall the IFC have the right to
approve or disapprove any proposed operation
of the Company or any Subsidiary;
(B) in compliance with the environmental
mitigation and management measures, as well
as applicable environmental, indigenous
peoples, involuntary resettlement, cultural
property protection, occupational health and
safety requirements, and any child labor and
forced labor laws, rules and regulations
(including any international treaty
obligations; if any) of the Governmental
Authority of any Country;
(ii) Neither the Company nor its Subsidiaries shall use
the proceeds of the sale of the Series C Shares to
IFC in the territories of any country other than
less-developed countries in which IFC is actively
pursuing operations (as described in its 1999 annual
report) or for reimbursements of expenditures in
those territories or for goods produced in or
services supplied from any such country.
(p) Reporting to IFC.
(i) Within ninety (90) days after the end of each fiscal
year, deliver to IFC an annual monitoring report,
confirming compliance with the applicable national or
local requirements, the IFC Policies, the
environmental mitigation and management measures and
Section (o)(i) or, as the case may be, detailing any
non-compliance together with the action being taken
to ensure compliance.
(ii) As soon as possible but no later than five (5) days
after its occurrence, notify IFC of any incident or
accident involving the Company or any of its
Subsidiaries which has or may reasonably be expected
to have an adverse effect on the environment, health
or safety, including, without limitation, explosions,
spills or workplace accidents which result in death,
serious or multiple injury or major pollution,
specifying, in each case, the nature of the incident
or accident, the on-site and off-site impacts arising
or likely to arise therefrom and the measures the
Company or such Subsidiary is taking or plans to take
to address those impacts; and keep IFC informed of
the on-going implementation of those measures.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONVERGENCE COMMUNICATIONS, INC.
By: /s/ Lance D'Ambrosio
-----------------------------------
Its:
-----------------------------------
TELEMATICA EDC, C.A.
By: /s/ Noberto Corredor
-----------------------------------
Its: Duly Authorized
-----------------------------------
TCW/CCI HOLDING LLC
By: /s/ Mario L. Baeza
-----------------------------------
Its: Chairman and CEO
-----------------------------------
INTERNATIONAL FINANCE CORPORATION
By:
-----------------------------------
Its:
-----------------------------------
GLACIER LATIN-AMERICA LTD.
By: /s/ David Liebman
-----------------------------------
Its: Assistant Treasurer
-----------------------------------
FONDELEC ESSENTIAL SERVICES
GROWTH FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By: /s/ Gaston Acosta-Rua
-----------------------------------
Its: Director
-----------------------------------
INTERNEXUS S.A.
By: /s/ Peter Schiller
-----------------------------------
Its: Duly Authorized
-----------------------------------
JOINDER FOR PURPOSES OF SECTION 9:
/s/ Lance D'Ambrosio
---------------------------------------
Lance D'Ambrosio
/s/ Troy D'Ambrosio
---------------------------------------
Troy D'Ambrosio
ESTATE OF GEORGE S. D'AMBROSIO
By: /s/ Lance D'Ambrosio
-----------------------------------
Its:
-----------------------------------
EXHIBITS SCHEDULES
-------- ---------
1. Exhibit A CCI Stock Purchase Agreement 1. Schedule 1 Definitions
2. Exhibit B Option Agreement 2. Schedule 2 Rights and Preferences
of Series C Shares
3. Exhibit C Series C Warrant 3. Schedule 3 Use of Proceeds
Summary
4. Exhibit D FondElec/Internexus Warrant
5. Exhibit E CCI Shareholders' Agreement
6. Exhibit F Registration Rights Agreement
7. Exhibit G Salvador Subscription Agreement
8. Exhibit H Salvador Shareholders' Agreement
9. Exhibit I Colombia Letter of Intent
10.Exhibit J Closing Opinions
Exhibit J-1 Thelen Reid & Priest LLP Enforceability Opinion
Exhibit J-2 Parsons Behle & Latimer Estate Opinion
Exhibit J-3 Parsons Behle & Latimer Corporate Opinion
11.Exhibit K Partial Release of the Salvador Note
12.Exhibit L Subsequent Closing Opinion
13.Exhibit M CCI Salvador's Acknowledgment of Capitalization of
Inter-company Receivable
14.Exhibit N Financial Statements
15.Exhibit O IFC Policies
16.Exhibit P Example of Indemnity Calculations
SCHEDULE 1.
INDEX OF DEFINITIONS.
For purposes of the Participation Agreement and the other Transaction
Documents, the following words and phrases shall have the meanings identified as
follows (where a reference is to a Recital, Section or clause, the same shall be
taken to be to the corresponding provision of the Participation Agreement unless
otherwise noted):
"Applicable Law" means all published constitutions, statutes, rules,
regulations, orders, decrees, codes, rulings, charges, injunctions, or
judgments applicable to the entity or person in question with respect
to a relevant matter.
"Budget" shall have the meaning set forth in the first recital of the
Participation Agreement.
"Business Day" means a day on which banks are open both in the State of
New York and in Caracas, Venezuela.
"Business Plan" shall have the meaning set forth in the first recital.
"CCI Companies" shall have the meaning set forth in Section 4(b) of the
CCI Shareholders' Agreement.
"CCI Salvador" shall mean Chispa Dos Inc., a Cayman Islands limited
liability company.
"CCI Shareholders' Agreement" shall have the meaning set forth in
Section 2(a)(vi).
"CCI Stock Purchase Agreements" shall have the meaning set forth in
Section 2(a)(i).
"Closing" shall have the meaning set forth in Section 2(a).
"Closing Date" shall be the date on which the Closing occurs.
"Colombia Letter of Intent" shall have the meaning set forth in Section
2(x).
"Common Stock" means the shares of common stock of Convergence
Communication, Inc. with a par value of $0.001 each.
"Company" shall have the meaning set forth in the preamble.
"Company Equity" shall have the meaning given in the second recital of
the CCI Shareholders' Agreement.
"Company Shares" shall have the meaning given in the second recital of
the CCI Shareholders' Agreement.
"Control" (and, with correlative meaning, "Controlled by" and "under
Common Control with") means the possession, directly or indirectly, of
the power to direct the management of a Person through ownership of
voting securities, exercise of contract rights, or otherwise.
"Control Affiliate" of a Shareholder Party means a Person that
Controls, is Controlled by or under Common Control with the Shareholder
Party, or succeeds to all or substantially all of the business and
assets of the Shareholder Party.
"Country" shall mean Costa Rica, El Salvador, Guatemala, Panama, Mexico
and Venezuela.
"Disclosure Letter" shall have the meaning set forth in recital A.
"Environmental Law" shall mean all the United States, Guatemala, El
Salvador, Venezuela, Costa Rica, Panama, Mexico, Argentina and New
Zealand, and other countries, federal, provincial, state and local
laws, regulations rules and ordinances, relating to pollution or
protection of the environment, and to human health and safety
including, without limitation, laws relating to release, discharges,
leaching, migration or disposal of hazardous, toxic, or radioactive
substances, oils, pollutants or contaminants into the indoor or outdoor
environment (including, without limitation, ambient air, surface water,
groundwater, land, surface and subsurface strata) or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage,
transport or handling of such substances, oils, pollutants or
contaminants.
"Fair Value" shall mean, with respect to a share of Common Stock, (a)
if the shares are listed or admitted for trading on any Recognized
Exchange, the last reported sales price as reported on such exchange or
market, if available; (b) if the shares are not listed or admitted for
trading on any Recognized Exchange or no such last sale information is
available, the average of the last reported closing bid and asked
quotation for the shares as reported on NASDAQ or a similar service if
NASDAQ is not reporting such information; (c) if the shares are not
listed or admitted for trading on any Recognized Exchange or included
in The Nasdaq National Market or Nasdaq or Nasdaq SmallCap Market or
quoted by a similar service, the average of the last reported bid and
asked quotation for the shares as quoted by a market maker in the
shares (or if there is more than one market maker, the bid and asked
quotation shall be obtained from two market makers and the average of
the lowest bid and highest asked quotation). In the absence of any
available public quotations for the Common Stock, "Fair Value" shall be
as is determined by an investment advisor of international standing
reasonably acceptable to the Company and three out of TCW, Telematica,
Internexus and FondElec, based upon conventional valuation
methodologies that the advisor believes are appropriate in the
circumstances.
"Financial Statements" shall have the meaning set forth in Section
4(f).
"FondElec" shall have the meaning set forth in the preamble.
"Fond Elec December Note" shall have the meaning set forth in recital
C.
"FondElec/Internexus Warrant" shall have the meaning set forth in
Section 2(a)(v).
"FTC" means the Federal Trade Commission of the United States of
America.
"GAAP" means generally accepted accounting principles and practices, as
set forth in the opinions and pronouncements adopted by a significant
segment of the accounting profession (including any generally
recognized applicable principles or standards boards, committees or
professional organizations) of the country in question (as such
principles are applied in such country as of the date of the financial
statement or other documents with respect to which the term is used)
and, with respect to the United States, the accounting principles and
practices set forth in the opinions and pronouncements of the
Accounting Principles Board and the American Institute of Certified
Public Accountants and the statements and pronouncements of the
Financial Accounting Standards Board.
"Going-In Value" shall mean seven and 50/100 United States Dollars
(US$7.50), except that if, as of the date the Going-In Value is used in
any calculation, there has occurred any subdivision or combination of
outstanding shares of common stock, that amount shall be
proportionately reduced or increased, as appropriate, or if, as of that
date, shares of Common Stock have been issued as a dividend or other
distribution on Common Stock, that amount shall be multiplied by a
fraction (i) the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to the declaration or
payment of such dividend or other distribution, and (ii) the
denominator of which shall be the total number of shares of Common
Stock outstanding immediately after the declaration or payment of such
dividend or other distribution.
"Glacier" shall have the meaning set forth in the preamble.
"Governmental Authority" shall mean any national or local government,
governmental, regulatory or administrative authority, agency or
commission or any court, tribunal or judicial body of United States,
Guatemala, El Salvador, Venezuela, Costa Rica, Panama, Mexico,
Argentina or New Zealand.
"HSR Act" shall mean the Hart-Scott-Rodino Antitrust Improvements Act
of 1976, as amended.
"HSR Form" shall have the meaning set forth in Section 3(h).
"IFC" shall have the meaning set forth in the preamble.
"IFC Policies" shall have the meaning set forth in Section 4(z).
"Indemnitee" shall have the meaning set forth in Section 7.
"Indemnity Event" shall have the meaning set forth in Section 7.
"Indemnity Shares" shall have the meaning set forth in Section 7.
"Internexus" shall have the meaning set forth in the preamble.
"Internexus December Note" shall have the meaning set forth in recital
D.
"Investors" shall have the meaning set forth in the preamble.
"Knowledge" means the knowledge of the Company or any of the
Subsidiaries and of each Person who is serving or who has at any time
served as a director or officer of the Company or any of the
Subsidiaries and all knowledge that any such Person could be expected
to discover or otherwise become aware of had he or she fulfilled his or
her responsibilities as a director or officer of the Company or any of
the Subsidiaries, as the case may be.
"Lien" as to any Person, shall mean any mortgage, lien, pledge, charge,
preferential payment arrangement, security interest, other encumbrance,
or preferential agreement having the effect of constituting a security
interest, including without limitation, any equivalent interest or
right created or arising under the laws of any country where the person
owns property.
"Material Contracts" means all contracts, agreements, instruments and
documents to which the entity in question (or any one or more of its
subsidiaries) is a party, (i) the breach, violation or default of which
by that entity (or its subsidiaries) would have a material adverse
affect on the business, properties, assets, conditions (financial or
otherwise), or results of operations of the entity and its
subsidiaries, taken as a whole, (ii) which provides for aggregate
payments during the term thereof to be made or received by the Company
in excess of Two Hundred and Fifty Thousand United States Dollars (U.S.
$250,000) or (iii) provides any Person any preemptive or other
preferential rights with respect to the issuance by such entity or
subsidiaries.
"Metrotelecom" shall have the meaning set forth in Section 4(e).
"Negative Delta" shall have the meaning set forth in Section 7.
"Offering Memorandum" means the private placement memorandum of the
Company dated April 1999, previously delivered to the Investor,
relating to the offer and sale of the Company's to-be-designated Series
C Preferred Stock.
"Option Agreement" shall have the meaning set forth in Section
2(a)(iii).
"Participation Agreement" shall have the meaning set forth in the
preamble.
"Person" means a natural person, corporation, society, partnership,
joint venture, unincorporated association or other entity, including
any governmental, multilateral or quasi-public entity.
"Prior Agreement" shall have the meaning set forth in the third recital
of the CCI Shareholders' Agreement.
"Publicly Traded Securities" shall have the meaning given in Section
2(a) of the CCI Shareholders' Agreement.
"Qualified Disposition" shall have the meaning given in Section 2(a) of
the CCI Shareholders' Agreement
"Qualified Public Offering" shall have the meaning given in Section
2(b) of the CCI Shareholders' Agreement.
"Realized Valuation Event" shall have the meaning set forth in Section
2 of the Shareholders Agreement.
"Recognized Exchange" means the New York Stock Exchange, the American
Stock Exchange or the National Market System for the National
Association of Securities Dealers Automated Quotation System, or any
successor entities thereto.
"Registration Rights Agreement" shall have the meaning set forth in
Section 2(a)(vii).
"Remedy Parties" shall have the meaning set forth in Section 8(d).
"Reports" shall have the meaning set forth in Section 4(r).
"Salvador Notes" shall have the meaning set forth in Section
2(a)(viii).
"Salvador Shareholders' Agreement" shall have the meaning set forth in
Section 2(a)(ix).
"Salvador Shares" shall have the meaning set forth in Section
2(a)(viii).
"Salvador Subscription Agreement" shall have the meaning set forth in
Section 2(a)(viii).
"SEC" shall have the meaning set forth in Section 4(r).
"Securities" shall have the meaning set forth in Section 3(e).
"Securities Act" shall have the meaning set forth in Section 3(e).
"Series C Shares" shall have the meaning set forth in Section 2(a)(i).
"Series C Warrant" shall have the meaning set forth in Section
2(a)(iv).
"Shareholders' Parties" shall have the meaning set forth in the first
recital of the CCI Shareholder's Agreement.
"Subsequent Closing" shall have the meaning set forth in Section 2(a).
"Subsequent Closing Date" shall mean the date on which the Subsequent
Closing occurs.
"Subsidiary" shall mean any Person that is Controlled by the Company.
The Persons listed in clause 1(d) of Section 4(c) of the Disclosure
Letter (except Comunicaciones Centurion S.A.) shall be included within
the meaning of the term "Subsidiary".
"Target Value" means an amount determined as of a given time that is
equal to the greater of (a) twice the Going-In Value or (b) an amount
that, when discounted to the Going-In Value from the date of
calculation to the Closing Date yields a return equal to the daily
equivalent of 40% per annum or greater, calculated on the basis of a
365 day year for the number of days elapsed.
"TCW" shall have the meaning set forth in the preamble.
"Telecommunications Business" shall have the meaning set forth in the
recital.
"Telematica" shall have the meaning set forth in the preamble
"Transaction Documents" shall have the meaning set forth in Section
2(a).
"Transaction Resulting in a Change of Interest" is a transaction
engaged in by the Company or any Subsidiary as a result of which the
rights or preferences of the Shareholder Parties derived from their
holding of Company Equity are reduced, the ownership interests of the
Shareholder Parties in the Company (or, indirectly, in any Subsidiary)
relative to each other are changed, representation provided in Section
5 of the CCI Shareholders' Agreement are adversely affected, or their
right of Shareholder Parties to participate in corporate governance as
provided in Section 6 of the CCI Shareholders' Agreement are limited.
"U.S. Securities Law" means the Securities Act and all other federal
securities laws of the United States and the securities laws of its
separate states, together with the regulations issued pursuant thereto.
"WCI" shall mean WCI de Cayman, Inc., a Cayman Islands limited
liability company.
OPTION AGREEMENT
THIS OPTION AGREEMENT ("Agreement") is entered into as of the 18th day
of October, 1999, between Convergence Communications, Inc., a Nevada corporation
("Grantor") in favor of Telematica EDC, C.A. ("Telematica"), TCW/CCI Holding LLC
("TCW"), International Finance Corporation ("IFC"), Glacier Latin-America Ltd.
("Glacier"), FondElec Essential Services Growth Fund, L.P. ("FondElec") and
Internexus S.A. ("Internexus"). Each of Telematica, TCW, IFC, Glacier, FondElec
and Internexus is sometimes referred to as a "Grantee" and collectively as the
"Grantees". The Grantor and the Grantees are referred to collectively herein as
the "Parties" and singularly as a "Party". Capitalized terms used and not
otherwise defined herein shall have the meanings ascribed thereto in that
certain Participation Agreement dated as of October 15, 1999, to which the
Grantor and Grantees are parties (the "Participation Agreement").
WHEREAS, pursuant to the terms of the Participation Agreement,
Telematica, TCW, IFC and Glacier have each agreed to purchase Series C Shares,
and FondElec and Internexus have each agreed to convert certain debt of the
Grantor into Series C Shares;
WHEREAS, the Grantees wish to reserve for themselves the right to
acquire further Series C Shares and the Grantor is prepared to grant such right
under this Agreement; and
WHEREAS, the execution of this Agreement is one of a series of
transactions set out in the Participation Agreement which are to occur
simultaneously at the Closing.
NOW, THEREFORE, the Parties agree as follows:
1. Grant of Option. Grantor hereby grants to each Grantee, and each
Grantee hereby accepts from Grantor, an option (the "Option") to
acquire, during the period set forth in paragraph 3, up to the number
of shares of the Grantor's Series C Preferred Stock, par value $.001
per share (collectively, the "Option Shares"), as is set forth below:
(a) to Telematica, 40% of the aggregate number of Series C Shares
actually acquired by it under the terms of the Participation
Agreement, which shall be 1,333,333 Option Shares, if
Telematica purchases all of the Series C Shares allocated to
it under the Participation Agreement;
(b) to TCW, 40% of the aggregate number of Series C Shares
actually acquired by it under the terms of the Participation
Agreement, which shall be 1,333,333 Option Shares, if TCW
purchases all of the Series C Shares allocated to it under the
Participation Agreement;
(c) to IFC, 40% of the number of Series C Shares actually acquired
by it under the terms of the Participation Agreement, which
shall be 266,667 Option Shares, if IFC purchases all of the
Series C Shares allocated to it under the Participation
Agreement;
(d) to Glacier, 40% of the aggregate number of Series C Shares
actually acquired by it under the terms of the Participation
Agreement, which shall be 160,000 Option Shares, if Glacier
purchases all of the Series C Shares allocated to it under the
Participation Agreement;
(e) to FondElec, 40% of the aggregate number of Series C Shares
actually acquired by it under the terms of the Participation
Agreement, which shall be 266,666 Option Shares if FondElec
purchases all of the Series C Shares allocated to it under the
Participation Agreement; and
(f) to Internexus, 40% of the aggregate number of Series C Shares
actually acquired by it under the terms of the Participation
Agreement, which shall be 531,564 Option Shares, if Internexus
purchases all of the Series C Shares allocated to it under the
Participation Agreement.
2. Exercise of Option. Subject to the satisfaction of the condition
precedent set forth in Section 6(c)(iii) of the Participation Agreement
in the case of any exercise by Telematica or TWC of its Option, a
Grantee may, at any time and from time to time during the term of its
Option, as set forth in paragraph 3 below, exercise its Option in whole
or in part by delivering written notice to Grantor designating the
number of Option Shares that it elects to purchase, together with the
full purchase price therefor in immediately available funds. The
purchase price for each Option Share shall be, subject to adjustments
as provided in paragraph 7 below, Seven and 50/100 United States
Dollars (U.S. $7.50). Any Option Shares acquired by a Grantee hereunder
shall be entitled to the benefit of the Registration Rights Agreement
among Grantor and Grantees of even date herewith, and shall be subject
to the rights and duties imposed thereunder. Upon the delivery to
Grantor of the consideration for the Option Shares so exercised,
Grantor shall deliver to the exercising Grantee a certificate or
certificates representing the Option Shares containing restrictive
legends substantially in the form of those legends set forth in Section
3 of the Participation Agreement. Upon their issuance, the Option
Shares shall be deemed validly issued and fully paid and non-assessable
shares of Grantor's Series C Convertible Preferred Stock, subject to no
liens, charges or encumbrances other than those arising under the terms
of the Participation Agreement and the CCI Shareholders' Agreement
entered into pursuant to the Participation Agreement.
3. Term of Option. Each Grantee's Option shall terminate at 5:00 PM U.S.
Eastern Time on July 18, 2000.
4. Representations and Warranties. Each exercising Grantee shall be
deemed, by its exercise, to affirm the representations and warranties
set forth in Sections 3(e), 3(f) and 3(g) of the Participation
Agreement as to the Option Shares as to which its Option is exercised
and, upon issuance of the Series C Preferred Stock pursuant to any such
exercise, the Grantor shall be deemed to affirm the representations and
warranties set forth in Sections 4(a), 4(b), 4(c), 4(d), 4(f) (except
that an expenditure in accordance with the Business Plan, or Budget or
as approved by the Grantor's board of directors, shall not be
considered a material adverse change), 4(j), 4(k), 4(t) and, to the
extent the exercise relates to the IFC, 4(z).
5. Reservation of Stock. Grantor shall, at all times while the Options are
effective, reserve and keep available out of the designated Series C
Convertible Preferred Stock of Grantor, for the purpose of issuance on
the exercise of the Options provided for herein, such number of shares
of such Series C Convertible Preferred Stock as shall, from time to
time, be sufficient to permit the exercise of each Option in whole.
6. Restrictions on Exercise. No Option may be exercised unless such
exercise is in compliance with U.S. Securities Law.
7. Adjustment. If an Option is exercised subsequent to any stock dividend,
split-up, recapitalization, merger, consolidation, combination or
exchange of shares, separation, reorganization or liquidation of the
Grantor occurring after the date hereof, as a result of which shares of
any class shall be issued in respect of outstanding shares of capital
stock of the Grantor (or shall be issuable in respect of securities
convertible into shares of capital stock) or upon exercise of rights
(other than the Options) to purchase shares of capital stock, or shares
of such capital stock shall be changed into the same or a different
number of shares of Series C Convertible Preferred Stock or another
class or classes, the Grantee exercising the Option shall receive, for
the aggregate price paid upon such exercise, the aggregate number and
class of shares which such Grantee would have received if this Option
had been exercised immediately prior to such stock dividend, split-up,
recapitalization, merger, consolidation, combination or exchange of
shares, separation, reorganization or liquidation.
8. Non-Transferability of the Option and Rights of Grantee. A Grantee's
Option may be exercised only by that Grantee, and no Grantee may
transfer its Option in any manner except it may make such a transfer to
a Person who would be permitted to receive a Transfer of Company Equity
from such Grantee under the Shareholders Agreement. No Grantee shall
have any rights as a shareholder with respect to any Option Shares to
be acquired hereunder unless and until that Grantee exercises its
Option with respect to such Option Shares.
9. Rights and Obligations Part of Series of Transactions. The Parties
acknowledge and agree that the rights and obligations provided for in
this Agreement are part of a series of transactions which, pursuant to
the Participation Agreement, are subject to certain conditions
precedent as provided therein, and are being entered into in reliance
on certain representations and warranties and covenants of
indemnification set out in the Participation Agreement (which
indemnification obligations shall be deemed incorporated herein).
Unless and until such conditions are satisfied or waived, and these
representations and warranties are made, all in the manner provided for
in the Participation Agreement, no Party shall have any rights or
obligations hereunder.
10. Further Assurances. At the request of any Party hereto, each Party to
this Agreement hereby agrees, without the payment of additional
consideration, to execute, deliver, file and verify any and all
documents, instruments or agreements necessary or appropriate to
effectuate the intent of the parties in entering into this Agreement.
11. Notices. Any notice required or permitted hereunder shall be effected
(and deemed effected) in the manner set forth for giving notice in the
Participation Agreement.
12. Governing Law; Dispute Resolution. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York,
United States of America, without giving effect to any choice or
conflict of law provision or rule that would cause the application of
laws of any jurisdiction other than the State of New York except to the
extent this Agreement would require the mandatory application of the
corporate law of the State of Nevada. All disputes arising under or
relation to this Agreement shall first be subject to conciliation in
accordance with the Rules of Conciliation of the International Chamber
of Commerce and, failing conciliation, be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with said Rules. The place of
arbitration shall be New York, New York. The language of the
arbitration shall be English. In the event any dispute under the
Participation Agreement relates in any way to the validity, performance
or interpretation of this Agreement and an arbitral tribunal is
constituted pursuant to Section 11(n) of the Participation Agreement,
all parties to any dispute hereunder agree (i) to be joined to the
procedures initiated pursuant to Section 11(n) of the Participation
Agreement; (ii) to have any proceedings initiated hereunder
consolidated with proceedings initiated pursuant to Section 11(n) of
the Participation Agreement and (iii) to be bound by any ruling of the
arbitral tribunal constituted pursuant to Section 11(n) of the
Participation Agreement or any interim or final award thereof.
Submission of disputes to arbitration pursuant to the Rules of
Arbitration of the International Chamber of Commerce, in consolidation
with any disputes submitted to arbitration pursuant to Section 11(n) of
the Participation Agreement as provided above, shall be the sole method
of resolving disputes between the Parties hereto. Judgment upon an
arbitration award may be entered in any court having jurisdiction.
IN WITNESS WHEREOF, each party has executed this Agreement as of the
date set forth above.
CONVERGENCE COMMUNICATIONS, INC.
By: /s/ Lance D'Ambrosio
--------------------------------
Its:
--------------------------------
TELEMATICA EDC, C.A.
By: /s/ Norberto Corredor
--------------------------------
Its:
--------------------------------
TCW/CCI HOLDING LLC
By: /s/ Mario L. Baeza
--------------------------------
Its:
--------------------------------
INTERNATIONAL FINANCE CORPORATION
By:
--------------------------------
Its:
--------------------------------
GLACIER LATIN-AMERICA LTD.
By: /s/ David Liebman
--------------------------------
Its:
--------------------------------
FONDELEC ESSENTIAL SERVICES
GROWTH FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By: /s/ Gaston Acosta-Rua
--------------------------------
Its:
--------------------------------
INTERNEXUS S.A.
By: /s/ Peter Schiller
--------------------------------
Its: Duly Authorized
--------------------------------
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO THE SECURITIES OR "BLUE
SKY" LAWS OF ANY STATE. SUCH SECURITIES MAY NOT BE OFFERED, SOLD, TRANSFERRED,
PLEDGED, HYPOTHECATED OR OTHERWISE ASSIGNED IN THE UNITED STATES, EXCEPT
PURSUANT TO (i) A REGISTRATION STATEMENT WITH RESPECT TO SUCH SECURITIES WHICH
IS EFFECTIVE UNDER SUCH ACT, (ii) RULE 144 OR RULE 144A UNDER SUCH ACT, OR (iii)
ANY OTHER EXEMPTION FROM REGISTRATION UNDER SUCH ACT, PROVIDED THAT, IF
REQUESTED BY THE COMPANY, AN OPINION OF COUNSEL REASONABLY SATISFACTORY IN FORM
AND SUBSTANCE IS FURNISHED TO THE COMPANY THAT AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT IS AVAILABLE.
Series C
Warrant No. 2 For the Purchase of 500,000
Shares of Common Stock
WARRANT FOR THE PURCHASE OF
SHARES OF COMMON STOCK
OF
CONVERGENCE COMMUNICATIONS, INC.
(A Nevada corporation)
Convergence Communications, Inc., a Nevada corporation ("Company"),
hereby certifies that TCW/CCI Holding LLC ("Investor"), or its registered
assigns of this Warrant ("Registered Holder"), is entitled, subject to the terms
set forth below, to purchase from the Company Five Hundred Thousand (500,000)
fully paid and nonassessable shares of common stock (subject to adjustment as
set forth in Section 5 below), $.001 par value ("Common Stock"), of the Company
at an exercise price determined as set out in Section 2 below, subject to
adjustment as set forth in Section 5 below. The shares of Common Stock issuable
upon exercise of this Warrant ("Warrant"), and the exercise price hereunder for
each of such shares, each as adjusted from time to time pursuant to the
provisions of this Warrant, are hereinafter referred to as the "Warrant Shares"
and the "Per Share Exercise Price", respectively.
The issue of this Warrant is one of a series of transactions
contemplated to occur under a certain Participation Agreement among the Company,
Investor, and certain other parties thereto and dated October 15, 1999
("Participation Agreement"). Capitalized terms used in this Warrant and not
otherwise defined herein shall have the meaning given them in the Participation
Agreement.
1. Exercise.
(a) This Warrant may be exercised by the Registered Holder, in
whole or in part, at any time and from time to time during the
period from the date hereof through 5:00 p.m. New York time on
October 18, 2003 (the "Exercise Period"), provided that events
have occurred that permit the Per Share Exercise Price to be
determined as set out in Section 2, by surrendering this
Warrant, with the purchase form appended hereto as Exhibit A
duly executed by the Registered Holder, at the principal
office of the Company, or at such other office or agency as
the Company may designate, together with the purchase price
for such shares, which may be paid in cash, or in the manner
provided for in Section 3, provided, however, that if the Per
Share Exercise Price is determined as set out in Section 2(c),
then the Warrant shall be deemed to be exercised in its
entirety on the last day of the Exercise Period, and within 10
Business Days thereafter or, if later, within five Business
Days after the Company's demand therefor, the Registered
Holder shall surrender this Warrant, with the purchase form
appended hereto as Exhibit A duly executed by the Registered
Holder, at the principal office of the Company, or at such
other office or agency as the Company may designate, together
with the purchase price for such shares, which may be paid in
cash, or in the manner provided for in Section 3.
(b) Each exercise of this Warrant shall be deemed to have been
effected immediately prior to the close of business on the day
on which the Warrant shall have been exercised as provided in
subsection 1(a) above. At such time, the Person or Persons in
whose name or names any certificates for Warrant Shares shall
be issuable upon such exercise as provided in subsection 1(c)
below, shall be deemed to have become the holder or holders of
record of the Warrant Shares represented by such certificates.
(c) As soon as practicable after the exercise of this Warrant in
whole or in part, and in any event within 20 calendar days
after the Per Share Exercise Price shall have been paid, the
Company at its expense will cause to be issued in the name of,
and delivered to, the Registered Holder, or, subject to the
terms and conditions hereof, as such Registered Holder (upon
payment by such Registered Holder of any applicable transfer
taxes) may direct:
(i) a certificate or certificates for the number of full
Warrant Shares to which such Registered Holder shall
be entitled upon such exercise plus, in lieu of any
fractional share to which such Registered Holder
would otherwise be entitled, cash in an amount
determined pursuant to Section 6 hereof; and
(ii) in case such exercise is in part only, a new warrant
(dated the date hereof) of like tenor, calling in the
aggregate on the face thereof for a number of Warrant
Shares equal to the number of such shares called for
on the face of this Warrant, minus the number of such
shares previously issued pursuant to any exercise of
the Warrant.
Determination of Exercise Price. The Per Share Exercise Price shall be
determined as follows, in each case, subject to adjustment as set out
in Section 5:
(a) If a Realized Valuation Event occurs prior to the last day of
the Exercise Period then, if the value per share of the Common
Stock as evidenced by the Realized Valuation Event (without
taking into consideration the number of shares of Common Stock
issuable under this or the other Series C Warrants, but taking
into consideration the number of such shares issuable under
all other warrants, convertible securities and options then
outstanding) (the "Realized Value Before") is an amount that,
when discounted to the Going-In Value from the date of the
Realized Valuation Event to the Closing Date (based on a 365
day year), yields a return equal to the daily equivalent of
45% per annum or greater, then the Per Share Exercise Price
shall be equal to the Realized Value Before. Otherwise, the
Per Share Exercise Price shall be determined as provided in
Section 2(b).
(b) If the Realized Value Before is not sufficient to provide the
yield as set out in Section 2(a), then the Per Share Exercise
Price shall be a price less than the Realized Value Before,
which price (the "Lower Price") shall be determined such that:
(i) the sum of (A) the number of shares of Common Stock
into which all of the Series C Preferred Stock
acquired by the Investor at the Closing is
convertible multiplied by the value of the Common
Stock as evidenced by the Realized Valuation Event
(taking into consideration the number of shares of
Common Stock issuable under this and all other
warrants, convertible securities and options then
outstanding) (the "Realized Value After"), plus (B)
the number of Warrant Shares multiplied by the
difference between the Realized Value After and the
Lower Price,
(ii) when discounted from the date of the Realized
Valuation Event to the Closing Date (based on a 365
day year for the number of days elapsed) to an amount
equal to the aggregate purchase price of all the
Series C Preferred Stock acquired by the Investor at
the Closing,
yields a return equal to the daily equivalent of 45% per
annum, provided that the Lower Price shall not be greater than
the Realized Value After nor less than U.S. $0.01. An example
of such a calculation is set out as Schedule 1 to this
Warrant.
(c) If a Realized Valuation Event fails to occur prior to the last
day of the Exercise Period, then the Per Share Exercise Price
shall be U.S.$0.01.
Cashless Exercise.The Registered Holder may elect to pay the Per Share Exercise
Price (a) by surrender to the Company of shares of Common Stock which
have been held by the Registered Holder for at least six months, and
which have a fair value, on the date of exercise, equal to the Per
Share Exercise Price for the number of Warrants exercised, (b) by
surrender to the Company of shares of Series C Convertible Preferred
Stock with a Realized Value After, determined on an as converted basis,
equal to the Per Share Exercise Price for the number of Warrant Shares
exercised, (c) by surrender to the Company of this Warrant (as provided
in Section 4 below) or (d) by a combination of cash and/or any of the
securities described in clauses (b), (c) or (d) of this Section 3.
Conversion Rights. The Registered Holder shall have the right to convert Warrant
or any portion thereof (the "Conversion Right") into Warrant Shares as
provided in this Section, but only if this Warrant shall otherwise be
exercisable hereunder.
Upon exercise of the Conversion Right with respect to a particular
number of Warrant Shares (the "Converted Warrant Shares"), the Company
shall deliver to the Registered Holder (without payment by the
Registered Holder of any cash or other consideration) a number of
Warrant Shares determined as follows:
(a) a quotient is obtained by dividing
(i) the difference between (A) the Realized Value After
(but, if the Conversion Right is exercised after the
date on which the Realized Valuation Event occurs,
the higher of the Realized Value After and the fair
value of the Common Stock as of the date of exercise)
and (B) the Per Share Exercise Price, by
(ii) the Realized Value After (or, if the Conversion Right
is exercised after the date on which the Realized
Valuation Event occurs, the higher of the Realized
Value After and the fair value of the Common Stock),
and
(b) then the quotient is multiplied by the number of Converted Warrant
Shares.
Adjustments. The number and kind of securities issuable upon the exercise of
this Warrant and the Per Share Exercise Price shall be subject to
adjustment from time to time in accordance with the following
provisions.
(a) Certain Definitions. For purposes of this Warrant:
(i) The term "Additional Shares of Common Stock" shall
mean all shares of Common Stock issued, or deemed to
be issued by the Company pursuant to subsection (e)
of this Section 5, after the Subsequent Closing Date,
as that term is defined in the Participation
Agreement or, if no Subsequent Closing, as defined in
the Participation Agreement, takes place, the first
date of issuance of this Warrant (the "Original Issue
Date") except:
(A) issuances of Common Stock, convertible
Securities and/or Options to officers,
employees, consultants or directors;
provided that such issuances pursuant to
this clause (A) in the aggregate do not
exceed more than 10% of the shares of Common
Stock outstanding, as determined on a
fully-diluted basis (the "Management
Securities"); and
(B) issuances of Common Stock, Convertible
Securities, warrants and/or Options granted
or approved to be granted by the Board on or
prior to the Original Issue Date.
(ii) The term "Common Stock" shall mean (A) the Common
Stock and (B) the stock of the Company of any class,
or series within a class, whether now or hereafter
authorized, which has the right to participate in the
distribution of either earnings or assets of the
Company without limit as to the amount or percentage.
(iii) The term "Convertible Securities" shall mean any
evidence of indebtedness, shares or other securities
(other than the Series C Warrants, the
FundElec/Internexus Warrants and the Series C Shares)
convertible into or exercisable or exchangeable for
Common Stock.
(iv) The term "Options" shall mean any and all rights,
options or warrants (other than the Management
Securities, the Series C Warrants, the
FondElec/Internexus Warrants and the Series C Shares)
to subscribe for, purchase or otherwise in any manner
acquire Common Stock or Convertible Securities.
(b) Merger or Subdivision or Combination of Shares. In the event
of a merger or consolidation to which the Company is a party
prior to a given exercise of this Warrant, the securities
issuable upon the exercise of this Warrant shall, after such
merger or consolidation, be exercisable into such kind and
number of shares of stock and/or other securities, cash or
other property which the Registered Holder would have been
entitled to receive if the Registered Holder had exercised
this Warrant prior to such consolidation or merger. If
outstanding shares of Common Stock are subdivided, or a record
is taken of the holders of Common Stock for the purpose of so
subdividing, prior to a given exercise of this Warrant, the
Per Share Exercise Price applicable to the shares issuable
upon such exercise shall be reduced proportionately and the
number of shares issuable pursuant to this Warrant shall be
proportionately increased. If outstanding shares of Common
Stock are combined, or a record is taken of the holders of
Common Stock for the purpose of so combining, prior to a given
exercise of this Warrant, the Per Share Exercise Price
applicable to the shares issuable upon such exercise shall be
increased proportionately and the number of shares issuable
pursuant to this Warrant shall be proportionately decreased.
(c) Stock Dividends. If shares of Common Stock are issued as a
dividend or other distribution on the Common Stock (or such
dividend or distribution is declared or a record is taken of
the holders of Common Stock for the purpose of receiving such
dividend or distribution), prior to a given exercise of this
Warrant, the Per Share Exercise Price applicable to the
Warrant Shares issuable upon such exercise shall be adjusted
to an amount determined by multiplying the Per Share Exercise
Price otherwise applicable by a fraction (i) the numerator of
which shall be the number of shares of Common Stock
outstanding immediately prior to the declaration or payment of
such dividend or other distribution, and (ii) the denominator
of which shall be the total number of shares of Common Stock
outstanding immediately after the declaration or payment of
such dividend or other distribution and the number of Warrant
Shares issuable pursuant to this Warrant shall be adjusted to
a number determined by multiplying the number of Warrant
Shares by the inverse of that fraction. In the event that the
Company shall declare or pay any dividend on the Common Stock
payable in any right to acquire Common Stock for no
consideration, then the Company shall be deemed to have made a
dividend payable in Common Stock in an amount of shares equal
to the maximum number of shares issuable upon exercise of such
rights to acquire Common Stock.
(d) Issuance of Additional Shares of Common Stock. If the Company
issues any Additional Shares of Common Stock (including
Additional Shares of Common Stock deemed to be issued pursuant
to subsection (e) below) prior to a given exercise of this
Warrant (other than as provided in the foregoing subsections
(b) and (c)), for no consideration or for a consideration per
share less than the Per Share Exercise Price otherwise
applicable to the shares issuable upon such exercise, the Per
Share Exercise Price shall be reduced to a price equal to the
price at which the Additional Shares of Common Stock were
issued.
(e) Deemed Issue of Additional Shares of Common Stock. If the
Company at any time or from time to time after the date hereof
issues any Convertible Securities or Options or fixes a record
date for the determination of holders of any class of
securities then entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as
set forth in the instrument relating thereto without regard to
any provisions contained therein designed to protect against
dilution) of Common Stock issuable upon the exercise of such
Options, or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible
Securities, shall be deemed to be Additional Shares of Common
Stock issued as of the time of such issue of Options or
Convertible Securities or, in case such a record date shall
have been fixed, as of the close of business on such record
date, provided that in any such case in which Additional
Shares of Common Stock are deemed to be issued:
(i) no further adjustments in the Per Share Exercise
Price shall be made by reason of the subsequent issue
of Convertible Securities or shares of Common Stock
upon the exercise of such Options or the issue of
Common Stock upon the conversion or exchange of such
Convertible Securities; and
(ii) if such Options or Convertible Securities by their
terms provide, with the passage of time or otherwise,
for any increase or decrease in the consideration
payable to the Company, or increase or decrease in
the number of shares of Common Stock issuable, upon
the exercise, conversion or exchange thereof, the Per
Share Exercise Price computed taking into account the
original issuance of such Options or Convertible
Securities (or upon the occurrence of a record date
with respect thereto), and any subsequent adjustments
based thereon, by reason of any such increase or
decrease becoming effective, shall be recomputed to
reflect such increase or decrease insofar as it
affects such Options or the rights of conversion or
exchange under such Convertible Securities (provided,
however, that no such adjustment of the Per Share
Exercise Price shall affect Common Stock previously
issued upon exercise of this Warrant).
(f) Determination of Consideration. For purposes of this Section
5, the consideration received by the Company for the issue of
any Additional Shares of Common Stock shall be computed as
follows:
(i) Cash and Property. Such consideration shall:
(A) insofar as it consists of cash, be the
aggregate amount of cash received by the
Company; and
(B) insofar as it consists of property other
than cash, be computed at the fair value
thereof at the time of the issue, as
determined in good faith by the vote of a
majority of the Board, or if the Board
cannot reach such agreement, by a qualified
independent public accounting firm, other
than the accounting firm then engaged as the
Company's independent auditors.
(ii) Options and Convertible Securities. The consideration
per share received by the Company for Additional
Shares of Common Stock deemed to have been issued
pursuant to subsection (e) above, relating to Options
and Convertible Securities, shall be determined by
dividing:
(A) the total amount, if any, received or
receivable by the Company as consideration
for the issue of such Options or Convertible
Securities, plus the minimum aggregate
amount of additional consideration (as set
forth in the instruments relating thereto,
without regard to any provision contained
therein designed to protect against
dilution) payable to the Company upon the
exercise of such Options or the conversion
or exchange of such Convertible Securities,
or in the case of Options for Convertible
Securities, the exercise of such Options for
Convertible Securities and the conversion or
exchange of such Convertible Securities, by
(B) the maximum number of shares of Common Stock
(as set forth in the instruments relating
thereto, without regard to any provision
contained therein designed to protect
against dilution) issuable upon the exercise
of such Options or conversion or exchange of
such Convertible Securities.
(g) Other Provisions Applicable to Adjustment Under this Section.
The following provisions shall be applicable to the
adjustments in Per Share Exercise Price as provided in this
Section 5:
(i) Treasury Shares. The number of shares of Common Stock
at any time outstanding shall not include any shares
thereof then directly or indirectly owned or held by
or for the account of the Company.
(ii) Other Action Affecting Common Stock. If the Company
shall take any action affecting the outstanding
number of shares of Common Stock other than an action
described in any of the foregoing subsections 5(b)
through 5(e) hereof, inclusive, which would have an
inequitable effect on the holders of this Warrant,
then the Per Share Exercise Price shall be adjusted
in such manner and at such time as the Board on the
advice of the Company's independent public
accountants may in good faith determine to be
equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the Per Share
Exercise Price shall be made if the amount of any
such adjustment would be an amount less than one
percent (1%) of the Per Share Exercise Price then in
effect, but any such amount shall be carried forward
and an adjustment in respect thereof shall be made at
the time of and together with any subsequent
adjustment which, together with such amount and any
other amount or amounts so carried forward, shall
aggregate an increase or decrease of one percent (1%)
or more.
(iv) Certain Adjustments. The Per Share Exercise Price
shall not be adjusted upward except in the event of a
combination of the outstanding shares of Common Stock
into a smaller number of shares of Common Stock or in
the event of a readjustment of the Per Share Exercise
Price.
(h) Adjustment to Lowest Price. The Company acknowledges and
agrees that the foregoing provisions of this Section 5 may
require adjustments to be made in response to various
circumstances, which adjustments may result in varying
calculations of the Per Share Exercise Price, and that,
notwithstanding any of such foregoing provisions, the Per
Share Exercise Price applicable upon a given exercise of this
Warrant shall, in any case, be the lowest of the amounts so
calculable up to the date of exercise.
(i) Notices of Adjustments. Whenever the Per Share Exercise Price
is adjusted as herein provided, an officer of the Company
shall compute the adjusted Per Share Exercise Price in
accordance with the foregoing provisions and shall prepare a
written certificate setting forth such adjusted Per Share
Exercise Price and showing in detail the facts upon which such
adjustment is based, and such written instrument shall
promptly be delivered to the recordholders of this Warrant.
Fractional Shares. The Company shall not be required upon the exercise of this
Warrant to issue any fractional shares, but shall make an adjustment
therefor in cash on the basis of the mean between the low bid and high
asked prices for the Warrant Shares on the over-the-counter market as
reported by the National Association of Securities Dealers, Inc. or the
closing market price of the Warrant Shares on a national securities
exchange on the trading day immediately prior to the date of exercise,
whichever is applicable, or if neither is applicable, then on the basis
of the then fair market value of a Warrant Share as shall be reasonably
determined by the Board.
Limitation on Sales, etc. The Registered Holder acknowledges that this Warrant
and the Warrant Shares have not been registered under the Securities
Act of 1933, as amended (the "Act"), and agrees, except as specified in
the proviso hereto, not to sell, pledge, distribute, offer for sale,
transfer or otherwise dispose of this Warrant or any Warrant Shares
issued upon its exercise in the absence of (a) an effective
registration statement under the Act as to this Warrant or the Warrant
Shares issued upon its exercise or both, as the case may be, and
registration or qualification of this Warrant or such Warrant Shares
under any applicable Blue Sky or state securities law then in effect,
or (b) an opinion of counsel, satisfactory to the Company, that such
registration and qualification are not required; provided that the
Registered Holder may transfer this Warrant at any time to any of its
affiliates.
Without limiting the generality of the foregoing, unless the offering
and sale of the Warrant Shares to be issued upon the exercise of the
Warrant shall have been effectively registered under the Act and unless
the sale is to an affiliate of the Registered Holder, the Company shall
be under no obligation to issue the shares covered by such exercise
unless and until the Registered Holder shall have executed an
investment letter in form and substance reasonably satisfactory to the
Company, including a warranty at the time of such exercise that it is
acquiring such shares for its own account, for investment and not with
a view to, or for sale in connection with, the distribution of any such
shares, in which event a legend in substantially the following form
shall be endorsed upon the certificate(s) representing the Warrant
Shares issued pursuant to such exercise:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
pursuant to the securities or "Blue Sky" laws of any state.
Such securities may not be offered, sold, transferred,
pledged, hypothecated or otherwise assigned, except pursuant
to (i) a registration statement with respect to such
securities which is effective under such Act, (ii) Rule 144 or
Rule 144A under such Act, or (iii) any other exemption from
registration under such Act, provided that, if requested by
the Company, an opinion of counsel reasonably satisfactory in
form and substance is furnished to the Company that an
exemption from the registration requirements of such Act is
available.
Valid Issuance; Reservation of Stock. All shares of Common Stock issuable
upon the exercise of this Warrant shall, upon issuance by the Company,
be validly issued, fully paid and nonassessable, free from preemptive
rights and free from all taxes, liens or charges with respect thereto
created or imposed by the Company. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the
exercise of this Warrant, such Warrant Shares and other stock,
securities and property, as from time to time shall be issuable upon
the exercise of this Warrant and shall, if required to effect the
purposes of this Warrant, use its best efforts to cause the
authorization of additional capital stock of the Company through the
amendment of the Company's articles of incorporation or otherwise.
Replacement of Warrants. Upon receipt of evidence reasonably satisfactory to the
Company of the loss, theft, destruction or mutilation of this Warrant
and (in the case of loss, theft or destruction) upon delivery of an
indemnity agreement in an amount reasonably satisfactory to the
Company, or (in the case of mutilation) upon surrender and cancellation
of this Warrant, the Company will issue, in lieu thereof, a new Warrant
of like tenor.
Transfers, etc. The Registered Holder acknowledges and agrees that this Warrant
and its underlying securities are subject to certain restrictions on
transfer set forth in the CCI Shareholders' Agreement, as that term is
defined in the Participation Agreement, and that any transfer of this
Warrant shall be subject to the Registered Holder's compliance with
such transfer restrictions. The Company will maintain a register
containing the names and addresses of the Registered Holders of this
Warrant. Any Registered Holder may change its, his or her address as
shown on the warrant register by written notice to the Company
requesting such change. Until any transfer of this Warrant is made in
the warrant register, the Company may treat the Registered Holder of
this Warrant as the absolute owner hereof for all purposes and shall
not be bound to recognize any equitable or other claim to or interest
in this Warrant on the part of any other person; provided, however,
that if and when this Warrant is properly assigned in blank, the
Company may (but shall not be obligated to) treat the bearer hereof as
the absolute owner hereof for all purposes, notwithstanding any notice
to the contrary.
Registration Rights. This Warrant shall entitle the Registered Holder of this
Warrant to the registration, holdback, piggyback and other rights set
forth in the Amended and Restated Registration Rights Agreement dated
as of the date hereof by and among the Holder, certain other Persons,
and the Company, by which the Registered Holder agrees to be bound.
Mailing of Notices, etc. All notices and other communications from the Company
to the Registered Holder of this Warrant shall be mailed by first-class
certified or registered mail, postage prepaid, sent by reputable
overnight delivery or by facsimile to the address furnished to the
Company in writing by the last Registered Holder of this Warrant who
shall have furnished an address to the Company in writing. All notices
and other communications from the Registered Holder of this Warrant or
in connection herewith to the Company shall be mailed by first-class
certified or registered mail, postage prepaid, sent by reputable
overnight delivery or by facsimile (801-532-6060) to the Company at its
offices at 102 West 500 South, Suite 320, Salt Lake City, Utah 84101,
to the attention of President, or such other address, or to the
attention of such other officer, as the Company shall so notify the
Registered Holder.
No Rights as Stockholders. Until the exercise of this Warrant, the
Registered Holder of this Warrant shall not have or exercise any rights
by virtue hereof as a stockholder of the Company.
Change or Waiver. Any term of this Warrant may be changed or waived only by an
instrument in writing signed by the party against whom enforcement of
the change or waiver is sought.
Headings.The headings of this Warrant are for purposes of reference only and
shall not limit or otherwise affect the meaning of any provision of
this Warrant.
Governing Law. This Warrant will be governed by and construed in accordance with
the law of the State of New York including Section 5-1401 of the New York
General Obligations Law. All disputes arising under or relation to this Warrant
shall first be subject to conciliation in accordance with the Rules of
Conciliation of the International Chamber of Commerce and, failing conciliation,
be finally settled under the Rules of Arbitration of the International Chamber
of Commerce by three arbitrators appointed in accordance with said Rules. The
place of arbitration shall be New York, New York. The language of the
arbitration shall be English. In the event any dispute under the Participation
Agreement relates in any way to the validity, performance or interpretation of
this Warrant and an arbitral tribunal is constituted pursuant to Section 11(n)
of the Participation Agreement, all parties to any dispute hereunder agree (i)
to be joined to the procedures initiated pursuant to Section 11(n) of the
Participation Agreement; (ii) to have any proceedings initiated hereunder
consolidated with proceedings initiated pursuant to Section 11(n) of the
Participation Agreement and (iii) to be bound by any ruling of the arbitral
tribunal constituted pursuant to Section 11(n) of the Participation Agreement or
any interim or final award thereof. Submission of disputes to arbitration
pursuant to the Rules of Arbitration of the International Chamber of Commerce,
in consolidation with any disputes submitted to arbitration pursuant to Section
11(n) of the Participation Agreement as provided above, shall be the sole method
of resolving disputes between the Parties hereto. Judgment upon an arbitration
award may be entered in any court having jurisdiction.
Dated: October 18, 1999 CONVERGENCE COMMUNICATIONS, INC.
By: /s/ Troy D'Ambrosio
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
PURCHASE FORM
To: Convergence Communications, Inc.
102 West 500 South
Suite 320
Salt Lake City, Utah 84101
Dated:
In accordance with the provisions set forth in the attached Warrant,
the undersigned hereby irrevocably elects to purchase _________ shares of the
Common Stock covered by such Warrant and herewith makes payment therefor in full
at the price per share provided for in such Warrant.
The undersigned has had the opportunity to ask questions of and receive
answers from the officers of the Company regarding the affairs of the Company
and related matters, and has had the opportunity to obtain additional
information necessary to verify the accuracy of all information so obtained.
The undersigned understands that the shares have not been registered
under the Securities Act of 1933, as amended, or the securities laws of any
other jurisdiction, and hereby represents to the Company that the undersigned is
acquiring the shares for its own account, for investment, and not with a view
to, or for sale in connection with, the distribution of any such shares.
Signature
Address
CCI SHAREHOLDERS' AGREEMENT
THIS CCI SHAREHOLDERS' AGREEMENT is made as of October 18, 1999, (this
"Agreement"), by and among TELEMATICA EDC, C.A., a Venezuelan sociedad anonima,
("Telematica"), TCW/CCI HOLDING LLC, a Delaware limited liability company
("TCW"), INTERNATIONAL FINANCE CORPORATION, an international organization
established by Articles of Agreement among its member countries ("IFC"), GLACIER
LATIN-AMERICA LTD., a British Virgin Islands International Business Company
("Glacier"), THE ESTATE OF GEORGE D'AMBROSIO, LANCE D'AMBROSIO and TROY
D'AMBROSIO (the latter three sometimes in the aggregate referred to as the
"D'Ambrosio Parties"), FONDELEC GROUP INC., a Delaware corporation ("FondElec
Group"), PEGASUS FUND, L.P., a New York limited partnership ("Pegasus"),
FONDELEC ESSENTIAL SERVICES GROWTH FUND, L.P., a Cayman Islands limited
partnership ("FESGF", together with FondElec Group and Pegasus sometimes in the
aggregate referred to as "FondElec"), INTERNEXUS S.A., an Argentine sociedad
anonima ("Internexus"), and CONVERGENCE COMMUNICATIONS, INC., a Nevada
corporation (the "Company", all the foregoing sometimes referred to collectively
as the "Parties" and individually as a "Party").
R E C I T A L S
WHEREAS, Telematica, TCW, IFC, Glacier, the D'Ambrosio Parties,
FondElec and Internexus (each a "Shareholder Party" and collectively the
"Shareholder Parties") are shareholders of the Company, each of Telematica, TCW,
IFC and Glacier having acquired its interests in the Company, and each of
FondElec and Internexus having acquired certain of its interests in the Company,
pursuant to a certain Participation Agreement (the "Participation Agreement")
among them, the D'Ambrosio Parties and the Company dated October 15, 1999, and
the entering into this Agreement being also contemplated in the Participation
Agreement;
WHEREAS, the Parties intend that this Agreement cover (i) the shares of
stock of the Company held, legally or beneficially, by any Shareholder Party as
of the date hereof, which shares are as set out in Schedule 1 (the "Present
Shares"), (ii) the shares of stock of the Company acquired by any Shareholder
Party on the exercise of any warrant, option or other similar right, held
legally or beneficially by any Shareholder Party as of the date hereof, which
warrant, option or other rights are as set out in Schedule 1 (the "Share
Rights"), and (iii) any shares of stock of the Company that are presently
outstanding and which may be acquired directly or indirectly from time to time
by any Shareholder Party (the "Further Shares"). The Present Shares, the Further
Shares and the shares of stock acquired by any Shareholder Party from time to
time on the exercise of any Share Rights are referred to herein in the aggregate
as the "Company Shares", and the Company Shares, together with the Share Rights,
are referred to in the aggregate as the "Company Equity".
WHEREAS, as an inducement for Telematica, TCW, IFC, Glacier, FondElec
and Internexus to acquire interests in the Company pursuant to the Participation
Agreement, the Parties have agreed as to the manner in which the Company shall
be managed and the manner in which the Shareholder Parties may dispose of their
interests in Company Equity; and
WHEREAS on December 23, 1998, the D'Ambrosio Parties (or their
predecessors in interest), Pegasus, FESGF and Internexus entered into a certain
Stockholders' Agreement (the "Prior Agreement") among them with respect to the
same matters, and they now wish to substitute the Prior Agreement in its
entirety with this Agreement.
NOW, THEREFORE, the Parties agree as follows:
1. Definitions.
Capitalized Terms used herein but not defined herein shall have the
meaning given to them in the Schedule of Definitions to the
Participation Agreement, being Schedule 1 thereto.
2. Restriction on Transfer Prior to Realized Valuation Event. No
Shareholder Party may Transfer (as that term is defined in Section 4
below) the entirety or any part of its Company Equity, unless and until
there has occurred one of the following events (each, a "Realized
Valuation Event"):
(a) all the Shareholder Parties, acting together, Transfer their
Company Equity for cash consideration, or for securities of
another company that are registered and freely tradeable
pursuant to a registration statement filed with and declared
effective by the SEC under U.S. Securities Law and listed on a
Recognized Exchange ("Publicly Traded Securities") (such a
Transfer being herein referred to as a "Qualified
Disposition"), or
(b) there occurs a registered public offering of the Company's
securities under U.S. Securities Law, the shares of a class of
the Company's securities so registered are approved for
listing on a Recognized Exchange, the net proceeds of the
offering obtained by the Company are not less than Seventy
Five Million United States Dollars (U.S. $75,000,000) and the
offering is managed by a lead underwriter of international
standing (a "Qualified Public Offering").
3. Tag-Along Rights. Upon the happening of a Qualified Disposition, this
Agreement shall terminate as contemplated in Section 18, and thus the
Shareholder Parties shall have no further restrictions on the Transfer
of their respective Company Equity. However, if there occurs a
Qualified Public Offering, the Parties shall have the following rights
and obligations with respect to the Transfer of any of their Company
Equity, for a period of three years following the Qualified Public
Offering.
(a) Notice. If a Shareholder Party ("Transferor") intends to
Transfer any of its Company Shares ("Tag Shares") to any
Person, the Transferor shall give each other Shareholder Party
("Optionee") notice of the Transferor's intent to so transfer,
setting out in reasonable detail the terms and conditions of
the proposed transaction.
(b) Exercise. Any Optionee may elect to exercise its rights under
this Section 3 by its written notice to the Transferor given
not more than 15 Business Days after receipt of the notice
given as required in Section 3(a), setting out the number of
its Company Shares that such Optionee desires to transfer
pursuant to this Section 3. Thereupon, the Transferor shall be
obligated to cause its intended transferee to acquire from the
Optionee, and the Optionee shall be obligated to transfer to
the intended transferee, on the same terms and conditions and
at the same time as any of the Tag Shares are transferred,
(except that any Optionee may elect to transfer rights to
acquire Company Shares on the exercise of warrants, provided
that it does not receive any premium therefor) the lesser of
(A) the number of Company Shares specified in the Optionee's
notice, or (B) a number of Company Shares equal to the product
of a fraction having as its numerator the number of Company
Shares that the Optionee owns or has the right to acquire on
the exercise of warrants and as its denominator the aggregate
of Company Shares that the Transferor, and all Optionees
having elected to exercise rights under this Section 3 owns or
has the right to acquire on the exercise of warrants,
multiplied by the number of Tag Shares.
(c) Closing on Tag Transaction. Upon the closing of any transfer
by an Optionee as contemplated in this Section 3, the Optionee
shall deliver the instruments representing the same, duly
endorsed so as to effect transfer thereof by delivery.
(d) Excluded Transfers. A Shareholder Party may Transfer, free and
clear of the provisions of this Section 3: (i) any Company
Shares pursuant to an effective registration statement,
provided such Company Shares are sold on a Recognized
Exchange; and provided further that no negotiations have
occurred between such Shareholder Party or its agents and any
proposed buyer or their respective agents, including without
limitation, an underwriter; (ii) such number of its Company
Shares as is permitted to be disposed of by "affiliates" under
Rule 144 of the U.S. Securities Laws, in each case, subject to
the volume and other limitations set forth in Rule 144; or
(iii) rights under warrants for the purchase of Company
Shares.
4. Provisions Generally Applicable to Transfers.
(a) Applicability of Sections 2 and 3. The rights, obligations and
restrictions set out in Sections 2 and 3:
(i) apply to Company Equity (or, in the case of Section
3, to Company Shares) presently owned or hereafter
acquired by a Shareholder Party, or by the successor
of any Shareholder Party or a Related Party;
(ii) apply (subject to the limitations of clauses (iii)
and (iv) below) to any direct or indirect
disposition, including, within that concept and
without limitation, a sale, bequest, exchange,
assignment or gift, the creation of any security
interest or other encumbrance, a transfer in
connection with a receivership, bankruptcy,
insolvency, dissolution, liquidation, judicial
determination of incompetency or similar proceeding,
and any other disposition of any kind, whether
voluntary or involuntary, and however accomplished
(including, among other means, by way of merger,
recapitalization, share exchange or other
extraordinary corporate action), affecting title to
or possession of any Company Equity ("Transfer");
(iii) do not apply (A) to transfers to be made by a
Shareholder Party to a Control Affiliate, or (B) (1)
in the case of a transfer by FondElec or a successor
to FondElec, to an entity that has as a general
partner, a Person that is Controlled by, FondElec
Group or an entity which Controls, is Controlled by
or under Common Control with FondElec Group, (2) in
the case of a transfer by TCW or a successor to TCW,
to an entity that has as a general partner, a Person
that is Controlled by, TCW/Latin America Partners LLC
or an entity which Controls, is Controlled by or
under Common Control with TCW/Latin America Partners
LLC, (3) in the case of a transfer by Telematica to
an entity that is a Control Affiliate of Corporacion
EDC, C.A. or of C.A. Electricidad de Caracas and, (4)
in the case of a transfer by Glacier or a successor
to Glacier, to an entity that has as an investment
advisor, Fenway Capital Ltd. or an entity which
Controls, is Controlled by or under Common Control
with Fenway Capital Ltd. (in any case, such Control
having been evidenced to the reasonable satisfaction
of the other Shareholder Parties), or (C) in the case
of Internexus, to transfers of interests in
Internexus made to a spouse, or to a relative within
the first degree of consanguinity, of any of the
current holders of Internexus or to trusts or similar
estate planning vehicles for the benefit of any of
them, or (D) in the case of any of the D'Ambrosio
Parties, to transfers made to a spouse or to a
relative within the first degree of consanguinity, or
to trusts or similar estate planning vehicles for the
benefit of any of them (any entity or person
described in this clause (iii), a "Related Party");
and
(iv) do not apply to the transfer of Common Stock upon
exercise by the optionee of the "Diamond D Options"
or of the "Continental LLC Option" which are
described in Schedule 1 hereto.
(b) Restructure or Disassociation.
(i) If, during the term of this Agreement, a Shareholder
Party (the "Proposing Party") in its reasonable
discretion determines that its continued investment
in the Company and/or the Company's subsidiaries, as
the investment may be structured from time to time,
exposes the Proposing Party to substantial claims
from third parties or other legal or regulatory
process that results in substantial burdens or
liability arising from arrangements or circumstances
existing as of the date hereof or changes in law or
regulation after the date hereof, (a "Trigger Event")
then, at the Proposing Party's request, the other
Shareholder Parties (the "Responding Parties") and
the Proposing Party shall exercise reasonable,
diligent and timely efforts to restructure their
respective investments so as to remove or mitigate
the risk of liability to the Proposing Party while
preserving the Proposing Party's investment, provided
that the Responding Parties need not agree to the
restructuring if it would (a) reduce the rights or
preferences that the Responding Parties had prior to
the restructuring, (b) change the relative aggregate
ownership interests in the enterprise that the
Responding Parties had prior to the restructuring,
(c) reduce the rights of representation or
participation in corporate governance that the
Responding Parties enjoy by virtue of the CCI
Shareholders' Agreement, (d) create any substantial
liability on the Responding Parties for which that
the Proposing Party does not agree to be responsible,
(e) reduce the overall value of the Responding
Parties' investment, (f) substantially reduce the
likelihood of a Qualified Disposition or a Qualified
Public Offering, or (g) otherwise adversely affect
the Company, any Subsidiary or the Responding
Parties, except in immaterial respect.
(ii) If the Proposing Party makes, in its sole discretion,
a good faith determination that a restructuring, as
contemplated by the preceding paragraph, would
involve terms and conditions (economic or otherwise)
not satisfactory to the Proposing Party, then the
Proposing Party may cease to be obligated to continue
funding the Company or any of its subsidiaries and
may dispose of the entirety of its interest in the
Company (the "Proponent's Interest") as provided in
the following clauses (A) through (D): (A) if the
Proposing Party holds any direct equity right or
interest or an interest or right convertible or
exchangeable into an equity interest in a subsidiary
of the Company; the Proposing Party first, with the
good faith cooperation of the Company, shall have
exchanged such interest for Common Stock of the
Company at fair value (as determined pursuant to
Section 12 (b)) or otherwise caused the transferee to
acquire only Common Stock of the Company; (B) the
Proposing Party shall negotiate to dispose of its
interest in the following order, in each case for a
reasonable time, first, to the Company, then, on a
pro rata basis, to the other Shareholder Parties or
such of them as wish to purchase the entirety of the
Proponent's Interest, next, to the third party
designated by the majority of the other Shareholder
Parties, and last, to one or more third parties,
except that if the transfer to a third party is
proposed to occur on terms and conditions
substantially equal or more favorable to the third
party than negotiated with any of the other
Shareholder Parties or their designee, the
Shareholder Parties may elect to purchase at that
price, or their designee may do so; (C) each
transferee of the Proponent's Interest adheres to the
CCI Shareholders' Agreement in its entirety (and
shall have the benefit of all the rights and
privileges available to the Proposing Party with
respect to its Company Equity, including the
Registration Rights Agreement and the other
Transaction Documents, except that if the transferee
is a Shareholder Party, it shall not have the benefit
of designating a greater number of directors than it
had prior to the transfer); and (D) each transferee,
in the good faith opinion of the Responding Parties,
is reputable, creditworthy and not a substantial
competitor of the Company or its Subsidiaries. The
tag along rights under Section 3 of the CCI
Shareholders Agreements shall not apply to a transfer
under this Agreement.
(iii) The Parties acknowledge and agree that the Proposing
Party shall have no liability to the other Parties
under any Transaction Document for any (i) loss or
damages to or suffered by the other Parties flowing
from the Proposing Party's need to restructure or
sell pursuant to this Section, or the restructuring
or sale itself, or (ii) the consequences of the
restructuring or sale, including any loss or damages
to or suffered by other Parties flowing from or that
result from such restructuring or sale, such as the
loss of funding commitments associated with the
Proposing Shareholder, the loss of the Proposing
Party's ability to support the Company and its
subsidiaries, and loss of reputation and prestige
associated therewith, provided that the Proposing
Party shall indemnify the Responding Parties for the
reasonable out-of-pocket expenses incurred by the
Responding Parties, and any out-of-pocket damages
against the Responding Parties assessed against them,
as a result of claims by third parties who may bring
the substantial claims or other legal process
referred to above. The Parties further acknowledge
and agree that the restructuring or mere
disassociation of the Proposing Party from all or a
part of its investment as originally structured will
not, in and of itself, be or be deemed to result in
any loss to the other Parties or be taken into
account in determining whether the overall value of
the Responding Parties' investment has been reduced
for purposes of clause (e) of the first paragraph of
this Section.
(iv) In no event shall the Proposing Party be liable for
damages other than direct out-of-pocket damages, and
therefore will not be responsible for other damages
such as loss of profits, indirect, consequential,
special or punitive damages.
(v) If a Qualified Disposition Event occurs at any time
after a Trigger Event, then, except for transactions
previously consummated under this Section 4(b), the
right to restructure under Section 4(b)(i) and the
right to dispose under Section 4(b)(ii) will expire,
but not the other rights under this Section 4(b),
including the right to cease funding under Section
4(b)(ii) and the provisions of Sections 4(b)(iii) and
4(b)(iv).
(c) Acknowledgment of Agreement Required. Prior to making any
Transfer of Company Equity to a Related Party other than
pursuant to the provisions of paragraph 3(d), the transferring
Shareholder Party shall cause the transferee to execute, and
deliver to each other Party, a copy of this Shareholders'
Agreement so as to bind the transferee as a Shareholder Party
for all purposes of this Shareholders' Agreement, and to
assume all of the obligations and liabilities of the
transferring Shareholder Party, from and after the date of the
Transfer.
(d) Certain Transfers Void. Any purported Transfer of Company
Equity contrary to this Agreement shall be null and void, and
the Shareholder Parties shall cause the Company not to
recognize the Transfer.
5. Formation of Board of Directors. The Parties shall take such actions as
are necessary or appropriate so that upon the Closing the board of
directors of the Company ("Board of Directors") is constituted of five
members and, as promptly as practicable following the Closing, the
Company's Articles of Incorporation are amended so as to provide that
the Board of Directors shall be constituted of ten members. At each
election of directors, each Shareholder Party shall vote its Company
Shares for the election as members of the Board of Directors of the
following:
(a) one person, while the Board of Directors is constituted of
five members, and two persons, when the Board of Directors is
constituted of ten members, designated by FondElec, Pegasus,
FESGF and, if any, the immediate or subsequent Related Party
transferees thereof, as they may agree among themselves (the
"FondElec Group");
(b) one person, while the Board of Directors is constituted of
five members, and two persons, when the Board of Directors is
constituted of ten members, designated by Internexus, and, if
any, the immediate or subsequent Related Party transferees
thereof, as they may agree among themselves (the "Internexus
Group");
(c) one person, while the Board of Directors is constituted of
five members, and two persons, when the Board of Directors is
constituted of ten members, designated by the Estate of George
S. D'Ambrosio, Lance D'Ambrosio and Troy D'Ambrosio and, if
any, the immediate or subsequent Related Party transferees
thereof as they may agree among themselves (the "D'Ambrosio
Group");
(d) one person, while the Board of Directors is constituted of
five members, and two persons, when the Board of Directors is
constituted of ten members, designated by Telematica and, if
any, the immediate or subsequent Related Party transferees
thereof, as they may agree among themselves (the "Telematica
Group"); and
(e) one person, while the Board of Directors is constituted of
five members, and two persons, when the Board of Directors is
constituted of ten members, designated by TCW and, if any, the
immediate or subsequent Related Party transferees thereof, as
they may agree among themselves (the "TCW Group").
Each Shareholder Party agrees to vote its Company Shares, and
take such other actions as are necessary, so as to elect and thereafter
continue in office as members of the Board of Directors the designees
set forth above (the "Designated Directors", each group of shareholders
described in any of Sections 5(a) through 5(e) being referred to as a
"Group"). Further, as to each of IFC and Glacier, so long as it does
not Transfer (other than pursuant to Section 4(a)(iii)) any Company
Equity received pursuant to the transactions contemplated by the
Participation Agreement, it shall be entitled to receive notices of all
meetings of the Board of Directors, and copies of the minutes thereof,
and be permitted to designate a person from time to time by notice to
the Company to be present so as to observe (but not participate in)
such meetings.
Immediately prior to any Qualified Public Offering (or, if no
Qualified Public Offering has occurred prior to the seventh anniversary
of the Closing, immediately prior to such seventh anniversary), the
Shareholder Parties shall take all actions necessary or appropriate so
that the terms of the members of the Board of Directors are staggered
in a manner such that four directors serve three-year terms, three
directors serve two-year terms and three directors serve one-year
terms, and so that one director designated by each of the Internexus
Group, the Telematica Group, the TCW Group and the D'Ambrosio Group
comprise the directors serving three-year terms, two directors
designated by the FondElec Group, and one director designated by the
Telematica Group, comprise the directors serving two-year terms, and
one director designated by each of the Internexus Group, the TCW Group
and the D'Ambrosio Group comprise the directors serving one-year terms.
6. Corporate Governance.
(a) Ordinary Matters. The Board of Directors of the Company shall
make all decisions with respect to the business or operations
of the Company by a simple majority vote of the directors
present at a meeting duly called and continuing as to all
matters, except that, as to those matters described in Section
6(b) through Section 6(e), the Company shall take no action
with respect thereto until it has obtained the approval as
described in those sections.
(b) Extraordinary Matters. The Company shall not proceed with any
of the following matters unless a director designated by each
of the number of Groups indicated following the description of
the matter are among the directors approving the matter:
(i) the selection of the persons to fill the positions of
chief executive officer, chief technical officer,
chief operating officer and chief financial officer
of the Company or any Subsidiary, and the
continuation of any of such person in his or her
position after any Shareholder Party has expressed
reservations, set out in writing and with reasonable
substantiating information supporting its position,
to the effect that the person has failed to carry out
the duties of the position in a competent manner,
three Groups;
(ii) the adoption of an annual budget for the operation of
the Company and its Subsidiaries (the Parties
confirming their agreement to the adoption of the
Budget attached to the Participation Agreement as the
budget for the 12 month period following the date
hereof and confirming also that (1) while the Budget
assumes greenfield development of expansion
opportunities, if any such opportunities can more
efficiently be carried out by acquisition, they are
agreeable to an acquisition structure and that (2)
each budget shall include a provision for
transactions not specifically foreseen in the
budget), or the approval of any transaction or
related series of transactions, not provided for in
the current budget or that varies from the current
budget by a significant degree, including, without
limitation:
(A) entering into or amending Material
Contracts, except for those that substitute
for earlier contracts or licenses on similar
terms;
(B) making capital expenditures or other
investments (a variance of 10% of budgeted
cost, or, if less, $500,000, being deemed
significant);
(C) disposing of any assets (a variance of 10%
of the budgeted disposition value or, if
less, $500,000, being deemed significant);
(D) incurring any debt or granting any guarantee
or lien for fair value (a variance of 10% of
budgeted principal or guaranteed or secured
amount, or, if less, $500,000, being deemed
significant);
(E) entering into a merger, consolidation or
other restructuring, or a joint venture,
profit sharing agreement or similar
arrangement in any case other than a
Transaction Resulting in a Change of
Interest;
(F) issuing or failing to issue dividends or
making pro rata stock repurchases or other
prorata distributions; and
(G) engaging in any business activity outside
the scope of business contemplated in the
then current budget,
(H) entering into any transaction described in
subsections (B), (C) and (D) above not
provided for in the current budget or
varying therefrom in any amount which would
cause the aggregate variance with respect to
such transactions to exceed $1,000,000.
or the decision to decline any corporate opportunity
that is identified in the then current budget, four
Groups;
(iii) issuing securities for fair value, three Groups;
unless the same constitutes a Transaction Resulting
in a Change of Interest, in which case approval as
provided in Section 6(b)(vi) or 6(c)(i) shall be
required;
(iv) the adoption of a change in accounting principles
affecting the Company or any Subsidiary having a
significant effect on financial results, except to
the extent required by GAAP or Applicable Law, four
Groups;
(v) the approval to conduct a Qualified Public Offering,
four Groups, unless the purchase price of the
Company's securities in such offering evidences a
value per share of Common Stock (taking into account
the number of shares issuable in connection with such
offering and all warrants and options remaining
outstanding upon the effectiveness of the offering)
equal to or greater than the Target Value, in which
case the number of Groups shall be three;
(vi) a Transaction Resulting in a Change of Interest or
the sale of all or substantially all of the assets of
the Company or any Subsidiary, provided that, as a
result thereof, the Shareholder Parties Transfer all
of their Company Equity, and each receives, in
consideration thereof, a prorata portion of cash
and/or Publicly Traded Securities, four Groups, if
the value per share of Common Stock as evidenced by
such transaction (taking into consideration the
number of shares issuable in connection with the
transaction and all warrants and options remaining
outstanding upon the effectiveness of the
transaction) is less than the Target Value, or three
Groups, if such value per share equals or exceeds the
Target Value.
(c) Consensus Matters. The Company shall not proceed with any of
the following matters unless a director designated by each
Group is among the directors approving the matter as provided
in Section 6(a):
(i) a Transaction Resulting in a Change of Interest or a
Transfer of all or substantially all of the assets of
the Company or any Subsidiary other than as
contemplated in Section 6(b)(v) or 6(b)(vi), or any
fundamental change in the nature of the business of
such company;
(ii) any transaction with any person or entity having a
significant relationship with any Shareholder Party,
other than on a reasonably arms' length basis;
(iii) the appointment or removal of the independent
auditors of the Company or any Subsidiary, which
should, in any case, be an internationally recognized
accounting firm;
(iv) the issuing of any securities other than for fair
value, or the taking of any action that creates,
increases or reduces a preference for one or more,
but not all, series or classes of capital stock of
the Company or any Subsidiary;
(v) increases or decreases in the size of the Board of
Directors in a manner that affects the rights of
representation set forth in this Agreement;
(vi) incurring any debt, granting any guarantee,
transferring assets or permitting any Encumbrance
thereon, or acting as a surety or guarantor for any
third party, in any such case other than for fair
value received;
(vii) making stock repurchases or other distributions other
than on a prorata basis;
(viii) taking any action that would amend, modify or restate
the Articles of Incorporation or Bylaws of the
Company or any Subsidiary or entering into any voting
or management agreement regarding the governance of
any Subsidiary other than to effect a transaction
expressly provided for in Section 6(b); and
(ix) the determination to cease to be a reporting company
under the provisions of the United States Securities
and Exchange Act of 1934, as amended.
(d) Related Party Transactions. If a transaction is sought to be
approved that will significantly benefit or involve any
Shareholder Party or any Affiliate of a Shareholder Party,
then, in addition to the approval requirements that may be
applicable pursuant to Sections 6(a), 6(b), or 6(c), as
appropriate, that matter will also require the approval of one
director designated by each Group constituting a majority
(without taking into account any Group having any relationship
to the transaction being approved).
(e) Calling of Meetings. The Board of Directors will not consider
any matter at a given meeting unless such matter was described
in sufficient detail to give reasonable notice thereof in the
notice of that meeting, or unless Designated Directors
corresponding to all the Groups are present at the meeting and
agree that the matter should be taken up.
(f) Governance of Subsidiaries. The Company will cause each
controlled Subsidiary to refrain from taking any action that
is described in Sections 6(a), 6(b) or 6(c) above, unless and
until the action has been approved by the Board of Directors
in the manner described in the appropriate section.
(g) Advisory Agreements. Promptly and diligently following the
Closing, the Company shall negotiate (i) with Telematica the
terms and conditions of a definitive agreement providing for
an experienced and skilled person designated by Telematica to
act as the Company's advisor with respect to strategic
planning, and (ii) with TCW the terms and conditions of a
definitive agreement providing for an experienced and skilled
person designated by TCW to act as the Company's advisor with
respect to technical matters, in each case providing for a
term continuing until a Qualified Disposition occurs or until
the third anniversary of a Qualified Public Offering (or, if
earlier, until the fifth anniversary of the Closing Date), and
in the case of Telematica, providing for annual compensation
not greater than $135,000 and, in the case of TCW, annual
compensation commensurate with the advisor's scope of work.
(h) Interest in CCI Salvador. As of the completion of the
transactions contemplated by the Participation Agreement to
occur on the Subsequent Closing with respect to CCI Salvador,
Fondelec will hold (i) the Salvador Note (having a remaining
principal balance of U.S.$1,269,491), (ii) 27.87% of the
issued and outstanding common stock of CCI Salvador (the
rights therein being affected by the transfer of voting rights
pursuant to, and FondElec having the other obligations and
rights as provided in, the Salvador Shareholders' Agreement),
(iii) rights under a certain Special Shareholders' Agreement
dated as of December 10, 1998, and (iv) rights under a certain
Warrant granted by CCI Salvador dated March 3, 1999
(collectively the "FondElec Salvador Interests"). The Parties
acknowledge and agree that it is in the Company's best
interests that the FondElec Salvador Interests be transferred
to the Company for fair consideration, and the Shareholder's
Parties agree further to cause the Company to negotiate
diligently and in good faith with FondElec the terms and
conditions for such transfer, and FondElec also agrees so to
negotiate, with an aim that the closing of such transaction
should occur simultaneously with the expiration of the period
provided for the exercise of options under the Option
Agreement. This Section 6(i) should be interpreted to be an
expression of intent only, and a commitment to negotiate
diligently and in good faith, the obligations of the Company
to acquire the FondElec Salvador Interests, and of FondElec to
transfer the same, being set out, if at all, only in the
definitive documentation between them incorporating the terms
and conditions to such transfer as are acceptable to them in
their discretion.
(i) No Waiver. No provision of Section 6 shall be deemed to waive,
abrogate or otherwise modify any dissenters' rights granted
under state law to the holders of Company Equity, if such
holders do not vote in favor of that matter.
(j) Increasing Authorized Shares. The Parties agree that if the
number of the Company's authorized and unissued shares of
Common Stock or other authorized securities shall ever be
insufficient to permit the Company to satisfy (i) its
obligation to issue Indemnity Shares pursuant to Section 7 of
the Participation Agreement, (ii) its obligation to issue and
deliver any securities upon the exercise by a Shareholder
Party of any Share Rights or (iii) to satisfy other
obligations to any Shareholder Party, they shall take such
actions (and, with respect to the Shareholder Parties, cast
such votes or grant such consents) as shall be required to
amend the Company's Articles of Incorporation to increase (as
necessary) the number of shares of Common Stock or other
securities, as appropriate which the Company is authorized to
issue.
7. Removal of Directors. Neither the Company nor any Shareholder Party may
attempt to remove a Designated Director unless the Group who designated
such Designated Director so votes, and if such Group so votes, then the
other Shareholder Parties shall likewise so vote, except that if there
is just cause to remove a Designated Director, because of improper acts
or similar reason, the Designated Director may be removed. If a
Designated Director ceases to serve as a director for any reason, the
vacancy resulting thereby shall be filled as promptly as practicable by
the Board of Directors in a manner consistent with the provisions of
this Agreement.
8. Fiduciary Obligations. The Shareholder Parties acknowledge that any
person who serves as a director of the Company will be obligated as a
fiduciary to the Company and its shareholders, as is more specifically
provided by the corporate statutes of the State of Nevada, which
require that directors satisfy a duty of care and loyalty to the
corporation on whose board they serve.
9. Joint Sale Agreement. If any third party offers to acquire all of the
Company Equity of all of the Shareholder Parties, in a bona-fide
arm's-length transaction for cash consideration in United States
Dollars, which transaction evidences that the value per share of Common
Stock (taking into account all warrants and options remaining
outstanding upon the effectiveness of the transaction) is equal to or
greater than the Target Value, and after reasonable consultation among
such Shareholder Parties three out of Telematica, TCW, the D'Ambrosio
Parties, FondElec and Internexus agree to such transaction (or if the
transaction evidences that such value per share is less than the Target
Value, four out of Telematica, TCW, the D'Ambrosio Group, FondElec and
Internexus agree to such transaction), all of the Shareholder Parties
shall be obligated to participate in the transaction, and shall with
respect to itself cause the same to occur, provided that the third
party acquires all of the Company Equity of each Shareholder Party on
the same terms and conditions each as the other, and at the same time.
Without limiting the obligation of the Parties to consummate the
transaction described in the foregoing section, the Parties will
consult reasonably with each other in connection with the timing of
such transactions.
10. Cooperation with an Underwriting. If the Board of Directors of the
Company, acting in the manner provided for in Section 6(a) and clauses
(v) or (vi) of Section 6(b), or the Shareholder Parties acting in the
manner provided for in Section 9, determine to proceed with a given
transaction, all the Shareholder Parties shall cooperate as necessary
or appropriate to cause such transaction to be effective, including,
without limitation, cooperating with the requirements of the lead
underwriter in any connection with any Qualified Public Offering.
11. Option to Sell or Purchase Interest in Subsidiaries.
(a) Right to Election. If the Board of Directors of the Company,
acting in the manner provided for in Section 6(a) and clause
(v) or (vi) of Section 6(b), or the Shareholder Parties acting
in the manner provided for in Section 9, determine to carry
out a transaction that they anticipate will result in a
Qualified Disposition and if at that time, Telematica has a
50% or greater equity interest in any Subsidiary or has a
right, whether by conversion of debt or otherwise, to acquire
a 50% or greater equity interest in any subsidiary (such
equity or right to acquire being herein referred to as a
"Shareholder Interest"), the Company shall provide Telematica
a written notice of the Company's good faith estimation of the
value of the aggregate of all equity interests in the
Subsidiary (the "Subsidiary Value"). Within 20 Business Days
following receipt of such notice, Telematica shall make an
irrevocable election, by its written notice to the Company,
either to purchase the Company's equity interest in the
Subsidiary (the "Company Interest"), or to sell to the Company
the Shareholder Interest in the Subsidiary, in each case
pursuant to this Section 11 (the "Put-Call Notice"). If that
20 Business Day period elapses without Telematica's having
delivered a Put-Call Notice, it shall be deemed to have
irrevocably elected to sell to the Company the Shareholder
Interest, and a Put-Call Notice to that effect shall be deemed
to have been given on the close of business of the 20th day of
such period.
(b) Election to Purchase. If Telematica makes an election to
purchase the Company Interest, the Company shall be obligated
to sell, and Telematica shall be obligated to purchase, all of
the Company Interest for an amount equal to the product of a
fraction having as its numerator the number of shares of
common stock to which the Company Interest is equivalent, and
as its denominator the total number of shares of common stock
of the Subsidiary to which the Subsidiary's equity then issued
and outstanding is equivalent, multiplied by the Subsidiary
Value ("Company Sale Price"), and Telematica shall be
obligated to purchase all of the Company Interest for the
Company Sale Price, payable in cash in United States Dollars.
(c) Election to Sell. If Telematica makes an election to sell the
Shareholder Interest, then, the Company shall be obligated to
purchase, and Telematica shall be obligated to sell, the
Shareholder Interest simultaneously with the closing of the
Qualified Disposition that was contemplated when the notice of
the Subsidiary Value was given (the "Exit Closing"), for a
consideration ("Company Purchase Consideration") equal to a
fraction of each item of consideration received by the Company
at the Exit Closing, which fraction:
(i) has as its numerator the product of the number of
shares of common stock to which the Owner's equity
interest in the Subsidiary is equivalent multiplied
by the Subsidiary Value; and
(ii) as its denominator the product of the total number of
shares of common stock of the Subsidiary to which the
Subsidiary's equity then issued and outstanding is
equivalent multiplied by the value of the
consideration received at the Exit Closing,
and the Owner shall be obligated to sell to the Company the
Shareholder Interest for such consideration.
(d) Purchase and Sale Agreement. The Company and Telematica shall,
beginning upon the giving of the Put-Call Notice, negotiate
diligently and in good faith the terms and conditions of a
definitive agreement providing for the purchase and sale of
the relevant interest in a Subsidiary, with an aim to entering
into such definitive agreement within 30 calendar days
following the Put-Call Notice. Such agreement shall include
provisions consistent with the foregoing:
(i) the selling party shall have no obligation to make
any representations or warranties to the purchasing
Party with respect to the assets, liabilities,
business or prospects of the Subsidiary;
(ii) the respective obligations of the Company and
Telematica to buy or sell shall be unconditional,
except that:
(A) a Party's performance shall depend on the
other Party's delivery of the appropriate
consideration;
(B) in the case of a transaction as described in
Section 11(b), Telematica may condition its
obligation to purchase on the occurrence of
the Exit Closing within six months following
the giving of the Put-Call Notice, and
(C) in the case of a transaction as described in
Section 11(c), each party's respective
obligations shall be conditioned on the
occurrence of the Exit Closing within six
months following the giving of the Put-Call
Notice;
(iii) the closing of the purchase and sale of the relevant
interest shall occur:
(A) in the case of a transaction as described in
Section 11(b), within 60 days following the
giving of the Put-Call Notice, or, if the
occurrence of the Exit Closing is a
condition to Telematica's obligation to
purchase, on the Exit Closing, and
(B) in the case of a transaction described in
Section 11(c), simultaneously with the Exit
Closing; and
(iv) the respective obligations of the Company and
Telematica to buy or sell shall be terminated prior
to the closing of the purchase and sale of the
relevant interest:
(A) in the case of a transaction as described in
Section 11(b), if Telematica has conditioned
its obligations to purchase on the
occurrence of the Exit Closing, if the Board
of Directors of the Company determines to
abandon the transaction that was
contemplated at the time the notice of
Subsidiary Value was given as provided in
Section 11(a), and
(B) in the case of a transaction as described in
Section 11(c), if the Board of Directors of
the Company makes such determination; and
(v) if, in the case of a transaction as described in
Section 11(b), Telematica has conditioned its
obligation to purchase on an Exit Closing, then,
simultaneously with the execution of the purchase and
sale agreement:
(A) Telematica shall deliver to the Company a
commitment of Corporacion EDC, C.A., or
other instrument reasonably acceptable to
the Company, in support of Telematica's
obligation to pay the Company Sale Price;
and
(B) the Company shall deposit the certificates
evidencing the Company Interest with an
escrow agent reasonably acceptable to both
Telematica and the Company, as security for
its obligation to sell the Company Interest;
and otherwise the purchase and sale agreement shall be on
terms as are customary in similar transactions. The provisions
of this Section 11(d) shall not limit the obligation of the
Parties to effect the transaction described in Section 11(b)
and 11(c).
12. Exchange of Subsidiary Interests. The provisions of this Section 12 are
intended to apply to Telematica's interest in any Subsidiary in which
it has a less than 50% interest (whether the same is an equity interest
or a right, by conversion of debt or otherwise, to acquire an equity
interest), upon the occurrence of a Qualified Disposition, and to
Telmatica's interest in any Subsidiary (whether the same is an equity
interest or a right, by conversion of debt or otherwise, to acquire an
equity interest) from and after the expiration of any lock-up period
imposed by the Company's underwriter upon the occurrence of a Qualified
Public Offering through the third anniversary of the Qualified Public
Offering (any such interest being hereafter referred to as a "Roll-Up
Interest" and the time at or during which this Section 12 applies being
hereafter referred to as the "Applicable Time").
(a) Agreement to Exchange. At or during the Applicable Time,
Telematica may require that the Company acquire the entirety
of any Roll-Up Interest by exchanging the Roll-Up Interest for
Common Stock, according to the fair value that the Roll-Up
Interest represents to the fair value of the Company
("Exchange Percentage") as determined in Section 12(b).
Telematica shall provide the Company with reasonable notice of
its intent to exercise its rights under this Section 12,
taking into account the time necessary for the determination
of fair values as provided for in Section 12(b).
(b) Determination of Exchange Percentage. The Exchange Percentage
shall be determined as of the date of closing of the exchange
transaction provided for in Section 12(a) according to the
following method: (A) first, the Company shall, at its
expense, engage an investment advisor of international
reputation as selected by the Company, to determine the
Exchange Percentage; (B) second, if the value is not
acceptable to Telematica, it shall, at its expense, engage an
investment advisor of international reputation as selected by
Telematica, to determine the Exchange Percentage, and if that
value is within 10% of the value determined in the first step,
then the average of the two values obtained in the first and
second steps shall be the Exchange Percentage; and (C) third,
if the value determined in the second step is not within 10%
of the value determined in the first, the Company and
Telematica shall select a third investment advisor of
international reputation, whose fees will be paid in equal
parts by the Company and Telematica, and the Exchange
Percentage shall be the average of the two nearest values
obtained in the first, second or third steps.
(c) Exchange Transaction. Upon the occurrence of the Qualified
Dispositions (or, if the exchange occurs after a Qualified
Public Offering, promptly following the determination of
Exchange Percentage), the Company shall issue to Telematica a
number of shares of Common Stock that correspond (taking into
account such issuance) to the Exchange Percentage. The issue
shall be without warranty except for customary warranties as
to authorization and title.
13. Successors and Assigns. Except as otherwise expressly provided herein,
this Agreement shall bind and inure to the benefit of the Parties and
their respective successors or heirs and personal representatives and
permitted assigns. The Parties express their intention that this
Agreement is entered into for the benefit of the Parties hereto (or
their respective successors or permitted assigns), and that no other
person shall be or be deemed to be a third-party beneficiary of any
Party's rights under this Agreement.
14. Relationship to Agreement. This Agreement supersedes all prior
arrangements or understandings with respect to the subject matter
hereof, including the Prior Agreement, and the Parties that are parties
thereto confirm that the same is terminated and of no further force and
effect. The entering into of this Agreement is one of a series of
transactions contemplated to occur under the Participation Agreement.
15. Notices. All notices, requests, consents and other communications
hereunder to any party shall be deemed to be sufficient if contained in
a written instrument delivered in person, by telecopy or recognized
international courier, addressed or telecopied to such party at the
address or telecopier number set forth in the Participation Agreement,
or such other address or telecopier number as may hereafter be
designated in writing by the addressee in a notice complying as to
delivery with the terms of this Section 15.
All such notices, requests, consents and communications shall
be deemed to have been given (a) in the case of personal or courier
delivery, on the date of actual delivery, or (b) in the case of telex
or telecopier transmission, on the date on which the sender receives
machine confirmation of such transmission.
16. Changes. The terms and provisions of this Agreement may not be modified
or amended, or any of the provisions hereof waived, temporarily or
permanently, except pursuant to express written agreement executed by
all the Parties.
17. Confidentiality. Each Party will hold in confidence and not disclose,
and cause its Affiliates, employees and agents (and, in the case of IFC
and Vision, their observers designated pursuant to Section 5) to hold
in confidence and not disclose, all of the Confidential Information of
each other Shareholder Party or the Company or any Subsidiary or any
affiliate of the other, and refrain from using any such information
except in furtherance of the business of the Company and its
Subsidiaries. As used herein, "Confidential Information" means any
information concerning the business and affairs of any Shareholder
Party or their Affiliates or of the Company or its Subsidiaries that is
not already known by or generally available to the public. If any Party
is requested or required (by oral question or request for information
or documents in any legal proceeding, interrogatory, subpoena, civil
investigative demand, or similar process) to disclose any Confidential
Information, that Party will notify the others promptly of the request
or requirement so that the others may seek an appropriate protective
order or waive compliance with the provisions of this Section.
18. Term. This Agreement is effective from and after the Closing, and shall
continue in effect until the earlier to occur of (a) the tenth
anniversary of the Closing (except, that IFC, by its written notice to
the other Parties delivered prior to the fifth anniversary of the
Closing, may elect that the Agreement should expire as to itself on
such fifth anniversary; provided, however, that any Transfer of Company
Shares by IFC after such expiration but prior to termination of this
Agreement shall be subject to a right of first refusal (i.e., prior to
Transfer IFC shall first receive a bona fide offer, notify other
Parties of the terms and conditions thereof and provide the other
Parties the right to acquire such Company Equity on such terms and
conditions for a period of at least 45 days)) or (b) a Qualified
Disposition. If a Qualified Public Offering occurs, (a) the provisions
of Sections 5, 6, 7, 9 and 10 shall be of no force and effect from and
after the happening of a Qualified Public Offering (except that the
advisory agreements entered into pursuant to Section 6(h) shall
continue for the term provided for in such section), and (b) this
Agreement shall otherwise continue in effect until the third
anniversary of the Qualified Public Offering. Upon the seventh
anniversary of the Closing, the provisions of Section 5, 6, 7, 9 and 10
shall be of no further force and effect. Notwithstanding any
termination pursuant to Section 18, the provisions of Section 17 shall
continue for a period of two years following such termination.
19. Counterparts. This Agreement may be executed in any number of
counterparts, and each such counterpart shall be deemed to be an
original instrument, but all such counterparts together shall
constitute but one agreement.
20. Headings. The headings of the various sections of this Agreement have
been inserted for convenience of reference only and shall not be deemed
to be part of this Agreement.
21. Severability. Any provision of this Agreement that is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability. Such
prohibition or unenforceability in any one jurisdiction shall not
invalidate or render unenforceable such provision in any other
jurisdiction.
22. Governing Law; Dispute Resolution. This Agreement shall be governed by
and construed in accordance with the laws of the State of New York,
United States of America, without giving effect to any choice or
conflict of law provision or rule that would cause the application of
laws of any jurisdiction other than the State of New York except to the
extent this Agreement would require the mandatory application of the
corporate law of the State of Nevada. All disputes arising under or
relating to this Agreement shall first be subject to conciliation in
accordance with the Rules of Conciliation of the International Chamber
of Commerce and, failing conciliation, be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with said Rules. The place of
arbitration shall be New York, New York. The language of the
arbitration shall be English. In the event any dispute under the
Participation Agreement relates in any way to the validity, performance
or interpretation of this Agreement and an arbitral tribunal is
constituted pursuant to Section 11(n) of the Participation Agreement,
all parties to any dispute hereunder agree (i) to be joined to the
procedures initiated pursuant to Section 11(n) of the Participation
Agreement; (ii) to have any proceedings initiated hereunder
consolidated with proceedings initiated pursuant to Section 11(n) of
the Participation Agreement and (iii) to be bound by any ruling of the
arbitral tribunal constituted pursuant to Section 11(n) of the
Participation Agreement or any interim or final award thereof.
Submission of disputes to arbitration pursuant to the Rules of
Arbitration of the International Chamber of Commerce, in consolidation
with any disputes submitted to arbitration pursuant to Section 11(n) of
the Participation Agreement as provided above, shall be the sole method
of resolving disputes between the Parties hereto. Judgment upon an
arbitration award may be entered in any court having jurisdiction.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONVERGENCE COMMUNICATIONS, INC.
By: /s/ Lance D'Ambrosio
--------------------------------
Its:
--------------------------------
TELEMATICA EDC, C.A.
By: /s/ Norberto Corredor
--------------------------------
Its:
--------------------------------
TCW/CCI HOLDING LLC
By: /s/ Mario L. Baeza
--------------------------------
Its:
--------------------------------
INTERNATIONAL FINANCE CORPORATION
By:
--------------------------------
Its:
--------------------------------
GLACIER LATIN-AMERICA LTD.
By: /s/ David Liebman
--------------------------------
Its:
--------------------------------
FONDELEC ESSENTIAL SERVICES
GROWTH FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By: /s/ Gaston Acosta-Rua
--------------------------------
Its:
--------------------------------
FONDELEC GROUP, INC.
By: /s/ Gaston Acosta-Rua
--------------------------------
Its:
--------------------------------
PEGASUS FUND, L.P.
By: Pegasus Management Corp.
Its: General Partner
By: /s/ Gaston Acosta-Rua
--------------------------------
Its:
--------------------------------
INTERNEXUS S.A.
By: /s/ Peter Schiller
--------------------------------
Its: Duly Authorized
--------------------------------
/s/ Lance D'Ambrosio
---------------------------------------
Lance D'Ambrosio
/s/ Troy D'Ambrosio
---------------------------------------
Troy D'Ambrosio
ESTATE OF GEORGE S. D'AMBROSIO
By: /s/ Lance D'Ambrosio
--------------------------------
Its:
--------------------------------
Schedule 1
List of Securities Issued by Convergence Communication, Inc.
AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT
THIS AMENDED AND RESTATED REGISTRATION RIGHTS AGREEMENT, dated as of
October 18, 1999 (this "Agreement"), is entered into by and among CONVERGENCE
COMMUNICATIONS, INC., a Nevada corporation (the "Company"), PEGASUS GROUP, L.P.,
("Pegasus"), FONDELEC ESSENTIAL SERVICES GROWTH FUND, L.P., a Cayman Islands
limited partnership ("FESGF"), INTERNEXUS S.A., an Argentine sociedad anonima
("Internexus"), TELEMATICA EDC, C.A., a Venezuelan compania anonima
("Telematica"), TCW/CCI HOLDING LLC, a Delaware limited liability company
("TCW"), INTERNATIONAL FINANCE CORPORATION, an international organization
established by Articles of Agreement among its member countries ("IFC"), GLACIER
LATIN-AMERICA LTD., a British Virgin Islands International Business Company
("Glacier"), and LANCE D'AMBROSIO, TROY D'AMBROSIO and the ESTATE OF GEORGE S.
D'AMBROSIO (collectively, the "D'Ambrosios"). Pegasus, FESGF, Internexus,
Telematica, TCW, IFC and Glacier are collectively referred to herein as the
"Purchasers" and each may be singularly referred to herein as a "Purchaser."
WHEREAS, Pegasus, FESGF, Internexus and the D'Ambrosios currently hold
shares of the Common Stock of the Company and all such parties other than the
D'Ambrosios currently hold Original Warrants (as defined below) to acquire
additional shares of the Common Stock of the Company, all as more particularly
described on Schedule 1 hereto;
WHEREAS, pursuant to the terms of those certain Registration Rights
Agreements dated February 4, 1997, December 23, 1998, June 15, 1999, August 6,
1999, September 3, 1999 and October 1, 1999 (the "Original Agreements"), the
Company granted Pegasus, FESGF and Internexus certain rights relating to the
registration by the Company of the Common Stock to be acquired by them under
such Original Warrants;
WHEREAS, pursuant to the terms of that certain Participation Agreement
dated October 15, 1999 among the Company and the Purchasers other than Pegasus
(the "Participation Agreement"), the Purchasers other than FondElec and
Internexus have agreed to acquire shares of the Company's Series C Preferred
Stock, options to acquire additional shares of Series C Preferred Stock, and
Series C Warrants (as defined below) for cash, and FESGF and Internexus have
agreed to convert certain amounts due them by the Company into shares of the
Company's Series C Preferred Stock, options to acquire additional shares of the
Company's Series C Preferred Stock, Series C Warrants (as defined below) and
FondElec/Internexus Warrants (as defined below);
WHEREAS, it is a condition precedent to the acquisition of those
securities by such Purchasers under the Participation Agreement that the Company
provide certain registration rights to them in accordance with the terms hereof;
WHEREAS, to facilitate the consummation of the transactions
contemplated by the Participation Agreement, the Company also desires to grant
to the D'Ambrosios certain registration rights;
WHEREAS, the parties desire that Telematica, TCW, IFC and Glacier join
in the execution of, and be granted, the registration rights granted Pegasus,
FESGF and Internexus pursuant to the Original Agreements and that, in connection
therewith, this Agreement be substituted in the place of, and replace in their
entirety, the Original Agreements; and
WHEREAS, the parties intend that this Agreement constitute the
"Registration Rights Agreement," as defined in the Participation Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and for
other good and valuable consideration, the adequacy and receipt of which are
hereby acknowledged, the parties hereto hereby agree that the Original
Agreements are hereby amended and restated in their entirety as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 Definitions. The following terms shall have the meanings ascribed to
them below:
"Agreement" means this Agreement, as amended, modified or supplemented
from time to time, in accordance with the terms hereof, together with any
exhibits, schedules or other attachments thereto.
"Business Day" means any day that is not a Saturday, Sunday or a day on
which banking institutions in New York, New York are authorized or obligated by
law, executive order or government decree to be closed.
"CCI Shareholders' Agreement" means the CCI Shareholders' Agreement, as
that term is defined in the Participation Agreement.
"Closing" has the meaning given it in the Participation Agreement.
"Closing Date" has the meaning given it in the Participation Agreement.
"Commission" means the United States Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, par value $.001 per share, of
the Company.
"Company" has the meaning ascribed thereto in the introduction hereof.
"Controlling Person" means a Controlling Person as defined in Section
4.1.
"Damages" means Damages as defined in Section 4.1.
"Demand Registration" means a Demand Registration as defined in Section
2.1.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission promulgated thereunder.
"FESGF" has the meaning ascribed thereto in the introduction hereof.
"FondElec/Internexus Warrants" means the FondElec/Internexus Warrants,
as that term is defined in the Participation Agreement.
"Glacier" has the meaning ascribed thereto in the introduction hereof.
"Holder" means any Person who now holds or shall hereafter acquire and
hold Registrable Securities.
"IFC" has the meaning ascribed thereto in the introduction hereof.
"Indemnified Party" means an Indemnified Party as defined in Section
4.3.
"Indemnifying Party" means an Indemnifying Party as defined in Section
4.3.
"Internexus" has the meaning ascribed thereto in the introduction
hereof.
"Market Price" means, with respect to the shares of Common Stock, (a)
if the shares are listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap Market,
the last reported sales price as reported on such exchange or market; (b) if the
shares are not listed or admitted for trading on any national securities
exchange or included in The Nasdaq National Market or Nasdaq SmallCap Market,
the average of the last reported closing bid and asked quotation for the shares
as reported on the National Association of Securities Dealers Automated
Quotation System ("NASDAQ") or a similar service if NASDAQ is not reporting such
information; (c) if the shares are not listed or admitted for trading on any
national securities exchange or included in The Nasdaq National Market or Nasdaq
SmallCap Market or quoted by NASDAQ or a similar service, the average of the
last reported bid and asked quotation for the shares as quoted by a market maker
in the shares (or if there is more than one market maker, the bid and asked
quotation shall be obtained from two market makers and the average of the lowest
bid and highest asked quotation). In the absence of any available public
quotations for the Common Stock, the Board of Directors of the Company shall
determine in good faith the fair value of the Common Stock, which determination
shall be set forth in a certificate by the Secretary of the Company.
"New Registrable Securities" means (i) the shares of Common Stock
issued or issuable upon exercise of the FondElec/Internexus Warrants or Series C
Warrants or upon the conversion of the Series C Convertible Preferred Stock
(whether acquired by a Purchaser under the terms of the Participation Agreement
at the Closing or Subsequent Closing, pursuant to the Option, or pursuant to
Section 7 of the Participation Agreement), (ii) the shares of Common Stock held
by FondElec and Internexus as of the date hereof or acquired by either of them
in the exercise of the Original Warrants or options described in Schedule 1
hereto, and (iii) any shares of Common Stock acquired as a result of stock
splits, stock dividends, reclassifications, recapitalizations, or similar events
relating to the shares described in clauses (i) and (ii) above.
"Old Registrable Securities" means (i) any shares of Common Stock held
by a Holder, as of the date hereof other than New Registrable Securities, and
(ii) any shares of Common Stock acquired as a result of stock splits, stock
dividends, reclassifications, recapitalizations, or similar events relating to
the shares described in clause (i) above.
"Option" means the nine month option to acquire Series C Preferred
Stock issued to Telematica, TCW, IFC, Glacier, FESGF and Internexus, as
described in the Participation Agreement.
"Original Warrants" means the warrants to acquire shares of Common
Stock issued to Pegasus, FESGF and Internexus in connection with the Original
Agreements.
"Pegasus" has the meaning ascribed thereto in the introduction hereof.
"Person" has the meaning given it in the Participation Agreement.
"Piggy-Back Registration" means a Piggy-Back Registration as defined in
Section 2.3.
"Prospectus" means the prospectus included in any Registration
Statement (including without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective Registration
Statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the securities covered by such Registration
Statement, and all other amendments and supplements to the prospectus, including
post-effective amendments, and all material incorporated by reference or deemed
to be incorporated by reference in such prospectus.
"Purchase Agreement" has the meaning ascribed thereto in the
introduction hereof.
"Purchasers" has the meaning ascribed thereto in the introduction
hereof.
"Registrable Securities" means New Registrable Securities and Old
Registrable Securities, in each case until such time as (x) a Registration
Statement covering such shares of Common Stock has been declared effective by
the Commission and such shares of Common Stock have been disposed of pursuant to
such effective Registration Statement, or (y) such shares of Common Stock would
be saleable pursuant to Rule 144 under the Securities Act (or any similar
provisions then in force) without regard to the volume limitations set forth in
Rule 144(e), or (z) such shares of Common Stock have been otherwise transferred
and the Company has delivered a new certificate or other evidence of ownership
for such Common Stock not bearing a restrictive legend and not subject to any
stop transfer or similar restrictive order and all of such Common Stock may be
resold by the Person receiving such certificate without complying with the
registration requirements of the Securities Act.
"Registration Statement" means any registration statement of the
Company filed under the Securities Act which covers any of the Registrable
Securities pursuant to the provisions of this Agreement, including the
Prospectus, amendments and supplements to such registration statement, including
post-effective amendments, all exhibits and all material incorporated by
reference in such registration statement.
"Request" means a Request as defined in Section 2.1(a).
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission promulgated thereunder.
"Selling Holder" means a Holder who is selling Registrable Securities
pursuant to a Registration Statement under the Securities Act.
"Selling Holders' Counsel" means the counsel selected to represent the
Selling Holders as set forth in Section 3.1(c).
"Series C Preferred Stock" means the Series C Convertible Preferred
Stock, par value $.001 per share, of the Company.
"Series C Warrants" means the warrants to acquire shares of Series C
Preferred Stock issued to FESGF, Internexus, Telematica, TCW, IFC and Glacier
under the terms of the Participation Agreement.
"Shareholder Parties" has the meaning given that term in the CCI
Shareholders' Agreement.
"Subsequent Closing" has the meaning given it in the Participation
Agreement.
"TCW" has the meaning ascribed thereto in the introduction hereof.
"Telematica" has the meaning ascribed thereto in the introduction
hereof.
"Underwriter" means a securities dealer who purchases any Registrable
Securities as principal in an underwritten offering and not as part of such
dealer's market-making activities.
ARTICLE 2
REGISTRATION RIGHTS
SECTION 2.1 Performance Part of Series of Transactions. The Parties acknowledge
and agree that the performance provided for in this Agreement is part
of a series of transactions which, pursuant to the Participation
Agreement, are to occur simultaneously and subject to certain
conditions precedent as provided for therein, including the Closing and
the execution of the CCI Shareholders' Agreement which, among other
things, provides for certain restrictions on transfer of the
Registrable Securities. The parties do not intend that this Agreement
diminish or otherwise modify the restrictions on transfer set forth in
the CCI Shareholders' Agreement, and this Agreement shall be construed
consistent with that intent.
SECTION 2.2 Demand Registration.
(a) Request for Registration. Subject to the limitations contained
in this Section 2.2(a), at any time after the first
anniversary of the Closing Date any Holder or Holders of an
aggregate of New Registrable Securities representing 20% or
more of all the New Registrable Securities may make written
requests (individually, a "Request") on the Company for the
registration of the offer and sale of some or all of the
Holders' New Registrable Securities under the Securities Act
(such registration being hereinafter referred to as a "Demand
Registration"). Subject to the penultimate sentence of Section
2.2(b), the Company shall have no obligation to effect more
than three (3) Demand Registrations. Any Request will specify
the number of New Registrable Securities proposed to be sold
and the intended method(s) of disposition thereof and shall
also state the intent of the Holder to offer New Registrable
Securities for sale. The Company shall give written notice of
such Request within 10 days after the receipt thereof to all
other Holders. Within 20 days after receipt of such notice by
any such Holder, such Holder may request in writing that all
or any portion of its New Registrable Securities be included
in such Registration Statement and the Company shall include
in the Registration Statement for such Demand Registration the
New Registrable Securities of all Holders that requested to be
so included. Each such request by such other Holders shall
specify the number of New Registrable Securities proposed to
be sold and the intended method(s) of disposition thereof and
shall also state the intent of the Holder to offer New
Registrable Securities for sale. Notwithstanding the
foregoing, the Company shall not be requested to effect a
Demand Registration unless the Request has been made at least
180 days since the last Registration Statement (other than a
shelf registration under Rule 415 of the Securities Act or a
Registration Statement on Form S-8) was filed by the Company.
(b) Effective Registration. A registration will not be deemed to
have been effected as a Demand Registration unless the
Registration Statement relating thereto has been declared
effective by the Commission and the Company has complied in
all material respects with its obligations under this
Agreement with respect thereto; provided that if, after the
Registration Statement has become effective, the offering
and/or sale of New Registrable Securities pursuant to such
Registration Statement is or becomes the subject of any stop
order, injunction or other order or requirement of the
Commission or any other governmental or administrative agency,
or if any court or other governmental or quasi-governmental
agency prevents or otherwise limits the offer and/or sale of
the New Registrable Securities pursuant to the Registration
Statement, other than in each case primarily as a result of
acts or omissions of the Holder or any agent thereof, such
registration will be deemed not to have been effected. If (i)
a registration requested pursuant to this Section 2.2 is
deemed not to have been effected or (ii) the Registration
Statement relating to a Demand Registration requested pursuant
to this Section 2.2 does not remain effective for a period of
at least 180 consecutive days beyond the effective date
thereof or, with respect to an underwritten offering of New
Registrable Securities, until 45 days after the commencement
of the distribution by the Holders of the New Registrable
Securities included in such Registration Statement, then the
Company shall continue to be obligated to effect such New
Registration pursuant to this Section 2.2. The Holders shall
be permitted to withdraw all or any part of the New
Registrable Securities from a Registration Statement at any
time prior to the effective date of such Demand Registration
Statement; provided that in the event of such withdrawal, such
Holders shall be responsible for the fees and expenses
referred to in Section 3.2(viii) hereof incurred by such
Holders with respect to such Demand Registration prior to such
withdrawal.
(c) Limitations. At such time as the New Registrable Securities
may be registered on Form S-2 or Form S-3, as the case may be
(or any similar form or forms promulgated by the SEC), the
Holders of New Registrable Securities shall have unlimited
rights to request registration of their shares on Form S-2 or
Form S-3, as the case may be, or any such similar form.
Registrations effected on Form S-2 and Form S-3 shall not be
counted towards the limit on Demand Registrations under
Section 2.2(a).
(d) Selection of Underwriter. If a requested registration pursuant
to this Section 2.2 involves an underwritten offering, the
managing Underwriter(s) thereof shall be selected by the
Selling Holders and shall be reasonably acceptable to the
Company unless the Company has theretofore sold shares of
Common Stock in an underwritten offering, in which case the
managing Underwriter(s) of a requested registration pursuant
to this Section 2.2 shall be selected by the Company and shall
be reasonably acceptable to the Selling Holders.
(e) Deferral of Registration. Notwithstanding any other provision
of this Section 2, the Company shall not be obligated to
effect the filing of a Registration Statement pursuant to
Section 2.2(a) hereof (i) during any period when there exists
an effective Registration Statement covering any New
Registrable Securities, or (ii) for a period not to exceed 90
days, if the Company shall furnish to the Holders requesting a
Registration Statement under Section 2(a) hereof a
certificate, signed by the Company, stating that in the good
faith judgment of the Board of Directors of the Company it
would be detrimental to the best interests of the Company and
its stockholders generally for such Registration Statement to
be filed at that time; provided that in such event, the
Holders initiating the request for registration will be
entitled to withdraw such request.
SECTION 2.3 Piggy-Back Registration. If at any time after the first anniversary
of the Closing Date the Company proposes to file a Registration
Statement under the Securities Act with respect to an offering by the
Company for its own account (including for the purpose of effecting any
transaction approved by the Company's board of directors under the
terms of Section 6(b)(vi) or Section 6(c)(i) of the CCI Shareholders'
Agreement, or which the Shareholder Parties agree to proceed with under
the terms of Section 9 of the CCI Shareholders' Agreement, which the
Company hereby agrees to undertake) or for the account of any of its
respective security holders (other than a Registration Statement on
Form S-4 or Form S-8 or on any other form inappropriate for an
underwritten public offering or related solely to securities to be
issued in a merger, acquisition of the stock or assets of another
entity or in a similar transaction (or any substitute form that may be
adopted by the Commission), including a Registration Statement pursuant
to a Demand Registration under Section 2.2), then the Company shall
give written notice of such proposed filing to the Holders as soon as
practicable (but in no event less than 30 days before the anticipated
filing date), and such notice shall offer such Holders the opportunity
to register such number of New Registrable Securities as each such
Holder may request (which request shall specify the New Registrable
Securities intended to be disposed of by such Holder and shall also
state the intent of the Holder to offer New Registrable Securities for
sale) (a "Piggy-Back Registration"). The Company shall use all
reasonable efforts to cause the managing Underwriter or Underwriters of
a proposed underwritten offering to permit the New Registrable
Securities requested to be included in a Piggy-Back Registration to be
included on the same terms and conditions as any similar securities of
the Company or any other security holder included therein and to permit
the sale or other disposition of such New Registrable Securities in
accordance with the intended method of distribution thereof. Any Holder
shall have the right to withdraw its request for inclusion of its New
Registrable Securities in any Registration Statement pursuant to this
Section 2.3 by giving written notice to the Company of its request to
withdraw, provided that in the event of such withdrawal (other than
pursuant to Section 2.5(c) hereof), such Holder shall be responsible
for the fees and expenses referred to in Section 3.2(viii) hereof
incurred by such Holder prior to such withdrawal relating to such
Registration Statement. The Company may withdraw a Piggy-Back
Registration at any time prior to the time it becomes effective.
No registration effected under this Section 2.3, and no
failure to effect a registration under this Section 2.3, shall relieve
the Company of its obligation to effect a registration upon the request
of Holders pursuant to Section 2.2, and no failure to effect a
registration under this Section 2.3 and to complete the sale of New
Registrable Securities in connection therewith shall relieve the
Company of any other obligation under this Agreement (including,
without limitation, the Company's obligations under Sections 3.2 and
4.1).
SECTION 2.4 Special Registration. If at any time after the first anniversary of
the Closing Date the registration (whether pursuant to a Demand
Registration or a Piggy-Back Registration) of some or all of a Holder's
Old Registrable Securities under the Securities Act is required or
advisable for the Holders of the Old Registrable Securities to (i)
effectuate any transaction approved by the Company's board of directors
under the terms of Section 6(b)(vi) or Section 6(c)(i) of the CCI
Shareholders' Agreement, (ii) exercise their rights under the
provisions of Section 3(b) of the CCI Shareholders' Agreement, or (iii)
effectuate any transaction that the Shareholder Parties agree to
proceed with under the provisions of Section 9 of the CCI Shareholders'
Agreement, then the Company shall offer to the Holders of such Old
Registrable Securities (but in no event less than 30 days before the
anticipated filing date) the ability to register such number of Old
Registrable Securities (subject to the limitations of clauses (i), (ii)
or (iii) above as such Holders may request (which request shall specify
the Old Registrable Securities intended to be disposed of by such
Holders and which shall state the firm intent of such Holders to offer
such Old Registrable Securities for sale). The Company shall use all
reasonable efforts to cause or permit such Old Registrable Securities
to be included on the same terms and conditions as any similar
securities of the Company or any other security holder included therein
and to permit the registration, sale or other disposition of such Old
Registrable Securities in accordance with the intended method of
registration and distribution thereof.
SECTION 2.5 Reduction of Offering.
(a) Demand Registration. The Company may include in a Demand
Registration pursuant to Section 2.2 securities of the same
class as the Registrable Securities for the account of the
Company and any other Persons who hold securities of the same
class as the Registrable Securities on the same terms and
conditions as the Registrable Securities to be included
therein; provided, however, that (i) if the managing
Underwriter or Underwriters of any underwritten offering
described in Section 2.2 have informed the Company in writing
that it is their opinion that the total number of Registrable
Securities, and securities of the same class as the
Registrable Securities which Holders, the Company and any
other Persons desiring to participate in such registration
intend to include in such offering is such as to materially
and adversely affect the success of such offering, then the
number of shares to be offered for the account of the Company
and for the account of all such other Persons (other than the
Holders) participating in such registration shall be reduced
or limited pro rata in proportion to the respective number of
shares requested to be registered to the extent necessary to
reduce the total number of shares requested to be included in
such offering to the number of shares, if any, recommended by
such managing Underwriter or Underwriters, and (ii) if the
offering is not underwritten, no other Person, including the
Company, shall be permitted to offer securities under any such
Demand Registration unless the Selling Holders owning a
majority-in-interest of Common Stock to be sold consent to the
inclusion of such shares therein.
(b) Piggy-Back Registration.
(i) Notwithstanding anything contained herein, if the
managing Underwriter or Underwriters of any
underwritten offering described in Section 2.3 have
informed, in writing, the Holders requesting
inclusion in such offering that it is their opinion
that the total number of shares which the Company,
Holders and any other Persons holding securities of
the same class as the Registrable Securities desiring
to participate in such registration intend to include
in such offering is such as to materially and
adversely affect the success of such offering, then,
the Company will include in such registration (A)
first, all the shares the Company offered for its own
account, if any, (B) then, if additional shares may
be included in such registration without materially
and adversely affecting the success of such offering,
the shares offered by the holders of securities as a
result of their exercise of "demand" registration
rights by such holders, if any, and (C) then, if
additional shares may be included in such
registration without materially and adversely
affecting the success of such offering, the number of
shares offered by the Holders and such other holders
of securities of the same class as the Registrable
Securities whose piggy-back registration rights may
not be reduced without violating their contractual
rights (provided such contractual rights were in
existence prior to the date of this Agreement), on a
pro rata basis in proportion to the relative number
of Registrable Securities of the holders (including
the Holders) participating in such registration.
(ii) If the managing Underwriter or Underwriters of any
underwritten offering described in Section 2.3 notify
the Holders requesting inclusion in such offering
that the kind of securities that the Holders, the
Company and any other Persons desiring to participate
in such registration intend to include in such
offering is such as to materially and adversely
affect the success of such offering, (A) the
Registrable Securities to be included in such
offering shall be reduced as described in clause (i)
above or (B) if such reduction would, in the judgment
of the managing Underwriter or Underwriters, be
insufficient to substantially eliminate the material
adverse effect that inclusion of the Registrable
Securities requested to be included would have on
such offering, such Registrable Securities will be
excluded from such offering.
(c) Withdrawal. If, as a result of the proration provisions of
this Section 2.5, any Holder shall not be entitled to include
all Registrable Securities in a Demand Registration or
Piggy-Back Registration that such Holder has requested to be
included, such Holder may elect to withdraw his request to
include Registrable Securities in such registration; provided,
however, that if a Holder withdraws his request pursuant to
this Paragraph 2.5(c), the Company shall be responsible for
the fees and expenses referred to in Section 3.2(viii) hereof.
(d) Holdback Agreements. If any registration of Registrable
Securities shall be in connection with an underwritten public
offering, each Holder agrees not to effect any public sale or
distribution, including any sale pursuant to Rule 144 under
the Securities Act, of any Registrable Securities, and not to
effect any such public sale or distribution of any other
equity security of the Company or of any security convertible
into or exchangeable or exercisable for any equity security of
the Company (in each case, other than as part of such
underwritten public offering) during the seven (7) days prior
to, and during the one hundred eighty (180) day period
beginning on, the effective date of such Registration
Statement (except as part of such registration).
ARTICLE 3
REGISTRATION PROCEDURES
SECTION 3.1 Filings; Information. Whenever the Company is required to effect or
cause the registration of the offer and sale of Registrable Securities
pursuant to Section 2.2 or 2.3 hereof, including where such
registration shall be required in order to (i) effectuate any
transaction approved by the Company's board of directors under the
terms of Section 6(b)(vi) or Section 6(c)(i) of the CCI Shareholders'
Agreement, or (ii) effectuate any transaction that the Shareholder
Parties agree to proceed with under the provisions of Section 9 of the
CCI Shareholders' Agreement, the Company will use its best efforts to
effect the registration of the offer and the sale of such Registrable
Securities in accordance with the intended method(s) of disposition
thereof as quickly as practicable, and in connection with any such
request:
(a) Registration Filing. The Company will prepare and file with
the Commission a Registration Statement with respect to the
offer and sale of such securities and use its best efforts to
cause such Registration Statement to become and remain
effective until the completion of the distribution
contemplated thereby; provided, however, the Company shall not
be required to keep such Registration Statement effective for
more than 180 days (or such shorter period which will
terminate when all Registrable Securities covered by such
Registration Statement have been sold, but not prior to the
expiration of the applicable period referred to in Section
4(3) of the Securities Act and Rule 174 thereunder, if
applicable); provided, further, that with respect to a Demand
Registration, the Company shall use its best efforts to file
with the Commission a Registration Statement as soon as is
practicable after the date of the Request and in any event no
later than 60 days after the date of the Request for the
Demand Registration and shall use its best efforts to cause
such Registration Statement to be declared effective as soon
as is practicable after the date of filing and in any event no
later than 180 days after the date of such Request.
(b) Amendments. The Company will prepare and file with the
Commission such amendments and post-effective amendments to
the Registration Statement as may be necessary to keep such
Registration Statement effective for as long as such
registration is required to remain effective pursuant to the
terms hereof; cause the Prospectus to be supplemented by any
required Prospectus supplement, and, as so supplemented, to be
filed pursuant to Rule 424 under the Securities Act; and
comply with the provisions of the Securities Act applicable to
it with respect to the disposition of all Registrable
Securities covered by such Registration Statement during the
applicable period in accordance with the intended methods of
disposition by the Selling Holders set forth in such
Registration Statement or supplement to the Prospectus.
(c) Copies. The Company, at least ten (10) Business Days prior to
filing a Registration Statement or at least five (5) Business
Days prior to filing a Prospectus or any amendment or
supplement to such Registration Statement or Prospectus, will
furnish to (i) each Selling Holder, (ii) not more than one
counsel representing all Selling Holders ("Selling Holders'
Counsel"), to be selected by a majority-in-interest of such
Selling Holders, and (iii) each Underwriter, if any, of the
Registrable Securities covered by such Registration Statement
copies of such Registration Statement as proposed to be filed,
together with exhibits thereto, which documents will be
subject to review and approval by each of the foregoing within
five (5) Business Days after delivery (except that such review
and approval of any Prospectus or any amendment or supplement
to such Registration Statement or Prospectus must be within
three (3) Business Days after delivery), and thereafter,
furnish to such Selling Holders, Selling Holders' Counsel and
Underwriters, if any, such number of conformed copies of such
Registration Statement, each amendment and supplement thereto
(in each case including all exhibits thereto and documents
incorporated by reference therein), the Prospectus included in
such Registration Statement (including each preliminary
Prospectus) and such other documents or information as such
Selling Holders, Selling Holders' Counsel or Underwriters may
reasonably request in order to facilitate the disposition of
the Registrable Securities (it being understood that the
Company consents to the use of the Prospectus and any
amendment or supplement thereto by each Selling Holder and the
Underwriters, if any, in connection with the offering and sale
of the Registrable Securities covered by such Prospectus or
any amendment or supplement thereto).
(d) No Stop Orders. The Company will take all reasonable actions
required to prevent the entry of such stop order or to remove
it at the earliest possible moment if entered.
(e) Blue Sky Filings. On or prior to the date on which the
Registration Statement is declared effective, use its best
efforts to register or qualify such Registrable Securities
under such other securities or "blue sky" laws of such
jurisdictions as any Selling Holder, Selling Holders' Counsel
or Underwriter reasonably requests and do any and all other
acts and things which may be necessary or advisable to enable
such Selling Holder to consummate the disposition in such
jurisdictions of such Registrable Securities owned by such
Selling Holder; use its best efforts to keep each such
registration or qualification (or exemption therefrom)
effective during the period which the Registration Statement
is required to be kept effective; and use its best efforts to
do any and all other acts or things necessary or advisable to
enable the disposition in such jurisdictions of the
Registrable Securities covered by the applicable Registration
Statement; provided that the Company will not be required to
(i) qualify generally to do business in any jurisdiction where
it would not otherwise be required to qualify but for this
paragraph (e), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in
any such jurisdiction.
(f) Post-Effective Matters. The Company will notify each Selling
Holder, Selling Holders' Counsel and any Underwriter and (if
requested by any such Person) confirm such notice in writing,
(i) when a Prospectus or any Prospectus supplement or
post-effective amendment has been filed and, with respect to a
Registration Statement or any post-effective amendment, when
the same has become effective, (ii) of the issuance by the
Commission of any stop order suspending the effectiveness of a
Registration Statement or the initiation or threatening of any
proceedings for that purpose, (iii) of the issuance by any
state securities commission or other regulatory authority of
any order suspending the qualification or exemption from
qualification of any of the Registrable Securities under state
securities or "blue sky" laws or the initiation of any
proceedings for that purpose, and (iv) of the happening of any
event which makes any statement made in a Registration
Statement or related Prospectus or any document incorporated
or deemed to be incorporated by reference therein untrue in a
material respect or which requires the making of any changes
in such Registration Statement, Prospectus or documents so
that they will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the statements in the
Registration Statement and Prospectus not misleading in light
of the circumstances in which they were made; and, as promptly
as practicable thereafter, prepare and file with the
Commission and furnish a supplement or amendment to such
Prospectus so that, as thereafter deliverable to the buyers of
such Registrable Securities, such Prospectus will not contain
any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
(g) Earning Statement. The Company will make generally available
an earning statement satisfying the provisions of Section
11(a) of the Securities Act no later than 90 days after the
end of the 12-month period beginning with the first day of the
Company's first fiscal quarter commencing after the effective
date of a Registration Statement, which earning statement
shall cover said 12-month period, and which requirement will
be deemed to be satisfied if the Company timely files complete
and accurate information on Forms 10-Q, 10-K and 8-K under the
Exchange Act and otherwise complies with Rule 158 under the
Securities Act.
(h) Underwriting Agreement. The Company will enter into customary
agreements (including, if applicable, an underwriting
agreement in customary form) and take such other actions as
are reasonably required in order to expedite or facilitate the
disposition of such Registrable Securities.
(i) Transfer Agent and Registrar. The Company will provide for a
transfer agent and registrar for all such Registrable
Securities not later than the effective date of such
registration statement, and use its best efforts to cause all
such Registrable Securities to be listed on each securities
exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASDAQ
(or other national market reasonably acceptable to the holders
of 66 2/3% or more of the holders of the Registrable
Securities) and, if listed on the NASDAQ, use its best efforts
to secure designation of all such Registrable Securities
covered by such registration statement as a NASDAQ national
market system security within the meaning of Rule 11Aa2-1 of
the Commission or, failing that, to secure NASDAQ
authorization for such Registrable Securities and, without
limiting the generality of the foregoing, to arrange for at
least two market makers to register as such with respect to
such Registrable Securities with the NASDAQ.
(j) Information Regarding Distribution. The Company, during the
period when the Prospectus is required to be delivered under
the Securities Act, will file all documents required to be
filed with the Commission pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act.
The Company may require each Selling Holder to promptly
furnish in writing to the Company such information regarding the
distribution of the Registrable Securities as the Company may from time
to time reasonably request and such other information as may be legally
required in connection with such registration including, without
limitation, all such information as may be requested by the Commission
or the National Association of Securities Dealers, Inc.
Each Selling Holder agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in
Section 3.1(f) hereof, such Selling Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the Registration
Statement covering such Registrable Securities until such Selling
Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3.1(f) hereof, and, if so directed
by the Company, such Selling Holder will deliver to the Company all
copies, other than permanent file copies then in such Selling Holder's
possession, of the most recent Prospectus covering such Registrable
Securities at the time of receipt of such notice. In the event the
Company shall give such notice, the Company shall extend the period
during which such Registration Statement shall be maintained effective
(including the period referred to in Section 3.1(a) hereof) by the
number of days during the period from and including the date of the
giving of notice pursuant to Section 3.1(f) hereof to the date when the
Company shall make available to the Selling Holders covered by such
Registration Statement a Prospectus supplemented or amended to conform
with the requirements of Section 3.1(f) hereof.
SECTION 3.2 Registration Expenses. The Company shall pay all expenses incident
to the Company's performance of or compliance with this Agreement
including, without limitation: (i) all registration and filing fees,
(ii) the fees and expenses of compliance with securities or blue sky
laws (including fees and disbursements of counsel in connection with
blue sky qualifications of the Registrable Securities), (iii) all
printing, messenger and delivery expenses, (iv) the Company's internal
expenses (including, without limitation, all salaries and expenses of
its officers and employees performing legal or accounting duties), (v)
the fees and expenses incurred in connection with the listing or
quotation, as appropriate, of the Registrable Securities, (vi) the fees
and disbursements of counsel for the Company and the fees and expenses
for independent certified public accountants retained by the Company
(including the expenses of any special audit or cold comfort letters),
(vii) the fees and expenses of any special experts retained by the
Company in connection with such registration, and (viii) the fees and
expenses of the Selling Holders Counsel, provided, however, that,
notwithstanding the foregoing, any Holder whose Registrable Securities
are included in more than two registration statements filed pursuant to
the provisions of Section 2.2(a) hereof shall pay his pro rata portion
of all the foregoing expenses (based on the number of shares included)
with respect to the third registration statement in which such Holders'
shares are included. The Company shall have no obligation to pay any
underwriting fees, discounts or commissions attributable to the sale of
Registrable Securities and any of the expenses incurred by Selling
Holders which are not payable by the Company, such costs to be borne by
the Selling Holder or Selling Holders.
ARTICLE 4
INDEMNIFICATION AND CONTRIBUTION
SECTION 4.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Selling
Holder, its partners, officers, directors, employees, advisors and
agents, and each Person, if any, who controls such Selling Holder
within the meaning of Section 15 of the Securities Act or Section 20 of
the Exchange Act, together with the partners, officers, directors,
employees, advisors and agents of such controlling Person
(collectively, the "Controlling Persons"), from and against any loss,
claim, damage, liability, attorneys' fees, cost or expense and costs
and expenses of investigating and defending any such claim
(collectively, the "Damages") and any action in respect thereof to
which such Selling Holder, its partners, officers, directors,
employees, advisors and agents, and any such Controlling Person may
become subject under the Securities Act, the Exchange Act or otherwise,
insofar as such Damages (or proceedings in respect thereof) arise out
of, or are based upon, any untrue statement or alleged untrue statement
of a material fact contained in any Registration Statement or
Prospectus or any preliminary Prospectus, or arise out of, or are based
upon, any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements
therein not misleading, except insofar as the same are based upon
information furnished in writing to the Company by a Selling Holder
expressly for use therein, and shall reimburse each Selling Holder, its
partners, officers, directors, employees, advisors and agents, and each
such Controlling Person for any legal and other expenses reasonably
incurred by that Selling Holder, its partners, officers, directors,
employees, advisors and agents, or any such Controlling Person in
investigating or defending or preparing to defend against any such
Damages or proceedings. The Company also agrees to indemnify any
Underwriters of the Registrable Securities, their officers and
directors and each Person who controls such Underwriters on
substantially the same basis as that of the indemnification of the
Selling Holders provided in this Section 4.1.
SECTION 4.2 Indemnification by Selling Holders. Each Selling Holder agrees,
severally but not jointly, to indemnify and hold harmless the Company,
its officers, directors, employees, advisors and agents and each
Person, if any, who controls the Company within the meaning of Section
15 of the Securities Act or Section 20 of the Exchange Act, together
with the partners, officers, directors, employees, advisors and agents
of such Controlling Person, to the same extent as the foregoing
indemnity from the Company to such Selling Holder, but only with
reference to information related to such Selling Holder, or its plan of
distribution, furnished in writing by such Selling Holder expressly for
use in any Registration Statement or Prospectus, or any amendment or
supplement thereto, or any preliminary Prospectus; provided, however,
that such Selling Holder shall not be liable in any such case to the
extent that prior to the filing of any such Registration Statement or
Prospectus or amendment or supplement thereto, such Selling Holder has
furnished in writing to the Company information expressly for use in
such Registration Statement or Prospectus or any amendment or
supplement thereto which corrected or made not misleading information
previously furnished to the Company. In no event shall the liability of
any Selling Holder be greater in amount than the dollar amount of the
proceeds received by such Selling Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
SECTION 4.3 Conduct of Indemnification Proceedings. Promptly after receipt by
any Person in respect of which indemnity may be sought pursuant to
Section 4.1 or 4.2 (an "Indemnified Party") of notice of any claim or
the commencement of any action, the Indemnified Party shall, if a claim
in respect thereof is to be made against the Person against whom such
indemnity may be sought (an "Indemnifying Party"), notify the
Indemnifying Party in writing of the claim or the commencement of such
action; provided that the failure to notify the Indemnifying Party
shall not relieve it from any liability which it may have to an
Indemnified Party otherwise than under Section 4.1 or 4.2 except to the
extent of any actual prejudice resulting therefrom. If any such claim
or action shall be brought against an Indemnified Party, and it shall
notify the Indemnifying Party thereof, the Indemnifying Party shall be
entitled to participate therein, and, to the extent that it wishes,
jointly with any other similarly notified Indemnifying Party, to assume
the defense thereof with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Indemnifying Party to the
Indemnified Party of its election to assume the defense of such claim
or action, the Indemnifying Party shall not be liable to the
Indemnified Party for any legal or other expenses subsequently incurred
by the Indemnified Party in connection with the defense thereof other
than reasonable costs of investigation; provided that the Indemnified
Party shall have the right to employ separate counsel to represent the
Indemnified Party and its Controlling Persons who may be subject to
liability arising out of any claim in respect of which indemnity may be
sought by the Indemnified Party against the Indemnifying Party, but the
fees and expenses of such counsel shall be for the account of such
Indemnified Party unless (i) the Indemnifying Party and the Indemnified
Party shall have mutually agreed to the retention of such counsel or
(ii) in the opinion of counsel to such Indemnified Party,
representation of both parties by the same counsel would be
inappropriate due to actual or potential conflicts of interest between
them, it being understood, however, that the Indemnifying Party shall
not, in connection with any one such claim or action or separate but
substantially similar or related claims or actions in the same
jurisdiction arising out of the same general allegations or
circumstances, be liable for the fees and expenses of more than one
separate firm of attorneys (together with appropriate local counsel) at
any time for all Indemnified Parties. No Indemnifying Party shall,
without the prior written consent of the Indemnified Party, effect any
settlement of any claim or pending or threatened proceeding in respect
of which the Indemnified Party is or could have been a party and
indemnity could have been sought hereunder by such Indemnified Party,
unless such settlement includes an unconditional release of such
Indemnified Party from all liability arising out of such claim or
proceeding. Whether or not the defense of any claim or action is
assumed by the Indemnifying Party, such Indemnifying Party will not be
subject to any liability for any settlement made without its consent,
which consent will not be unreasonably withheld.
SECTION 4.4 Contribution. If the indemnification provided for in this Article 4
is unavailable to the Indemnified Parties in respect of any Damages
referred to herein, then each Indemnifying Party, in lieu of
indemnifying such Indemnified Party, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such Damages
in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Selling Holders on the
other from the offering of the Registrable Securities, or if such
allocation is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits but also the
relative fault of the Company on the one hand and the Selling Holders
on the other in connection with the statements or omissions which
resulted in such Damages, as well as any other relevant equitable
considerations. The relative fault of the Company on the one hand and
of each Selling Holder on the other shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a
material fact relates to information supplied by such party, and the
parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Selling Holders agree that it would not be
just and equitable if contribution pursuant to this Section 4.4 were
determined by pro rata allocation or by any other method of allocation
which does not take account of the equitable considerations referred to
in the immediately preceding paragraph. The amount paid or payable by
an Indemnified Party as a result of the Damages referred to in the
immediately preceding paragraph shall be deemed to include, subject to
the limitations set forth above, any legal or other expenses reasonably
incurred by such Indemnified Party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of
this Section 4.4, no Selling Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the
Registrable Securities of such Selling Holder were offered to the
public exceeds the amount of any damages which such Selling Holder has
otherwise paid by reason of such untrue or alleged untrue statement or
omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any Person who
was not guilty of such fraudulent misrepresentation. Each Selling
Holder's obligations to contribute pursuant to this Section 4.4 is
several in the proportion that the proceeds of the offering received by
such Selling Holder bears to the total proceeds of the offering
received by all the Selling Holders and not joint.
ARTICLE 5
MISCELLANEOUS
SECTION 5.1 Participation in Underwritten Registrations. No Person may
participate in any underwritten registration hereunder unless such
Person (a) agrees to sell such Person's securities on the basis
provided in any underwriting arrangements approved by the Persons
entitled hereunder to approve such arrangements, and (b) completes and
executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents reasonably required under
the terms of such underwriting arrangements and these registration
rights.
SECTION 5.2 Additional Rights. If subsequent to the date hereof the Company
grants to holders or prospective holders of its securities registration
rights which are more favorable than the terms or provisions of this
Agreement are to the Holders of the New Registrable Securities, this
Agreement shall be deemed to be automatically amended (without the
necessity of any action on the part of the Company or the Holders) to
grant to the Holders of the New Registrable Securities such more
favorable or additional rights, in addition to those set forth herein.
SECTION 5.3 Rule 144 and 144A. The Company covenants that it will file any
reports required to be filed by it under the Securities Act and the
Exchange Act and that it will take such further action as any Holder
may reasonably request, all to the extent required from time to time to
enable Holders to sell Registrable Securities without registration
under the Securities Act within the limitation of the exemptions
provided by (a) Rule 144 or Rule 144A under the Securities Act, or (b)
any similar rule or regulation hereafter adopted by the Commission.
Upon the request of any Holder, the Company will deliver to such Holder
a written statement as to whether it has complied with such
requirements.
SECTION 5.4 Amendment and Modification. Any provision of this Agreement may be
waived, provided that such waiver is set forth in a writing executed by
the party against whom the enforcement of such waiver is sought. This
Agreement may not be amended, modified or supplemented other than by a
written instrument signed by the holders of at least 66 2/3% of the
Registrable Securities (calculated with respect to the Series C
Preferred Stock on an as-converted basis in accordance with the terms
and conditions for such securities under the certificate establishing
the Series C Preferred Stock's rights and preferences); provided,
however, that without the consent of all the Holders, no amendment or
modification which materially and adversely affects any Holders' rights
hereunder without the consent of such Holders. No course of dealing
between or among any Persons having any interest in this Agreement will
be deemed effective to modify, amend or discharge any part of this
Agreement or any rights or obligations of any Person under or by reason
of this Agreement.
SECTION 5.5 Successors and Assigns; Third Party Beneficiaries. This Agreement
and all of the provisions hereof shall be binding upon and inure to the
benefit of the parties hereto, each subsequent Holder and their
respective successors and assigns and executors, administrators and
heirs. Holders are intended third-party beneficiaries of this Agreement
and this Agreement may be enforced by such Holders.
SECTION 5.6 Entire Agreement. This Agreement sets forth the entire agreement
and understanding between the parties as to the subject matter hereof
and merges and supersedes all prior discussions, agreements and
understandings of any and every nature among them.
SECTION 5.7 Headings. Subject headings are included for convenience only and
shall not affect the interpretation of any provisions of this
Agreement.
SECTION 5.8 Notices. Any notice, demand, request, waiver, or other
communication under this Agreement shall be in writing and shall be
deemed to have been duly given on the date of service if personally
served or sent by telecopy, on the business day after notice is
delivered to a courier or mailed by express mail if sent by courier
delivery service or express mail for next day delivery and on the third
day after mailing if mailed to the party to whom notice is to be given,
by first class mail, registered, return receipt requested, postage
prepaid and addressed as follows:
If to the Company to:
Convergence Communications, Inc.
102 West 500 South, Suite 320
Salt Lake City, Utah 84101
Attention: Chief Executive Officer
Telecopier No.: (801) 532-6060
with a copy to:
Parsons Behle & Latimer
201 South Main Street
Suite 1800
Salt Lake City, Utah 84111
Attention: Scott Carpenter, Esq.
Telecopier No.: (801) 536-6111
if to the Purchasers, at the address set forth next to such Purchaser's
name on the signature page hereto.
SECTION 5.9 Governing Law; Forum; Process. This Agreement shall be construed in
accordance with, and the rights of the parties shall be governed by,
the internal laws of the State of New York, including Section 5-1401 of
the New York General Obligations Law. All disputes arising under or
relation to this Agreement shall first be subject to conciliation in
accordance with the Rules of Conciliation of the International Chamber
of Commerce and, failing conciliation, be finally settled under the
Rules of Arbitration of the International Chamber of Commerce by three
arbitrators appointed in accordance with said Rules. The place of
arbitration shall be New York, New York. The language of the
arbitration shall be English. In the event any dispute under the
Participation Agreement relates in any way to the validity, performance
or interpretation of this Agreement and an arbitral tribunal is
constituted pursuant to Section 11(n) of the Participation Agreement,
all parties to any dispute hereunder agree (i) to be joined to the
procedures initiated pursuant to Section 11(n) of the Participation
Agreement; (ii) to have any proceedings initiated hereunder
consolidated with proceedings initiated pursuant to Section 11(n) of
the Participation Agreement and (iii) to be bound by any ruling of the
arbitral tribunal constituted pursuant to Section 11(n) of the
Participation Agreement or any interim or final award thereof.
Submission of disputes to arbitration pursuant to the Rules of
Arbitration of the International Chamber of Commerce, in consolidation
with any disputes submitted to arbitration pursuant to Section 11(n) of
the Participation Agreement as provided above, shall be the sole method
of resolving disputes between the Parties hereto. Judgment upon an
arbitration award may be entered in any court having jurisdiction.
SECTION 5.10 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, and all of which together shall
constitute a single agreement.
SECTION 5.11 Severability. In the event that any one or more of the immaterial
provisions contained in this Agreement shall for any reason be held to
be invalid, illegal or unenforceable, the same shall not affect any
other provision of this Agreement, but this Agreement shall be
construed in a manner which, as nearly as possible, reflects the
original intent of the parties.
SECTION 5.12 No Prejudice. The terms of this Agreement shall not be construed
in favor of or against any party on account of its participation in the
preparation hereof.
SECTION 5.13 Words in Singular and Plural Form. Words used in the singular form
in this Agreement shall be deemed to import the plural, and vice versa,
as the sense may require.
SECTION 5.14 Remedy for Breach. The Company hereby acknowledges that in the
event of any breach or threatened breach by the Company of any of the
provisions of this Agreement, the Holder would have no adequate remedy
at law and could suffer substantial and irreparable damage.
Accordingly, the Company hereby agrees that, in such event, the Holder
shall be entitled, without the necessity of proving damages or posting
bond, and notwithstanding any election by any Holder to claim damages,
to obtain a temporary and/or permanent injunction, without proving a
breach therefor, to restrain any such breach or threatened breach or to
obtain specific performance of any such provisions, all without
prejudice to any and all other remedies which any Holder may have at
law or in equity.
SECTION 5.15 Termination of Original Agreements. By executing this Agreement,
each of Pegasus, Internexus, FondElec and the Company acknowledge and
agree that the Original Agreements are superseded and replaced by this
Agreement in their entirety, that the Original Agreements are of no
further force or effect with respect to such parties, and that the
rights of such parties relating to the registration of their
Registrable Securities will be governed by this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONVERGENCE COMMUNICATIONS, INC.
By: /s/ Lance D'Ambrosio
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 102 West 500 South, Suite 320
Salt Lake City, UT 84101
Fax No.: (801) 532-6060
PEGASUS FUND, L.P.
By: Pegasus Management Corp.
Its: General Partner
By: /s/ Gaston Acosta-Rua
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 333 Ludlow Street
Stamford, CT 06902
Fax No.: (203) 326-4578
FONDELEC ESSENTIAL SERVICES GROWTH
FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By: /s/ Gaston Acosta-Rua
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 333 Ludlow Street
Stamford, CT 06902
Fax No.: (203) 326-4578
INTERNEXUS S.A.
By: /s/ Peter Schiller
--------------------------------
Name: P. Schiller
--------------------------------
Title: Duly Authorized
--------------------------------
Address: Peron 925, 1er Floor
Buenos Aires 1038, Argentina
Fax No.: 011-5411-4320-7560
TELEMATICA EDC, C.A.
By: /s/ Norberto Corredor
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: Avenida Vollmer,
San Bernardino
Apartado 2299, Caracas
1010-A-Venezuela
Fax No.: 011-582-502-3500
TCW/CCI HOLDING LLC
By: /s/ Mario L. Baeza
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 200 Park Avenue, Suite 2100
New York, New York 10166
Fax No.: (212) 771-4155
INTERNATIONAL FINANCE CORPORATION
By:
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 2121 Pennsylvania Avenue, N.W.
Rm. F4K-140
Washington, DC 20433
Fax No.: (202) 974-4403
GLACIER LATIN-AMERICA LTD.
By: /s/ David Liebman
--------------------------------
Name:
--------------------------------
Title:
--------------------------------
Address: 2999 N.E. 191 Street
Suite 404
Aventura, Florida 33180
Fax No.: (305) 935-6512
/s/ Lance D'Ambrosio
---------------------------------------
LANCE D'AMBROSIO
Address: 3276 East Almira Court
Salt Lake City, Utah 84121
/s/ Troy D'Ambrosio
---------------------------------------
TROY D'AMBROSIO
Address: 2914 Nila Way
Salt Lake City, Utah 84124
ESTATE OF GEORGE S. D'AMBROSIO
By: /s/ Lance D'Ambrosio
--------------------------------
Its:
--------------------------------
Address: 5451 South 1410 East
Salt Lake City, Utah 84117
UNOFFICIAL ENGLISH TRANSLATION OF
MAIN PROVISIONS OF THE FINANCING AGREEMENT
BETWEEN TELEMATICA AND INTERANET
This Financing Agreement (the "Agreement") is made by and between Telematica
EDC, C.A. ("TELEMATICA") and Interamerican Net de Venezuela, S.A. ("INTERANET").
TELEMATICA and INTERANET are sometimes hereinafter referred to individually as a
"Party" and collectively as "Parties."
CLAUSE ONE
TELEMATICA shall lend to INTERANET a sum not to exceed Twenty Six
Million United States Dollars (US$26,000,000), which, solely for purposes of
complying with the Venezuelan Central Bank Law, is the equivalent of Sixteen
Billion Three Hundred Eighty Six Million Five Hundred Thousand Bolivars (Bs.
16,386,500,000). This sum shall be paid in its equivalent in Bolivars at the
times set forth in this Agreement.
CLAUSE TWO
TELEMATICA shall deliver to INTERANET the sum of Seven Million United
States Dollars (US$7,000,000), which, solely for purposes of complying with the
Venezuelan Central Bank Law, is the equivalent of Four Billion Four Hundred
Eleven Million Seven Hundred Fifty Thousand Bolivars (Bs. 4,411,750,000) to be
used as working capital.
TELEMATICA shall make additional [semiannual payments] until the
completion of the remaining Nineteen Million United States Dollars
(US$19,000,000), which, solely for purposes of complying with the Venezuelan
Central Bank Law, is the equivalent of Eleven Billion Nine Hundred Seventy Four
Million Seven Hundred Fifty Thousand Bolivars (Bs. 11,974,750,000), in order to
perform the following obligations: (A) to make the lease payments under a
leasing of fiber optic agreement entered into by C.A. Electricidad de Caracas
("EDC") and INTERANET (the "Lease Agreement") for the lease of dark fiber
strands; and (B) to make payments due to Administradora Serdeco, C.A.
("SERDECO") under a commercial services agreement entered into by SERDECO and
INTERANET (the "Commercial Services Agreement"). For the above purpose,
INTERANET shall deliver to TELEMATICA duly approved invoices pertaining the
Lease Agreement and the Commercial Services Agreement and TELEMATICA shall make
the payments within three (3) business days after such delivery. The Lease
Agreement and the Commercial Services Agreement shall be negotiated in good
faith in order to satisfy the technical, commercial, and reliability and safety
requirements of the Parties.
The sums loaned by TELEMATICA shall earn an annual interest rate of
three percent (3%), which shall be calculated over the sums actually paid and
delivered to INTERANET by TELEMATICA under this Agreement. Such interests shall
be capitalized semiannually during the first four (4) years from the execution
of this Agreement and shall be paid semiannually to TELEMATICA after the end of
the fourth year. Any amount not paid by INTERANET to TELEMATICA when due shall
bear an annual interest from the date due until paid at a rate equal to five
percent (5%).
CLAUSE THREE
INTERANET shall deliver a promissory note to TELEMATICA for the amount
provided in the first paragraph of Clause Two [e.g., US$7,000,000], which shall
be delivered on the date of such disbursement. INTERANET shall deliver new
promissory notes to TELEMATICA for all subsequent disbursements. Such promissory
notes shall be substituted every six (6) months for a single promissory note
consolidating all the sums delivered to INTERANET under this Agreement as
adjusted pursuant to the inflation adjustment provision established in Clause
Five.
TELEMATICA in lieu of requiring the repayment of the loans, TELEMATICA
shall have the option to convert the credit derived from the loans into shares
of INTERANET, before the maturity thereof pursuant to Clause Four. TELEMATICA
may exercise such right after the expiration of the third year from the
execution of this Agreement. TELEMATICA may also exercise this right before the
expiration of the third year upon the occurrence of any of INTERANET's event of
default under Clause Four.
The right of conversion into shares shall only be exercised for the
total amount of the loans actually disbursed simultaneously with the exercise of
the subscription right to acquire shares pursuant to Clause Seven. The separate
or partial exercise of any of the rights of conversion or susbcription of shares
shall not be accepted.
The rights of credit derived from the loans, the Promissory Note, and
any other rights of TELEMATICA under this Agreement are part of the same
negotiation, and therefore, are transferable only when such transfer is for the
totality of such rights to only one transferee, which shall be an affiliate of
TELEMATICA or Convergence Communications, Inc. ("CCI") or an affiliate of CCI.
For purposes of this Agreement, the term "Affiliate" means an entity that
controls, is controlled or is under common control of TELEMATICA or CCI
respectively.
The amounts due by TELEMATICA, evidenced by the promissory notes, shall
be converted into shares, which value shall be determined in such manner that
the totality of the loans that TELEMATICA has the right to convert into shares
plus the nominal value of the shares that TELEMATICA has the right to subscribe,
shall be equal to a fifty percent (50%) of the capital stock of INTERANET at the
time such shares are subscribed.
In the event EDC defaults under the Lease Agreement and such default
results in its termination, TELEMATICA shall make an election from one of the
following options: (A) allow that loans to be provided under the second
paragraph of Clause Two are applied for paying the rent due to a different
lessor for the leasing of fiber optic, or (B) exercise its rights to convert and
subscribe shares provided in Clauses Three and Seven.
CLAUSE FOUR
The loans under this Agreement shall be paid in Bolivars on October 31
of 2015 with the adjustments provided under this Agreement, unless TELEMATICA
has previously exercised its right of conversion [and subscription], as provided
in the preceding Clause. This term has been agreed upon by the Parties in their
benefit. Consequently, INTERANET shall not prepay the loan until such term has
elapsed.
Once the conversion into shares is exercised, the Parties shall enter
into a shareholder agreement which shall have been negotiated in good faith,
pursuant to which CCI shall be granted sufficient control to allow it to
consolidate for accounting purposes its investment, so long as TELEMATICA's
participating interest is protected.
The interests shall be paid semiannually on April 30 and October 31 of
each year, starting on April 30 of 2004 until October 31 of 2015.
However, the total amount of the loans shall be considered past due and
owned if:
1) INTERANET defaults under the Lease Agreement and the Commercial Services
Agreement resulting in the termination of such Agreements.
2) The concessions granted to INTERANET identified in Annex D are revoked
due to INTERANET's default under such concessions without recourse to any
administrative or judicial procedure.
3) INTERANET pays dividends before the fourth year from the date of the
execution of this Agreement or after the fourth year from the execution
of this Agreement without complying with numeral six of Clause Six.
4) INTERANET increases or decreases its capital stock.
5) INTERANET issues options, debt instruments which may be convertible into
shares, warrants or any other kind of instruments which may require
INTERANET to issue additional shares.
6) INTERANET amends its articles of incorporation, its conditions for
issuing shares, or the nominal values of its shares.
7) INTERANET incurs indebtedness or INTERANET pledges assets for an amount
exceeding an amount over ten percent (10%) of the amounts loaned to
INTERANET under this Agreement.
8) INTERANET conveys or leases all or an important portion of its assets,
the aggregate of which exceeds Two Hundred Fifty Thousand United States
Dollars (US$250,000); or ceases participating in the telecommunications
business in Venezuela; or merges or consolidates with a another company,
or it is restructured or reorganized in any other form.
CLAUSE FIVE
All and every one of the amounts in Bolivars loaned by TELEMATICA to
INTERANET under this Agreement, the amounts to be loaned in the future under
this Agreement, as well as any other amount in Bolivars herein shall be indexed
semiannually in accordance with the CPI of the Metropolitan Area of Caracas
published by the Venezuelan Central Bank. Every six months the promissory notes
delivered by INTERANET shall be substituted by other promissory notes reflecting
such indexed amounts.
CLAUSE SIX: Obligations of INTERANET
1) INTERANET shall pay taxes and submit the corresponding tax returns,
obtain the required licenses, permits and concessions for the performance
of its activities and the expansion of the same; and in general, comply
with its obligations under applicable law.
2) Comply with the concession agreements identified in Annex A.
3) Keep accounting books and records in accordance with Venezuelan Generally
Accepted Accounting Principles, and applicable law.
4) Permit any representative duly designated in writing by TELEMATICA to (i)
visit and inspect any and all of the facilities, (ii) examine the books
and records, and (iii) provide copies of any documents requested in
writing by TELEMATICA in a period no longer than five (5) days after such
request has been delivered. TELEMATICA shall keep such information
provided by INTERANET confidential.
5) Obtain and maintain insurance in accordance with the telecommunications
sector standards.
6) The distributions of dividends shall be restricted during the term of
this Agreement in accordance with the following rules:
A) No dividends shall be paid for the first four (4) years from the
execution of this Agreement.
B) After the fourth year, dividends may be paid annually in accordance
with the following:
a. Dividends shall be paid in cash
b. The most recent payment of interests shall have been paid in
cash and shall not have been capitalized by TELEMATICA.
c. The dividends in cash may not exceed the paid amount in cash
to TELEMATICA in the most recent payment of interests.
7) INTERANET's capital stock may not be increased or decreased.
8) INTERANET may not issue options, debt instruments which may be
convertible into shares, warrants or any other kind of instruments, which
may require INTERANET to issue additional shares.
9) INTERANET shall not amend its articles of incorporation, its conditions
for issuing shares, or the nominal values of its shares.
10) INTERANET may not (i) incur indebtedness, or (ii) encumber assets for an
amount exceeding ten percent (10%) of the amounts loaned to INTERANET
under this Agreement.
11) INTERANET may not merge, consolidate with a another company, restructure
or reorganize in any other form.
12) INTERANET may not convey or lease its assets, the aggregate of which
exceeds Two Hundred Fifty Thousand United States Dollars (US$250,000).
CLAUSE SEVEN: Subscription Rights
Prior to the delivery of the amount established in the first paragraph
of Clause Two, an INTERANET's shareholders meeting shall be held approving and
granting TELEMATICA the subscription right to acquire shares of INTERANET,
through the payment of an amount of Twenty Six Million United States Dollars
(US$26,000,000), which solely for purposes of complying with the Venezuelan
Central Bank Law, is the equivalent of Sixteen Billion Three Hundred Eighty Six
Million Five Hundred Thousand Bolivars (Bs. 16,386,500,0000).
To the extent that INTERANET subscribes capital increases or increases
in any other form the number of shares before TELEMATICA's exercise of its
conversion right, TELEMATICA shall have the right to subscribe additional
shares, through the payment of an amount equal to such amount increased, so that
after exercising its conversion and subscription rights and the subscription of
additional shares pursuant to this paragraph, the result of TELEMATICA's
exercise of all such rights shall be equal to fifty percent (50%) of INTERANET's
capital stock.
The number of shares subject to the subscription right shall decrease
to the extent that amount of the loans evidenced by the promissory notes
referred to in Clause Three of this Agreement increases, so that the shares
resulting from exercising such conversion and subscription rights shall always
be equal to fifty percent (50%) of INTERANET's capital stock, after the
shareholders' meeting approving such increase in the capital stock has occurred.
The Parties shall agree upon (i) the content of the form of Shareholders'
meeting approving the increase of INTERANET's capital stock, and (ii) an
explanatory table in connection with TELEMATICA's exercise of its conversion and
subscription rights. Such form and table shall be annexed to this Agreement.
CLAUSE EIGHT: Rights to Cease Providing Funds
In the event that an administrative authority or a court issues a
decree, law, resolution, decision or any other judicial or administrative act
which adversely affects the conditions of INTERANET or its capacity to comply
with its obligations under this Agreement, TELEMATICA shall have the right to
cease providing funds to INTERANET.
CLAUSE NINE
This Agreement shall be terminated upon TELEMATICA's exercise of its
option to convert its credit derived from the sums loaned to INTERANET into
shares of INTERANET, for the total amount of the loans simultaneously with its
right to acquire shares established in Clause Seven.
CLAUSE TEN: Dispute Resolution
- Good faith negotiations (amicable resolution)
- Conciliation Process:
- bilingual conciliator (Spanish-English)
- application of ICC Rules of Optional Conciliation
- New York
- Arbitration:
- 3 bilingual arbitrators (Spanish-English) experienced in
the telecommunications and business transactions sectors
- International Chamber of Commerce Arbitration Rules
- New York
CLAUSE ELEVEN: Obligations of WCI de Venezuela, C.A.
WCI de Venezuela, C.A. ("WCI") is (i) joined in this Agreement, (ii)
obligated to do everything under its control to comply with the provisions of
this Agreement, and (iii) a joint and several guarantor of INTERANET in order to
ensure INTERANET's compliance with its contractual obligations under this
Agreement.
WCI shall transfer to a bank or an insurance company all shares to
which is titleholder before TELEMATICA's delivery of the amount established in
Clause Two in order to ensure that INTERANET and WCI comply with its contractual
obligations under this Agreement in accordance with a trust agreement which
shall be negotiated in good faith and shall be annexed to this Agreement.
CLAUSE TWELVE: Waiver of Contractual Rights
The waiver may only be obtained with the written consent of the other
Parties.
CLAUSE THIRTEEN: Notice
CLAUSE FOURTEEN: Governing Law
This Agreement shall be governed by the laws of Venezuela.
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