UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 13D
(Rule 13d-101)
INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT
TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO
RULE 13d-2(a)
Convergence Communications, Inc.
--------------------------------
(Name of Issuer)
Common Stock, par value $0.001 per share
----------------------------------------
(Title of Class of Securities)
None
--------------
(CUSIP Number)
Norberto Corredor
Avenida Vollmer
San Bernadino - Apartado 2299
Caracas 1010-A-Venezuela
011-58-2-502-21-11
-------------------------------------------------
(Name, Address, and Telephone Number of Persons
Authorized to Receive Notices and Communications)
October 18, 1999
------------------------------------------------------
(Date of Event Which Requires Filing of This Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
(Page 1 of 15 Pages)
<PAGE>
CUSIP No. None 13D Page 2 of 15 Pages
- ------------------------------------------------------------
1) NAME OF REPORTING PERSON Telematica EDC, C.A.
- ------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP
(a) [ ]
(b) [x]
- ------------------------------------------------------------
3) SEC USE ONLY
- ------------------------------------------------------------
4) SOURCE OF FUNDS: WC
- ------------------------------------------------------------
5) CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION Venezuela
- ------------------------------------------------------------
NUMBER OF 7) SOLE VOTING POWER 2,800,000
SHARES ----------------------------------------------
BENEFICIALLY 8) SHARED VOTING POWER 0
OWNED BY ----------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER 2,800,000
REPORTING ----------------------------------------------
PERSON WITH 10) SHARED DISPOSITIVE POWER 0
- ------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED 2,800,000
BY EACH REPORTING PERSON
- ------------------------------------------------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES
CERTAIN SHARES [ ]
- ------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 19.3%
- ------------------------------------------------------------
14) TYPE OF REPORTING PERSON: CO
- ------------------------------------------------------------
<PAGE>
CUSIP No. None 13D Page 3 of 15 Pages
- ------------------------------------------------------------
1) NAME OF REPORTING PERSON CORPORACION EDC, C.A.
- ------------------------------------------------------------
2) CHECK THE APPROPRIATE BOX IF MEMBER OF A GROUP
(a) [ ]
(b) [x]
- ------------------------------------------------------------
3) SEC USE ONLY
- ------------------------------------------------------------
4) SOURCE OF FUNDS: WC
- ------------------------------------------------------------
5) CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS
REQUIRED PURSUANT TO ITEMS 2(d) OR 2(e) [ ]
- ------------------------------------------------------------
6) CITIZENSHIP OR PLACE OF ORGANIZATION Venezuela
- ------------------------------------------------------------
NUMBER OF 7) SOLE VOTING POWER 2,800,000
SHARES ----------------------------------------------
BENEFICIALLY 8) SHARED VOTING POWER 0
OWNED BY ----------------------------------------------
EACH 9) SOLE DISPOSITIVE POWER 2,800,000
REPORTING ----------------------------------------------
PERSON WITH 10) SHARED DISPOSITIVE POWER 0
- ------------------------------------------------------------
11) AGGREGATE AMOUNT BENEFICIALLY OWNED 2,800,000
BY EACH REPORTING PERSON
- ------------------------------------------------------------
12) CHECK IF THE AGGREGATE AMOUNT IN ROW 11 EXCLUDES
CERTAIN SHARES [ ]
- ------------------------------------------------------------
13) PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 19.3%
- ------------------------------------------------------------
14) TYPE OF REPORTING PERSON: CO
- ------------------------------------------------------------
<PAGE>
Page 4 of 15 Pages
Item 1. Security and Issuer
- ------- -------------------
Common Stock, par value $0.001 per share, of Convergence
Communications, Inc., 102 West 500 South, Suite 320 Salt Lake City, Utah 84101.
Item 2. Identity and Background
- ------- -----------------------
(a) and (b) Telematica EDC, C.A., a Venezuelan compania anonima
("Telematica"), is a wholly-owned subsidiary of Corporacion EDC, C.A., a
Venezuelan compania anonima ("CEDC"). Both Telematica and CEDC have their
principal office and principal place of business at Avenida Vollmer, San
Bernadino - Apartado 2299, Caracas 1010-A-Venezuela.
The name of each executive officer and director of Telematica and CEDC
is set forth in Exhibit 1 hereto and incorporated herein by reference. The
business address of all of the individuals listed on Exhibit 1 is Avenida
Vollmer, San Bernadino - Apartado 2299, Caracas 1010-A-Venezuela.
(c) Telematica is a telecommunications company. CEDC is a diversified
company with interests in the energy, telecommunications and water industries.
The present principal occupation of each executive officer and director
of Telematica and CEDC is set forth in Exhibit 1 hereto and incorporated herein
by reference.
(d) During the last five years, neither Telematica nor CEDC nor, to the
best of their knowledge, any of their directors or executive officers, has been
convicted in any criminal proceeding (excluding traffic violations or similar
misdemeanors).
(e) During the last five years, neither Telematica nor CEDC nor, to the
best of their knowledge, any of their executive officers or directors has been a
party to a civil proceeding of a judicial or administrative body of competent
jurisdiction resulting in a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activities subject to, federal or
state securities laws, or finding any violation with respect to such laws, and
which judgment, decree or final order was not subsequently vacated.
<PAGE>
Page 5 of 15 Pages
(f) Telematica and CEDC are organized and exist under the laws of
Venezuela. The citizenship of their executive officers and directors is set
forth in Exhibit 1 hereto and incorporated herein by reference.
Item 3. Source and Amount of Funds or Other Consideration.
- ------- --------------------------------------------------
Working capital.
Item 4. Purpose of Transaction.
- ------- -----------------------
On October 15, 1999, the Issuer, Telematica, TCW/CCI Holdings LLC
("TCW"), Glacier-Latin America Ltd. ("Glacier"), FondElec Essential Services
Growth Fund, L.P. ("FondElec"), Internexus S.A. ("Internexus"), Lance
D'Ambrosio, Troy D'Ambrosio and the Estate of George D'Ambrosio entered into a
Participation Agreement. Telematica and TCW each agreed to purchase $25 million
of the Issuer's Series C Convertible Preferred Stock, and Glacier agreed to
purchase $3 million of the Issuer's Series C Convertible Preferred Stock. The
Issuer agreed to grant Telematica, TCW and Glacier options to purchase
additional shares of the Issuer's Series C Convertible Preferred Stock.
Internexus and FondElec agreed to convert debt of the Issuer that they hold into
shares of the Issuer's Series C Preferred Stock. The Issuer agreed to grant
Telematica, TCW, FondElec, Internexus, and Glacier warrants to purchase the
Issuer's Common Stock. International Finance Corporation ("IFC") may sign the
Participation Agreement and agree to purchase $5 million of the Issuer's
securities and receive options and warrants. The parties also agreed to enter
into a Shareholders Agreement and a Registration Rights Agreement.
The Participation Agreement further provided that Telematica would
agree to purchase Common Stock of one of the Issuer's subsidiaries, Chispa Dos
Inc. ("CCI Salvador") for $5,525,000, and that CCI Salvador would repay
$3,864,529 of debt to FondElec. In addition, Telematica, FondElec, and other
investors in CCI Salvador would agree to enter into a Shareholders Agreement.
The Issuer and an affiliate of Telematica also agreed to enter into a letter of
intent with respect to an investment in Colombia. The terms of each transaction
called for by the Participation Agreement were set forth in separate agreements.
<PAGE>
Page 6 of 15 Pages
Stock Purchase Agreement
Telematica and the Issuer entered into a Stock Purchase Agreement,
dated as of October 18, 1999, pursuant to which Telematica purchased 2,000,000
shares of the Issuer's Series C Convertible Preferred Stock, par value $0.01 per
share, at a price of $7.50 per share, and agreed to purchase an additional
1,333,333 shares of the Issuer's Series C Convertible Preferred Stock at the
same price upon the expiration or termination of any waiting period requirements
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976.
Option Agreement
Telematica and the Issuer entered into an Option Agreement, dated as of
October 18, 1999, pursuant to which the Issuer granted Telematica an option to
purchase 40% of the aggregate number of shares of the Issuer's Series C
Convertible Preferred Stock that Telematica actually acquires pursuant to the
Stock Purchase Agreement. The option is immediately exercisable and expires on
July 18, 2000. The exercise price is $7.50 per share.
Rights, Preferences and Restrictions of Series C Convertible Preferred Stock
Each share of Series C Convertible Preferred Stock entitles the holder
thereof to the right to cast one vote on every matter brought before the holders
of shares of Common Stock. Except as otherwise provided by law, the holders of
Series C Preferred Stock, Series B Preferred Stock and Common Stock vote
together as one class on all matters submitted to a vote of the Issuer's
shareholders.
Upon a liquidation, dissolution or winding up of the Issuer, the
holders of the shares of Series C Convertible Preferred Stock are entitled,
before any distribution or payment is made upon any Common Stock or any other
class or series of stock ranking junior to the Series C Convertible Preferred
Stock as to the distribution of assets upon liquidation, to be paid an amount
equal to the greater of (A) $7.50 per share and all accrued but unpaid dividends
to such date and (B) the amount that would be received if all shares of Series C
Convertible Preferred Stock had been converted into Common Stock prior to the
liquidation, dissolution or winding up of the Issuer. The Series C Convertible
Preferred Stock is not redeemable.
<PAGE>
Page 7 of 15 Pages
Each share of Series C Convertible Preferred Stock is subject to
mandatory conversion at a price of $7.50 per share plus accrued but unpaid
dividends (A) when the holders of the outstanding Series C Convertible Preferred
Stock transfer their equity securities of the Issuer for cash consideration or
for securities of another entity that are registered and freely tradable or (B)
upon the effective date of a registration statement for an underwritten public
offering of the Issuer's securities, pursuant to which the Issuer receives net
proceeds from the offering of not less than $75 million. The Series C
Convertible Preferred Stock is convertible at any time into Common Stock at the
election of the holder at a price of $7.50 per share plus accrued but unpaid
dividends.
The conversion price of $7.50 per share is subject to adjustments upon
a reorganization, share exchange, reclassification, consolidation, merger,
subdivision or combination of shares, or payment of a stock dividend. The
conversion price is also subject to adjustment upon the issuance of additional
shares of Common Stock, or options to acquire shares of Common Stock, or
securities convertible into Common Stock, for consideration less than the
greater of the fair market price or $7.50 per share.
Warrant
The Issuer granted Telematica a warrant on October 18, 1999, to
purchase 500,000 shares of the Issuer's Common Stock. The warrant is exercisable
(A) whenever Telematica and the other parties to the Shareholders Agreement
described below transfer their equity in the Issuer for cash consideration or
for securities of another issuer that are registered and freely tradable, or (B)
upon the effective date of a registration statement for an underwritten public
offering of the Issuer's securities, pursuant to which the Issuer receives net
proceeds from the offering of not less than $75 million. The exercise price for
the warrant is set such that Telematica will receive the daily equivalent of an
internal rate of return on its investment in the Issuer's equity of 45% per
annum, but the exercise price may not be less than $.01 per share. If none of
the events specified in the second sentence of this paragraph occur before
October 18, 2003, then the warrant shall be deemed exercised on that day at a
price of $.01 per share.
<PAGE>
Page 8 of 15 Pages
Cashless exercise of the warrant is permitted. The number of shares
issuable upon exercise of the warrant and the exercise price are subject to
adjustments upon a reorganization, share exchange, reclassification,
consolidation, merger, subdivision or combination of shares, payment of a stock
dividend, or issuance of additional shares of Common Stock, or options to
acquire shares of Common Stock, or securities convertible into Common Stock.
Registration Rights Agreement
Telematica is a party to an Amended and Restated Registration Rights
Agreement, dated as of October 18, 1999, with the Issuer and certain other
purchasers and holders of the Issuer's stock. Registration rights exist with
respect to the following securities: the shares of Common Stock issued or
issuable upon the Conversion of Series C Preferred Stock; the shares of Common
Stock issued or issuable upon the exercise of the warrants granted to
Telematica, TCW, FondElec, Internexus, IFC and Glacier under the Participation
Agreement; the shares of Common Stock issued or issuable upon the exercise of
certain warrants and options held by FondElec and Internexus that pre-date the
Participation Agreement; and Common Stock held as of October 18, 1999 by
FondElec and Internexus. Upon request of holders of 20% or more of such
securities at any time after October 18, 2000, the Issuer shall file a
registration statement under the Securities Act of 1933. The Issuer shall have
no obligation to file more than three such registration statements, and no such
request may be filed until 180 days have passed since the Issuer filed its last
registration statement. If the securities for which registration is sought are
eligible for registration on Form S-2 or S-3, the holders shall have unlimited
rights to request registration.
If, at any time after October 18, 2000, the Issuer proposes to file a
registration statement with respect to an offering by the Issuer for its own
account or for the account of any of its respective security holders, then the
Issuer shall offer the parties to the Registration Rights Agreement the
opportunity to participate in that registration. Such participation may be
limited if an underwriter determines that it would materially and adversely
affect the success of such an offering.
Parties to the Registration Rights Agreement also may request
registration of securities of the Issuer that they hold other than those
<PAGE>
Page 9 of 15 Pages
securities specified above in connection with a change of control, a sale of all
or substantially all assets, and the exercise of tag-along rights and drag-along
obligations under the Shareholders Agreement.
With respect to a registration statement filed pursuant to a request
made under the Registration Rights Agreement, the Issuer may include securities
for its own account or for other shareholders. If the underwriter informs the
Issuer that the amount of securities to be registered may materially and
adversely affect the offering, then the amount of securities to be offered shall
be reduced pro rata for all offerors.
The Issuer shall pay all expenses associated with a registration,
except for underwriting fees, discounts and commissions, and expenses for
certain holders that participate in multiple registration statements.
Shareholders Agreement
Telematica entered into a Shareholders Agreement on October 18, 1999
with TCW, Glacier, the Estate of George D'Ambrosio, Lance D'Ambrosio, Troy
D'Ambrosio, FondElec Group, Inc., Pegasus Fund, L.P., FondElec, and Internexus
S.A. (collectively, the "Shareholder Parties"). The Issuer is also a party to
the Shareholders Agreement.
The Shareholder Parties agreed not to transfer any stock, options or
other equity of the Issuer that they hold unless (A) all the Shareholder
Parties, acting together, transfer their equity for cash consideration or for
securities of another issuer that are registered and freely tradable, or (B)
upon the effective date of a registration statement for an underwritten public
offering of the Issuer's securities, pursuant to which the Issuer receives net
proceeds from the offering of not less than $75 million.
For three years following the effective date of a registration
statement for an underwritten public offering of the Issuer's securities,
pursuant to which the Issuer receives net proceeds from the offering of not less
than $75 million, each Shareholder Party shall have tag-along rights with
respect to any transfer by another Shareholder Party. The tag-along rights are
not applicable to rights under warrants for the purchase of Common Stock,
transactions pursuant to Rule 144 under the Securities Act, or to sales on a
stock exchange pursuant to an effective registration statement.
<PAGE>
Page 10 of 15 Pages
If a Shareholder Party determines that its continued investment in the
Issuer or its subsidiaries exposes it to legal or regulatory processes that
result in substantial burdens or liability, then the other Shareholder Parties
shall seek to restructure their prospective investments. If the Shareholder
Party exposed to legal or regulatory processes determines that a restructuring
would involve terms and conditions that are not satisfactory to it, then it may
cease to be obligated to continue funding the Issuer and its subsidiaries and
dispose of the entirety of its interest in the Issuer, subject to a duty of
first negotiation with the other Shareholder Parties and the Issuer. Any
transferee shall be subject to the Shareholders Agreement.
The Shareholder Parties and the Issuer agreed that, so long as the
Issuer's board of directors consists of five members, they will vote their
shares in the Issuer in favor of one person selected by FondElec Group, Inc.,
Pegasus Fund, L.P., and FondElec, one person selected by Internexus, one person
selected by the Estate of George D'Ambrosio, Lance D'Ambrosio and Troy
D'Ambrosio, one person selected by Telematica, and one person selected by TCW.
The Shareholder Parties also agreed to take such actions as are required to
amend the Issuer's Articles of Incorporation to provide for a board of directors
consisting of ten members and, so long as the board consists of that number of
persons, to vote their shares in the Issuer in favor of two persons selected by
each of the shareholder groups.
Board of directors consent for ordinary matters require a simple
majority vote of the board members present at a meeting where there is a quorum.
Consent of a director designated by each of the groups that designates directors
will be required for the following actions: to engage in a transaction that
would result in a change of control or a transfer of all or substantially all of
the Issuer's assets, or any fundamental change in the nature of the Issuer's
business; to engage in a transaction with anyone having a significant
relationship with any Shareholder Party other than on an arm's length basis; to
appoint or remove the Issuer's or any subsidiary's independent auditors; to
issue securities other than for fair value, or to create increase or reduce a
preference for one or more but not all series or classes of capital stock of the
Issuer or any subsidiary; to increase or decrease the size of the board of
directors in a manner that affects the rights of representation set forth in the
Shareholders Agreement; to incur any debt, grant any guarantee, to transfer
<PAGE>
Page 11 of 15 Pages
assets or permit any encumbrance thereon, or to act as a surety or guarantor for
any third party, in any such case other than for fair value received; to make
stock repurchases or other distributions other than on a pro rata basis; to take
any action that would amend, modify or restate the articles of incorporation or
bylaws of the Issuer or any subsidiary or enter into any voting or management
agreement regarding the governance of any subsidiary; to determine to cease to
file reports under the Securities Exchange Act of 1934; or to enter into a
related party transaction.
Consent from four of the groups that designate directors will be
required to adopt an annual budget for the Issuer and its subsidiaries or to
modify the current budget to a significant degree; to adopt a change in
accounting principles, except to the extent required by GAAP or applicable law;
to authorize an underwritten public offering of the Issuer's securities,
pursuant to which the Issuer receives net proceeds from the offering of not less
than $75 million or to authorize a change of control or the sale of all or
substantially all of the assets of the Issuer or any subsidiary (unless the
purchase price in the offering represents a value per share of Common Stock that
will cause the Shareholder Parties' internal rate of return on their investment
in the Issuer to exceed 45%, in which case the consent of a director from three
of the groups is required). Consent of a director designated by three of the
groups that designate directors will be required to issue securities for fair
value or to select and retain certain executive officers of the Issuer and its
subsidiaries.
The Issuer shall negotiate with Telematica on the hiring of a person
designated by Telematica to provide advice on strategic planning, with total
annual compensation not to exceed $135,000. The Issuer also shall negotiate with
TCW on the hiring of a person to provide technical advice, with total annual
compensation to be commensurate with the advisor's scope of work. The Issuer and
FondElec Group, Inc. shall negotiate a restructuring of their investments in the
Issuer's subsidiary in El Salvador.
The Shareholder Parties and the Issuer agree that they will not, in
their capacities as shareholders, seek to remove a director named by one of the
Shareholder Parties pursuant to the Shareholders Agreement, unless the
shareholder that named the director seeks to remove the director.
<PAGE>
Page 12 of 15 Pages
If any third party offers to acquire all of the Issuer's equity held by
the Shareholder Parties for cash consideration at a price that will cause the
Shareholder Parties' internal rate of return on their investment in the Issuer
to equal or exceed 45%, and if three out of the five groups that name directors
agree to enter into such a transaction, then all the Shareholder Parties shall
be obligated to participate in the transaction.
If the Shareholder Parties are prepared to transfer all of their equity
in the Issuer for cash consideration or for securities of another issuer that
are registered and freely tradable, and if Telematica has a 50% or greater
interest in any subsidiary of the Issuer (or the right to acquire such an
interest), the Issuer shall provide Telematica with the Issuer's good faith
estimation of the value of Telematica's interest. Telematica then must either
sell its interest in the subsidiary to the Issuer at that price, or buy out the
Issuer's interest in the subsidiary at that price.
If the Shareholder Parties are prepared to transfer all of their equity
in the Issuer for cash consideration or for securities of another issuer that
are registered and freely tradable, and if Telematica has a less than 50%
interest in any subsidiary of the Issuer (or the right to acquire such an
interest), the Telematica may require the Issuer to exchange Telematica's
interest in the subsidiary for Common Stock of the Issuer at fair value.
Telematica shall have the same right with respect to any interest Telematica has
in a subsidiary of the Issuer, whether more or less than 50%, after the
expiration of a lock-up period imposed by the Issuer's underwriters upon the
occurrence of an underwritten public offering of the Issuer's securities,
pursuant to which the Issuer receives net proceeds from the offering of not less
than $75 million.
The Shareholders Agreement expires immediately when the Shareholder
Parties, acting together, transfer their equity for cash consideration or for
securities of another issuer that are registered and freely tradable. Otherwise,
the Shareholders Agreement continues in force until October 18, 2009, except
that certain provisions, including those relating to the composition of the
board of directors, supermajority voting on the board of directors, and the
drag-along rights, expire on October 18, 2006.
<PAGE>
Page 13 of 15 Pages
The foregoing description is qualified in its entirety by the
Participation Agreement, the Stock Purchase Agreement, the Option Agreement, the
Certificate of Designation, the Warrant and the Shareholders Agreement, which
are referenced in Item 7 of this Schedule 13D and incorporated in this Item 4 by
reference
Item 5. Interest in Securities of the Issuer.
- ------- -------------------------------------
(a) As of the date hereof, Telematica and CEDC could be deemed to own
beneficially an aggregate of 2,800,000 shares of Common Stock of the Issuer,
that is, 2,000,000 shares of Class C Convertible Preferred Stock and options to
purchase 800,000 shares of Class C Convertible Preferred Stock, which together
are convertible into 2,800,000 shares of Common Stock (approximately 19.3% of
the adjusted outstanding shares of Common Stock of the Issuer). The other
parties to the Shareholders Agreement could be deemed to own beneficially an
aggregate of 19,319,944 shares of Common Stock of the issuer (approximately
89.9% of the adjusted outstanding Common Stock of the Issuer).
(b) Telematica and CEDC have sole power to vote and dispose the
2,800,000 shares of Class A Common Stock of the Issuer that they could be
beneficially deemed to own.
(c) See Item 4.
(d) Not Applicable.
(e) Not Applicable.
Item 6. Contracts, Arrangements, Understandings or
Relationships with Respect to Securities of
the Issuer
-------------------------------------------
See Item 4.
Item 7. Material to be Filed as Exhibits.
- ------- ---------------------------------
(i) Directors and Executive Officers of Telematica and CEDC.
<PAGE>
Page 14 of 15 Pages
(ii) Participation Agreement, dated as of October 15, 1999, among
Convergence Communications, Inc., Telematica EDC, C.A., TCW/CCI Holding LLC,
International Finance Corporation, Glacier Latin-America Ltd., FondElec
Essential Services Growth Fund, L.P., Internexus S.A., Lance D'Ambrosio, Troy
D'Ambrosio and the Estate of George D'Ambrosio.
(iii) Stock Purchase Agreement, dated as of October 18, 1999, between
Convergence Communications, Inc. and Telematica EDC, C.A.
(iv) Option Agreement, dated as of October 18, 1999, among Convergence
Communications, Inc., Telematica EDC, C.A., TCW/CCI Holding LLC, International
Finance Corporation, Glacier Latin-America Ltd., FondElec Essential Services
Growth Fund, L.P., and Internexus S.A.
(v) Certificate Establishing and Designating the Rights, Preference and
Restrictions of Shares of Series C Convertible Preferred Stock of Convergence
Communications, Inc., dated as of October 13, 1999.
(vi) Warrant for the Purchase of 500,000 Shares of Common Stock of
Convergence Communications, Inc., dated as of October 18, 1999.
(vii) Amended and Restated Registration Rights Agreement, dated as of
October 18, 1999, among Convergence Communications, Inc., Pegasus Group, L.P.,
Telematica EDC, C.A., TCW/CCI Holding LLC, International Finance Corporation,
Glacier Latin-America Ltd., FondElec Essential Services Growth Fund, L.P.,
Internexus S.A., Lance D'Ambrosio, Troy D'Ambrosio and the Estate of George
D'Ambrosio.
(viii) CCI Shareholders Agreement, dated as of October 18, 1999, among
Convergence Communications, Inc., Telematica EDC, C.A., TCW/CCI Holding LLC,
International Finance Corporation, Glacier Latin-America Ltd., FondElec Group,
Inc., Pegasus Fund, L.P., FondElec Essential Services Growth Fund, L.P.,
Internexus S.A., Lance D'Ambrosio, Troy D'Ambrosio and the Estate of George
D'Ambrosio.
<PAGE>
Page 15 of 15 Pages
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: October 28, 1999
TELEMATICA EDC, C.A.
By: /x/ Norberto Corredor
--------------------------
CORPORACION EDC, C.A.
By: /x/ Luis Jose Diaz Zuloaga
--------------------------
Exhibit 1
DIRECTORS AND EXECUTIVE OFFICERS
OF TELEMATICA AND CEDC
The name, present principal occupation or employment, and the name of
any corporation or other organization in which such employment is conducted, of
each director, advisory director and executive officer of Telematica and CEDC is
set forth below. The business address of each such person is Avenida Vollmer,
San Bernardino - Apartado 2299, Caracas 1010-A - Venezuela and, unless otherwise
noted, each such person is a citizen of Venezuela.
TELEMATICA DIRECTORS
--------------------
Name Present Principal Occupation or Employment
---- ------------------------------------------
Luis Jose Diaz Executive Vice President of CEDC; Alternate
Zuloaga Director of Compania Anonimo Nacional
Telefonos de Venezuela, C.A. ("CANTV")
Gabriel Aiquel Director of Manufacturing and Services
Division of CEDC
German Uzcategui Director of Water Division of CEDC
TELEMATICA OFFICERS
-------------------
Name Present Principal Occupation or Employment
---- ------------------------------------------
Luis Jose Diaz Executive Vice President of CEDC; Alternate
Zuloaga Director of Compania Anonimo Nacional
Telefonos de Venezuela, C.A.
Luis Alfredo President of Fondo de Prevision de los
Bruzual Martinez trabajadores de la EDC y sus Filiales;
Secretary of Board of Directors of
Electricidad de Caracas and CEDC
<PAGE>
CEDC DIRECTORS AND ALTERNATE DIRECTORS
--------------------------------------
Name Present Principal Occupation or Employment
---- ------------------------------------------
Francisco G. Aguerrevere Chairman of CEDC, Member of the Board of
Directors of Mercantil Servicios
Financieros, Banco Mercantil, C.A. - S.A.C.A
Banco Universal ("Banco Mercantil"),
Siderurgica Venezolana, S.A. ("SIVENSA"),
Compania Anonima Nacional Telefonos de
Venezuela, C.A. ("CANTV"), Venezolana de
Pulpa y Papel ("VENEPAL"), EPSA, CAESS, EEO.
Member of Consejo de Fomento de la
Universidad Catolica Andres Bello and the
Consejo Directivo del Instituto de Estudios
Superiores de Administracion.
Oscar A. Machado Vice Chairman of CEDC. Chief Executive
Koeneke Officer of SIVENSA; President of Venezuela
Competitiva. Advisor to the Asociacion
Venezolana de Ejecutivos and the Instituto
Venezolano de Siderurgia. Member of Board of
Directors of SIVENSA, CEDC, Banco Mercantil
and Aeropuerto Caracas.
Miguel A. Capriles Canizzaro Director of CEDC.
Miguel A. Capriles Lopez Director of CEDC, President of Cadena
Capriles and Inversiones Capriles. Member of
Board of Directors of CEDC, Banco Mercantil,
C.A.. and Mercantil Servicios Financieros.
Adan Celis Gonzalez Director of CEDC. Lawyer. Member of Board of
Directors of CEDC. Chairman of Board of
Directors of Siderurgica del Orinoco
("SIDOR") and Compania Venezolana de
Ceramicas.
Andres Regue Mendoza Director of CEDC. President of CODENSA S.A.
(Nationality: Spanish) Vice-President of Consortio Energetico Punta
Cana-Macanao (Dominican Republic). Member of
Board ofDirectors of EMGESA, BETANIA, ENDESA
(Chile) and ENDESA.
Luis Ignacio Director of CEDC. Partner of Rodriguez &
Mendoza Mendoza Law Firm. Vice President of
Valores Quimicos Valquimica, S.A. Director
of SIVENSA, MAVESA, S.A., NEGROVEN, S.A.,
TRIPOLIVEN, S.A. and Carton de Venezuela,
S.A.
Bernardo Velutini Director of CEDC. President de Inversiones
Transbanca C.A.
Ricardo Zuloaga Director of CEDC. President of Urbanizadora
CORINSA, C.A., C.A., Urbanizadora La Rosa,
C.A., INTERPRET, Hato El Milagro, C.A.,
Fundacion Ricardo Zuloaga and Fundacion
Carlos Pacanins. Member of Board of Directors
of CEDC, Consorcio Inversionista Mercantil,
Banco Mercantil, Banco Noroco, Urbanizadora
Maturin, C.A., Faisa, S.A., El Recreo, S.A.,
CALEV, NEGROVEN, S.A., Westinghouse de
Venezuela, and Valores Quimicos, C.A. Member
of Board of Consultants to Banco Mercantil,
Banco Noroco. Advisor to the Universidad
Metropolitana, Fundacion Universidad
Metropolitana, Universidad Catolica Andres
Bello, Fundacion Mendoza and CENDICE.
Leopoldo Baptista Alternate Director of CEDC. Director of group
"La Rosa." President of CALEY, ELEGGUA and
Inversiones Palo Alto, S.R.L.
Armando Benacerraf Alternate Director of CEDC. President of
Yormar, C.A. Investments and Edifications.
Henrique Capriles Alternate Director of CEDC. Business Advisor.
Magaly Cannizzaro de Capriles Alternate Director of CEDC. Vice President
of Cadena de Publicaciones Capriles and
President of Valores y Desarrollos, S.A.
Melchor Perrusquia Berritzbeitia Alternate Director of CEDC. Vice President of
(Nationality: Cuatitlan Industries. Director and President
Mexican) of Grupo Industrial e Inmobiliaria
Cuautitlan, Inmobiliaria KL, Constructora
Karmel, Pluz, C.A., Servicios Industriales
Dinamicos, Peber Iluminacion, Empresa
Importadora e Exportadora Mundial, United
Trading, Mundo de Iluminacion, Arrendadora
Kaira, Dinamica Enpe y Producciones Guacamole
in Mexico City.
Miguel A. Capriles Capriles Alternate Director of CEDC. Alternate
Director of Banco Mercantil, C.A. and
Consorcio Inversionista Mercantil CIMA.
Gustavo Vollmer Alternate Director of CEDC. President of
Corporacion Palmar, S.A. Director of
Consorcio Inversionista Mercantil,
Siderurgica de Venezuela, S.A. Envases
Venezolanos e Industrias VENOCO. President
and member of the Board of "Consejo de
Empresarios Venezuela-Estados Unidos" and
member, Universidad Catolica Andres Bello
Alianza para una Venezuela sin Drogas;
Fundacion Venezuela 2000; Grupo Cincuenta
Consejo Consultivo de Coindustria, Board of
Trustees of Helen Keller International and
Consejo Consultivo of the New York Stock
Exchange for Latin America. Director of Banco
Mercantil,C.A.
Jorge Pirela L. Alternate Director of CEDC. President
ENELVEN, VICASA, S.A. and TRANSCASA.
President CAVEINEL. Member of the Board of
Directors of FEDECAMARAS.
Victor Sierra Alternate Director of CEDC. Degree in Law
from Universidad Central de Venezuela.
President of Cadena de Publicaciones
Capriles. Director of Banco Mercantil, C.A.,
Consorcio Inversionista Mercantil CIMA,
C.A.S.A.
Alberto J. Vollmer Alternate Director of CEDC. President of C.A.
Ron Santa Teresa, Alberto Vollmer Foundation,
Inc., Fundacion Simon Bolivar para las
Ciencias, Japan-Venezuela Economic
Cooperation Committee, Inversiones Tiquirito,
C.A. and Vencosul, S.A. Vice-President of
Comision de Seguridad y Defensa Nacional y
Comision de Asunto Economicos
Internacionales. Director of Alianza
Latinoamericana para la Familia.
Jose Manuel Kindelan Alternate Director of CEDC. Manager of
(Nationality: Spanish) Participadas Internacionales de ENDESA.
CEDC OFFICERS
-------------
Name Present Principal Occupation or Employment
---- ------------------------------------------
Luis Jose Diaz Zuloaga Executive Vice President of CEDC and
Alternate Director of CANTV.
Alexis Butto Director of Electricity Division of CEDC.
Elbano Provenzali Director of Hydrocarbons Division of CEDC.
German Uzcategui Director of Water Division of CEDC.
Gabriel Aiquel Director of Manufacturing and Services
Division of CEDC.
Exhibit 2
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
<TABLE>
<CAPTION>
Page
<S> <C> <C>
1. Definitions..............................................................................................2
2. The Transactions.........................................................................................2
(a) The Transactions................................................................................2
(b) The Closing and the Subsequent Closing..........................................................5
(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..................................................................10
(b) Authorization of Transaction...................................................................10
(c) Noncontravention...............................................................................11
(d) Brokers'Fees...................................................................................11
(e) Investment Intent..............................................................................11
(f) Restrictive Legend.............................................................................11
(g) Accredited Investor............................................................................12
(h) HSR Warranty...................................................................................13
4. Representations and Warranties of the Company Concerning the Company and its Subsidiaries...............13
(a) Organization, Qualification and Corporate Power................................................13
(b) Authorization of Transaction...................................................................14
(c) Capitalization.................................................................................14
(d) Noncontravention...............................................................................15
(e) Intellectual Property; Permits and Licenses....................................................15
(f) Financial Statements; Financial Condition......................................................18
(g) Taxes..........................................................................................19
(h) Employees and Labor Contracts..................................................................19
(i) Environmental Laws and Regulations.............................................................20
(j) Litigation.....................................................................................20
(k) Bankruptcy.....................................................................................21
(l) Ordinary Course................................................................................21
(m) Brokers........................................................................................21
(n) Contracts......................................................................................21
(o) Compliance with Laws...........................................................................21
(p) Business Plan and Use of Proceeds..............................................................22
(q) Complete Statements............................................................................22
(r) Reports........................................................................................22
(s) Related Party Transactions.....................................................................23
(t) Foreign Corrupt Practices Act..................................................................23
(u) No Bank Regulation.............................................................................23
(v) Property; Assets...............................................................................23
(w) Employee Benefits..............................................................................24
(x) U.S. Employee Plans............................................................................24
(y) Insurance......................................................................................24
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
(z) IFC Policies...................................................................................25
(aa) HSR Warranty...................................................................................25
5. Pre-Closing Covenants...................................................................................25
(a) General........................................................................................25
(b) Notices and Consents...........................................................................25
(c) Operation of Business..........................................................................25
(d) Preservation and Conduct of Business...........................................................26
(e) Full Access....................................................................................26
(f) Notice of Developments.........................................................................26
6. Conditions to Obligations...............................................................................26
(a) Conditions to Obligations of Each Investor at the Closing......................................26
(b) Conditions to Obligations of the Company at the Closing........................................27
(c) Conditions to Obligations at the Subsequent Closing............................................28
7. Indemnity...............................................................................................28
8. Termination.............................................................................................30
(a) Termination of Agreement.......................................................................30
(b) Effect of Termination..........................................................................31
(c) Specific Performance...........................................................................32
9. D'Ambrosio Participation................................................................................32
10. Removal of Legend; Use of Proceeds......................................................................32
11. Miscellaneous...........................................................................................32
(a) Press Releases and Public Announcements........................................................32
(b) No Third Party Beneficiaries...................................................................33
(c) Entire Agreement...............................................................................33
(d) Succession and Assignment......................................................................33
(e) Counterparts...................................................................................33
(f) Headings.......................................................................................33
(g) Notices........................................................................................33
(h) Governing Law..................................................................................36
(i) Amendments and Waivers.........................................................................36
(j) Severability...................................................................................36
(k) Expenses.......................................................................................36
(l) Construction...................................................................................36
(m) Incorporation of Attachments and Exhibits......................................................37
(n) Disputes.......................................................................................37
(o) Special IFC Covenants..........................................................................38
(p) Reporting to IFC...............................................................................38
</TABLE>
-ii-
<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
<PAGE>
(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
-2-
<PAGE>
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
-3-
<PAGE>
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
-4-
<PAGE>
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.
-5-
<PAGE>
(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;
-6-
<PAGE>
(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:
-7-
<PAGE>
(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.
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<PAGE>
(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;
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<PAGE>
(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
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<PAGE>
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.
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<PAGE>
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.
-12-
<PAGE>
(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.
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<PAGE>
(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
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<PAGE>
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,
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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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
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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,
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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
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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
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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
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<PAGE>
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).
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<PAGE>
(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:
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<PAGE>
(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.
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<PAGE>
(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
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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,
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<PAGE>
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:
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<PAGE>
(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
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<PAGE>
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
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<PAGE>
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:
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
(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
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONVERGENCE COMMUNICATIONS, INC.
By:________________________________________
Its:_______________________________________
TELEMATICA EDC, C.A.
By:________________________________________
Its:_______________________________________
TCW/CCI HOLDING LLC
By:________________________________________
Its:_______________________________________
INTERNATIONAL FINANCE CORPORATION
By:________________________________________
Its:_______________________________________
GLACIER LATIN-AMERICA LTD.
By:________________________________________
Its:_______________________________________
<PAGE>
FONDELEC ESSENTIAL SERVICES
GROWTH FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By:________________________________________
Its:_______________________________________
INTERNEXUS S.A.
By:________________________________________
Its:_______________________________________
JOINDER FOR PURPOSES OF SECTION 9:
___________________________________________
Lance D'Ambrosio
___________________________________________
Troy D'Ambrosio
ESTATE OF GEORGE S. D'AMBROSIO
By:________________________________________
Its:_______________________________________
<PAGE>
<TABLE>
<CAPTION>
EXHIBITS SCHEDULES
-------- ---------
<S> <C> <C> <C> <C> <C>
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
</TABLE>
Exhibit 3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is entered into as of
October 18, 1999, by and between CONVERGENCE COMMUNICATIONS, INC., a corporation
organized under the laws of the State of Nevada, United States of America (the
"Company") and TELEMATICA EDC, C.A., a Venezuelan compania anonima (the
"Investor"). The Company and the Investor 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, among the
Company, Telematica EDC, C.A., TCW/CCI Holding LLC, International Finance
Corporation, Glacier Latin-America Ltd., Fondelec Essential Services Growth
Fund, L.P. and Internexus S.A. (the "Participation Agreement").
WHEREAS, the Company and the Investor are parties to the Participation
Agreement, pursuant to which the Investor has agreed to invest in the Company
through the purchase of shares of the Company's Series C Preferred Stock and
other securities of the Company, as one of a series of transactions set out in
the Participation Agreement; and
WHEREAS, the Company and the Investor desire to establish the terms for
the purchase by the Investor, at the Closing and/or Subsequent Closing as set
forth below, of such shares by entering into this Agreement and intend this
Agreement to be the "CCI Stock Purchase Agreement" referenced in the
Participation Agreement.
NOW, THEREFORE, in consideration of the premises, representations,
warranties, covenants and the mutual promises contained herein and in the
Participation Agreement, the Parties agree as follows:
1. Purchase and Sale of Securities.
(a) The Transaction. On and subject to the terms and conditions of
this Agreement and the Participation Agreement, the Investor
hereby purchases from the Company, and the Company hereby
sells to the Investor: (i) at the Closing, a total of two
million (2,000,000) shares of the Company's Series C
Convertible Preferred Stock, par value $.001 per share, for a
purchase price per share of Seven and 50/100 United States
Dollars (U.S. $7.50), for the aggregate consideration
specified in Section 1(b)(i); and (ii) at the Subsequent
Closing, a total of one million three hundred and thirty three
thousand three hundred and thirty three (1,333,333) shares of
the Company's Series C Convertible Preferred Stock, par value
$.001 per share, for a purchase price per share of Seven and
50/100 United States Dollars (U.S. $7.50), for the aggregate
consideration specified in Section 1(b)(ii). The Series C
Convertible Preferred Stock acquired by the Investor at the
Closing and Subsequent Closing will be referred to herein as
the Investor's "Series C Shares." The Series C Shares shall
have the rights and preferences set out in Schedule 1 hereto.
<PAGE>
(b) Purchase Price. The Investor shall pay and contribute to the
Company, in exchange for its Series C Shares, the following:
(i) at the Closing, the amount of Fifteen Million United
States Dollars (U.S. $15,000,000) by delivery of cash payable
by wire transfer or delivery of other immediately available
funds; and (ii) at the Subsequent Closing, the amount of Ten
Million United States Dollars (U.S. $10,000,000) by delivery
of cash payable by wire transfer or delivery of other
immediately available funds. The amounts paid by the Investor
under this Section 1(b) shall be referred to collectively as
the "Purchase Price."
(c) Delivery of Shares. At the Closing, the Company shall deliver
to the Investor one or more certificates representing the
Series C Shares described in Section 1(a)(i), and, at the
Subsequent Closing, the Company shall deliver to the Investor
one or more certificates representing the Series C Shares
described in Section 1(a)(ii). The Series C Share certificates
will be in the form attached hereto as Exhibit A.
2. Application of Purchase Price. The Purchase Price shall be applied by
the Company in the manner set out in Schedule 3 to the Participation
Agreement.
3. 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). Thus,
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.
4. No Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any person other than the Parties and their
respective successors.
5. Succession. This Agreement shall be binding upon and inure to the
benefit of the Parties named herein and their respective successors.
6. Counterparts. This 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 Agreement, the delivery of a counterpart signature by
telephonic facsimile transmission shall be deemed the equivalent of the
delivery of an original counterpart signature.
7. Headings. The section headings contained in this Agreement are inserted
for convenience only and shall not affect in any way the meaning or
interpretation of this Agreement.
8. Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be provided in
the manner, and shall be deemed effective, as set forth for providing
notices in the Participation Agreement. Any Party may change the
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<PAGE>
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.
9. Governing Law. 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 the laws of any
jurisdiction other than the State of New York. All disputes arising
under or in relations 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 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 proceeding 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.
10. Amendments and Waivers. This Agreement may not be amended, extended or
modified unless an amendment, extension or modification has been
expressly approved by a writing signed by all the parties to the
Participation Agreement, and then only to the extent of such approval.
11. Severability. Any term or provision of this 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.
12. Construction. The Parties have participated jointly in the negotiation
and drafting of this Agreement. In the event an ambiguity or question
of intent or interpretation arises, this 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 Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as
of the date first above written.
COMPANY:
Convergence Communications, Inc.
By: ______________________________________
Its:______________________________________
INVESTOR:
Telematica EDC, C.A.
By: ______________________________________
Its:______________________________________
<PAGE>
Attachments
<TABLE>
<CAPTION>
Exhibits Schedules
- -------- ---------
<S> <C>
Exhibit A - Form of Series C Share Schedule 1 - Series C Shares Rights and
Certificates Preferences
</TABLE>
Exhibit 4
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;
<PAGE>
(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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, each party has executed this Agreement as of the
date set forth above.
CONVERGENCE COMMUNICATIONS, INC.
By:_________________________________
Its:________________________________
TELEMATICA EDC, C.A.
By:_________________________________
Its:________________________________
TCW/CCI HOLDING LLC
By:_________________________________
Its:________________________________
INTERNATIONAL FINANCE CORPORATION
By:_________________________________
Its:________________________________
GLACIER LATIN-AMERICA LTD.
By:_________________________________
Its:________________________________
<PAGE>
FONDELEC ESSENTIAL SERVICES
GROWTH FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By:_________________________________
Its:________________________________
INTERNEXUS S.A.
By:_________________________________
Its:________________________________
Exhibit 5
CERTIFICATE ESTABLISHING AND DESIGNATING
THE RIGHTS, PREFERENCE AND RESTRICTIONS OF SHARES OF
SERIES C CONVERTIBLE PREFERRED STOCK OF
CONVERGENCE COMMUNICATIONS, INC.
We, TROY D'AMBROSIO, Vice President, and ANTHONY SANSONE, Secretary, of
Convergence Communications, Inc. (the "Corporation"), a corporation organized
and existing under the General Corporation Laws of the State of Nevada, in
accordance with the provisions of ss. 78.195 of the Nevada Revised Statutes, DO
HEREBY CERTIFY:
That, in accordance with the authority expressly vested in the Board of
Directors of the Corporation, the Board of Directors, at a meeting duly held and
convened on October 12, 1999, adopted, fixed and determined the voting rights,
designations, preferences, qualifications, privileges, limitations,
restrictions, options and other special or relative rights of a series of the
Corporation's preferred stock ("Preferred Stock"), hereinafter designated as the
"Series C Convertible Preferred Stock," consisting of 14,250,000 shares of the
Corporation's 15,000,000 shares of authorized Preferred Stock, by adopting the
following resolution:
RESOLVED, that pursuant to the authority expressly vested in the
Board of Directors of the Corporation and pursuant to the provisions
of the General Corporation Law, the Board of Directors hereby fixes
and determines the relative voting rights, designations,
preferences, qualifications, privileges, limitations, restrictions
and other special or relative rights of the Series C Convertible
Preferred Stock, which shall consist of 14,250,000 shares of the
Corporation's preferred stock (the "Series C Preferred Stock"), as
follows:
1. Voting Rights. Each share of Series C Preferred Stock shall entitle
the holder thereof the right to cast one vote on every matter duly brought
before the holders of shares of common stock, $.001 par value, of the
Corporation ("Common Stock"). Except as otherwise provided by law, the holders
of Series C Preferred Stock, the holders of Series B Preferred Stock and the
holders of Common Stock shall vote together as one class on all matters
submitted to a vote of shareholders of the Corporation.
2. Retired Shares. Any Series C Preferred Stock purchased or otherwise
acquired by the Corporation in any manner whatsoever (including by reason of the
conversion of such Series C Preferred Stock into shares of Common Stock) shall
be retired and canceled promptly after the acquisition thereof. All such shares
shall, upon their cancellation, become authorized but unissued preferred stock
and may be reissued as part of a new series of Preferred Stock to be created by
resolution or resolutions of the Board of Directors.
<PAGE>
3. Liquidation, Dissolution or Winding Up.
(a) Upon a Liquidation Event (as hereinafter defined), the holders
of the shares of Series C Preferred Stock shall be entitled, before any
distribution or payment is made upon any Common Stock or any other class or
series of stock ranking junior to the Series C Preferred Stock as to
distribution of assets upon liquidation, to be paid an amount equal to the
greater of (A) the sum of (i) $7.50 per share (as adjusted for Reclassification
Events (as hereinafter defined)) and (ii) all accrued and unpaid dividends to
such date and (B) the amount which would be received if all shares of Series C
Preferred Stock had been converted to Common Stock prior to such Liquidation
Event (collectively, the "Liquidation Payments"). A "Liquidation Event" means
the liquidation, dissolution or winding up of the Corporation, whether voluntary
or involuntary. If upon any Liquidation Event the remaining assets of the
Corporation available for distribution to its stockholders shall be insufficient
to pay the holders of shares of Series C Preferred Stock the full amount to
which they shall be entitled, the holders of shares of Series C Preferred Stock
and any class or series of stock ranking upon a Liquidation Event on a parity
with the Series C Preferred Stock shall share ratably in the distribution of the
entire remaining assets and funds of the Corporation legally available for
distribution in proportion to the respective amounts which would otherwise be
payable in respect of such shares held by them upon such distribution if all
amounts payable on or with respect to such shares were paid in full.
(b) Upon any Liquidation Event, after the holders of Series C
Preferred Stock shall have been paid in full the Liquidation Payments, the
remaining assets of the Corporation may be distributed ratably per share in
order of preference to the holders of Common Stock and any other class or series
of stock ranking junior to the Series C Preferred Stock as to distribution of
assets upon liquidation.
(c) Written notice of a Liquidation Event, stating a payment date,
the amount of the Liquidation Payments and the place where said Liquidation
Payments shall be payable, shall be given by mail, postage prepaid, not less
than thirty (30) days prior to the payment date stated therein, to each holder
of record of Series C Preferred Stock at his post office address as shown by the
records of the Corporation.
4. Redemption. The Series C Preferred Stock shall not be redeemable.
5. Conversion. The holders of the Series C Preferred Stock shall have
the following conversion rights:
(a) Mandatory Conversion. Each share of Series C Preferred Stock
shall be converted automatically into fully paid and nonassessable shares of
Common Stock at the "conversion rate" (as defined in paragraph (c) below) in
effect immediately preceding the occurrence of either of the following events:
(i) all of the holders of the outstanding Series C Preferred
Stock, acting together, transfer their equity securities (including their Series
C Preferred Stock and any options, warrants or other rights they may hold to
acquire the Corporation's equity securities) for
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<PAGE>
cash consideration or for securities of another entity that are registered and
are freely tradable pursuant to a registration statement filed with and declared
effective by the Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Act"), and where the class of securities so registered
are listed or admitted for trading on the New York Stock Exchange, the American
Stock Exchange or the National Association of Securities Dealers Automated
Quotation System National Market (each a "Recognized Exchange"); or
(ii) the effective date of a registration statement for an
underwritten registered public offering of the Corporation's securities under
the Act, pursuant to which the class of the shares so registered is approved for
listing on a Recognized Exchange, the Corporation receives net proceeds from the
offering of not less than $75 million, and the offering is managed by a lead
underwriter of international standing (a "Qualified Public Offering").
(b) Optional Conversion. Each share of Series C Preferred Stock
shall be convertible at any time, at the option of the holder of record thereof,
into fully paid and nonassessable shares of Common Stock at the conversion rate
then in effect upon notice of conversion and surrender to the Corporation or its
transfer agent of the certificate or certificates representing the Series C
Preferred Stock to be converted, as provided below, or if the holder notifies
the Corporation or its transfer agent that such certificate or certificates have
been lost, stolen or destroyed, upon the execution and delivery of an agreement
satisfactory to the Corporation to indemnify the Corporation from any losses
incurred by it in connection therewith.
(c) Basis For Conversion; Converted Shares. The basis for any
conversion under this Section 5 shall be the "conversion rate" in effect at the
time of conversion (for mandatory conversions under the provisions of (a)
above), or at the time of notice and surrender (for optional conversions under
the provisions of (b) above), which for the purposes hereof shall mean the
number of shares of Common Stock issuable for each share of Series C Preferred
Stock surrendered for conversion under this Section 5 based on the conversion
price then in effect. The conversion price shall be $7.50 per share of Common
Stock, as adjusted pursuant hereto, and the conversion rate shall be $7.50
divided by the conversion price then in effect. If any fractional interest in a
share of Common Stock would be deliverable upon conversion of Series C Preferred
Stock, the Corporation shall pay in lieu of such fractional share an amount in
cash equal to the conversion price in effect at the close of business on the
date of conversion multiplied by such fractional share (computed to the nearest
one hundredth of a share). Any shares of Series C Preferred Stock which have
been converted shall be canceled and any dividends on converted shares shall
cease to accrue, and the certificates representing shares of Series C Preferred
Stock so converted shall represent only the right to receive (i) such number of
shares of Common Stock into which such shares of Series C Preferred Stock are
convertible, plus (ii) cash payable for any fractional share plus (iii) any
accrued but unpaid dividends relating to such shares through the immediately
preceding di`vidend payment date. Upon the conversion of shares of Series C
Preferred Stock as provided in this Section 5, the Corporation shall promptly
pay all then accrued but unpaid dividends to the holder of the Series C
Preferred Stock being converted. The Board of Directors of the Corporation shall
at all times reserve a sufficient number of authorized but unissued shares of
Common Stock to be issued in satisfaction of the conversion rights and
privileges aforesaid.
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<PAGE>
(d) Mechanics of Conversion. In the case of any mandatory
conversion, the Series C Preferred Stock shall automatically, and without
further action by the holder thereof, convert into shares of Common Stock and,
upon surrender of the certificate or certificates therefor at the office of the
Corporation or its transfer agent for the Series C Preferred Stock, the
Corporation shall, as soon as practicable thereafter, issue and deliver to such
holder, or to the nominees or nominee of such holder, a certificate or
certificates for the number of shares of Common Stock to which such holder shall
be entitled as aforesaid. In the case of an optional conversion, before any
holder of Series C Preferred Stock shall be entitled to convert the same into
shares of Common Stock, it shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or its transfer agent
for the Series C Preferred Stock, shall give written notice to the Corporation
of the election to convert the same and shall state therein the name or names in
which the certificate or certificates for shares of Common Stock are to be
issued and, upon the Corporation's receipt of such certificates, election to
convert and information regarding the names in which the shares of Common Stock
are to be issued, such shares of Series C Preferred Stock shall be deemed
converted. The Corporation shall, as soon as practicable thereafter, issue and
deliver to such holder of Series C Preferred Stock, or to the nominee or
nominees of such holder, a certificate or certificates for the number of shares
of Common Stock to which such holder shall be entitled as aforesaid. A
certificate or certificates will be issued for the remaining shares of Series C
Preferred Stock in any case in which fewer than all of the shares of Series C
Preferred Stock represented by a certificate are converted. Upon any conversion
of Series C Preferred Stock into Common Stock, all declared but unpaid cash
dividends on the converted Series C Preferred Stock shall be paid in cash.
(e) Issue Taxes. The Corporation shall pay all issue taxes, if any,
incurred in respect of the issue of shares of Common Stock on conversion. If a
holder of shares surrendered for conversion specifies that the shares of Common
Stock to be issued on conversion are to be issued in a name or names other than
the name or names in which such surrendered shares stand, the Corporation shall
not be required to pay any transfer or other taxes incurred by reason of the
issuance of such shares of Common Stock to the name of another, and if the
appropriate transfer taxes shall not have been paid to the Corporation or the
transfer agent for the Series C Preferred Stock at the time of surrender of the
shares involved, the shares of Common Stock issued upon conversion thereof may
be registered in the name or names in which the surrendered shares were
registered, despite the instructions to the contrary.
6. Adjustment of Conversion Price and Conversion Rate. The conversion
price and the conversion rate shall be subject to adjustment from time to time
in accordance with the following provisions:
(a) Certain Definitions. For purposes of this Certificate:
(i) The term "Additional Shares of Common Stock" shall mean all
shares of Common Stock issued, or deemed to be issued by the Corporation
pursuant to paragraph (g) of this Section 6, after the Original Issue Date, as
defined below, except:
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<PAGE>
(A) shares of Common Stock issuable upon conversion of, or
distributions with respect to, the Series B Preferred Stock or Series C
Preferred Stock now or hereafter issued by the Corporation, or pursuant to the
terms of any options or warrants to acquire Common Stock or Series C Preferred
Stock to be delivered in connection with the Corporation's anticipated sale of
shares of its Series C Preferred Stock, an option to acquire additional shares
of Series C Preferred Stock and warrants to purchase shares of Common Stock
under the terms of that certain proposed Participation Agreement among the
Corporation and certain accredited investors (the "Participation Agreement");
and
(B) shares of Common Stock issuable upon the exercise of
any options or warrants outstanding or approved by the Board of Directors prior
to the Original Issue Date; and
(C) the grant of options either prior to or after the
Original Issue Date to officers, directors, employees and agents to purchase up
to an aggregate of 10% of the shares of Common Stock outstanding, as determined
on the basis of the assumed exercise of all outstanding warrants and options and
the conversion of all Preferred Stock of the Corporation into Common Stock.
(ii) The term "Convertible Securities" shall mean any evidence
of indebtedness, shares (other than Series C Preferred Stock) or other
securities convertible into or exchangeable for Common Stock.
(iii) The term "Fair Market Price" 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; (b) if the shares are not listed or admitted for trading on
any Recognized Exchange, 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 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
Corporation 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
Corporation, and such fair value shall be deemed the Fair Market Price.
(iv) The term "Options" shall mean rights, options or warrants
to subscribe for, purchase or otherwise acquire Common Stock or Convertible
Securities.
(v) The term "Original Issue Date" shall mean the Subsequent
Closing Date, as that term is defined in the Participation Agreement or, if the
Participation Agreement is not executed by the parties thereto or is executed by
the parties thereto but no Subsequent
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<PAGE>
Closing (as defined in the Participation Agreement) takes place, the date of the
initial issuance of any Series C Preferred Stock.
(b) Reorganization, Reclassification. In the event of a
reorganization, share exchange or reclassification (other than a change in par
value, or from par value to no par value, or from no par value to par value, or
a transaction described in subsection (c) or (d) below), each share of Series C
Preferred Stock shall, after such reorganization, share exchange or
reclassification (a "Reclassification Event"), be convertible at the option of
the holder into the kind and number of shares of stock or other securities or
other property of the Corporation which the holder of Series C Preferred Stock
would have been entitled to receive if the holder had held the Common Stock
issuable upon conversion of such share of Series C Preferred Stock immediately
prior to such reorganization, share exchange or reclassification.
(c) Consolidation, Merger. In the event of a merger or consolidation
to which the Corporation is a party and pursuant to which the rights of
preferences of the holders of the Series C Preferred Stock are reduced or such
parties' ownership interests in the Corporation relative to one another are
changed, each share of Series C Preferred Stock shall, after such merger or
consolidation, be converted into the kind and number of shares of stock and/or
other securities, cash or other property which the holder of such share of
Series C Preferred Stock would have been entitled to receive if the holder had
held the Common Stock issuable upon conversion of such share of Series C
Preferred Stock immediately prior to such consolidation or merger.
(d) Subdivision or Combination of Shares. In case outstanding shares
of Common Stock shall be subdivided, the conversion price shall be
proportionately reduced as of the effective date of such subdivision, or as of
the date a record is taken of the holders of Common Stock for the purpose of so
subdividing, whichever is earlier. In case outstanding shares of Common Stock
shall be combined, the conversion price shall be proportionately increased as of
the effective date of such combination, or as of the date a record is taken of
the holders of Common Stock for the purpose of so combining, whichever is
earlier.
(e) Stock Dividends. In case shares of Common Stock are issued as a
dividend or other distribution on the Common Stock (or such dividend is
declared), then the conversion price shall be adjusted, as of the date a record
is taken of the holders of Common Stock for the purpose of receiving such
dividend or other distribution (or if no such record is taken, as of the
earliest of the date of such declaration, payment or other distribution), to
that price determined by multiplying the conversion price in effect immediately
prior to such declaration, payment or other distribution 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. In the event that the Corporation shall
declare or pay any dividend on the Common Stock payable in any right to acquire
Common Stock for no consideration, then the Corporation shall be deemed to have
made a dividend payable in Common Stock in an
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<PAGE>
amount of shares equal to the maximum number of shares issuable upon exercise of
such rights to acquire Common Stock.
(f) Issuance of Additional Shares of Common Stock. If the
Corporation shall issue any Additional Shares of Common Stock (including
Additional Shares of Common Stock to be issued pursuant to paragraph (g) below)
after the Original Issue Date (other than as provided in the foregoing
subsections (b) through (e)), for no consideration or for a consideration per
share less than the greater of (i) the Fair Market Price in effect on the date
of and immediately prior to such issue or (ii) the conversion price in effect on
the date of and immediately prior to such issue (such applicable consideration
per share being the "Applicable Price"), then in such event, the conversion
price shall be reduced, concurrently with such issue, to a price equal to the
prior conversion price multiplied by the quotient obtained by dividing (A) an
amount equal to (x) the total number of shares of Common Stock outstanding
immediately prior to such issuance or sale multiplied by the conversion price in
effect immediately prior to such issuance or sale, plus (y) the number of
Additional Shares of Common Stock deemed issued for the aggregate consideration
received or deemed to be received by the Corporation upon such issuance or sale
based on the Applicable Price, by (B) the total number of shares of Common Stock
outstanding immediately after such issuance or sale.
For purposes of the formulas expressed in paragraph 6(e) and 6(f), all
shares of Common Stock issuable upon the exercise of outstanding Options or
issuable upon the conversion of the Series C Preferred Stock or outstanding
Convertible Securities (including Convertible Securities issued upon the
exercise of outstanding Options), shall be deemed outstanding shares of Common
Stock both immediately before and after such issuance or sale.
(g) Deemed Issue of Additional Shares of Common Stock. In the event
the Corporation at any time or from time to time after the Original Issue Date
shall issue any Options or Convertible Securities or shall fix 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 for the consideration determined pursuant to paragraph 6(h)(ii), provided
that in any such case in which Additional Shares of Common Stock are deemed to
be issued:
(i) no further adjustments in the conversion price shall be made
upon 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;
(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
-7-
<PAGE>
to the Corporation, or increase or decrease in the number of shares of Common
Stock issuable, upon the exercise, conversion or exchange thereof, the
conversion price computed upon 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, upon 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 conversion price shall affect Common Stock previously issued
upon conversion of the Series C Preferred Stock);
(iii) upon the expiration of any such Options or any rights of
conversion or exchange under such Convertible Securities which shall not have
been exercised, the conversion price computed upon the original issue of such
Options or Convertible Securities (or upon the occurrence of a record date with
respect thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed as if:
(A) in the case of Options or Convertible Securities, the
only Additional Shares of Common Stock issued were the shares of Common Stock,
if any, actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation (x) for the issue of
all such Options, whether or not exercised, plus the consideration actually
received by the Corporation upon exercise of the Options or (y) for the issue of
all such Convertible Securities which were actually converted or exchanged plus
the additional consideration, if any, actually received by the Corporation upon
the conversion or exchange of the Convertible Securities; and
(B) in the case of Options for Convertible Securities,
only the Convertible Securities, if any, actually issued upon the exercise
thereof were issued at the time of issue of such Options, and the consideration
received by the Corporation for the Additional Shares of Common Stock deemed to
have been then issued was the consideration actually received by the Corporation
for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Corporation upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised.
(iv) No readjustment pursuant to clause (ii) or (iii) above
shall have the effect of increasing the conversion price to an amount which
exceeds the lower of (x) the conversion price on the original adjustment date or
(y) the conversion price that resulted from any issuance or deemed issuance of
Additional Shares of Common Stock between the original adjustment date and such
readjustment date.
(v) In the case of any Options which expire by their terms not
more than 30 days after the date of issue thereof, no adjustment of the
conversion price shall be made until the expiration or exercise of all such
Options, whereupon such adjustment shall be made in the same manner provided in
clause (iii) above.
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<PAGE>
(h) Determination of Consideration. For purposes of this Section 6,
the consideration received by the Corporation 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 Corporation; 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 by
the vote of 66-2/3% of the Corporation's Board of Directors or if the Board of
Directors cannot reach such agreement, by a qualified independent public
accounting firm, other than the accounting firm then engaged as the
Corporation's independent auditors, agreed upon by the Corporation on the one
hand and the holders of 66-2/3% of the outstanding shares of Series C Preferred
Stock on the other hand.
(ii) Options and Convertible Securities. The consideration per
share received by the Corporation for Additional Shares of Common Stock deemed
to have been issued pursuant to paragraph (g) above, relating to Options and
Convertible Securities shall be determined by dividing:
(A) the total amount, if any, received or receivable by
the Corporation 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
Corporation 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.
(i) Other Provisions Applicable to Adjustment Under this
Section. The following provisions will be applicable to the adjustments in
conversion price and conversion rate as provided in this Section 6:
(i) Treasury Shares. The number of shares of Common Stock
at Tany time outstanding shall not include any shares thereof then directly or
indirectly owned or held by or for the account of the Corporation or any shares
or securities subject to purchase or acquisition by the Corporation pursuant to
any executory contract of purchase.
(ii) Other Action Affecting Common Stock. In case the
Corporation shall take any action affecting the outstanding number of shares of
Common Stock other than an
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<PAGE>
action described in any of the foregoing subsections 6(b) to 6(g) hereof,
inclusive, which would have an inequitable effect on the holders of Series C
Preferred Stock, the conversion price shall be adjusted in such manner and at
such time as the Board of Directors of the Corporation on the advice of the
Corporation's independent public accountants may in good faith determine to be
equitable in the circumstances.
(iii) Minimum Adjustment. No adjustment of the conversion
price shall be made if the amount of any such adjustment would be an amount less
than one percent (1%) of the conversion price then in effect, but any such
amount shall be carried forward and an adjustment with 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 conversion price shall not
be adjusted upward except in the case 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 conversion price pursuant to Section 6(g)(ii) or (iii).
(j) Notices of Adjustments. Whenever the conversion rate and
conversion price is adjusted as herein provided, an officer of the Corporation
shall compute the adjusted conversion rate and conversion price in accordance
with the foregoing provisions and shall prepare a written certificate setting
forth such adjusted conversion rate and conversion price and showing in detail
the facts upon which such adjustment is based, and such written instrument shall
promptly be delivered to the record holders of the Series C Preferred Stock.
7. Ranking. The Series C Preferred Stock shall rank prior to the Common
Stock and all other classes or series of the Preferred Stock other than the
Series B Preferred Stock authorized by the Corporation's Board of Directors and
established pursuant to a filing with the Nevada Secretary of State's office on
August 18, 1997.
8. Fractional Shares. Series C Preferred Stock may be issued in
fractions of a share which shall entitle the holder, in proportion of such
holder's fractional shares, to exercise voting rights, receive dividends,
participate in distributions and to have the benefit of all other rights of the
holders of Series C Preferred Stock.
9. Dividends and Distributions. The holders of Series C Preferred Stock
shall be entitled to receive cash dividends and other distributions of cash or
property when, as and if declared by the Board of Directors out of funds legally
available for such purposes. If at any time the Corporation declares any such
dividend or other distribution on its Common Stock and there are shares of its
Series C Preferred Stock issued and outstanding, then a dividend or other
distribution shall also be declared on the Series C Preferred Stock, payable at
the same time and on the same terms and conditions, entitling each holder of
Series C Preferred Stock to receive the dividend or distribution such holder
would have received had such holder converted the Series C Preferred Stock as of
the record date for determining stockholders entitled to receive such dividend
or distribution.
-10-
<PAGE>
10. Information Rights. From and after the date hereof until such time
as the Series C Preferred Stock has been converted into shares of Common Stock,
the Corporation will furnish to holders of Series C Preferred Stock copies of
the following financial statements, reports and information:
(a) a copy of the Corporation's consolidated annual report
(including audited balance sheets, statements of operations, statements of
stockholders' equity and statements of cash flow) for the Corporation and each
subsidiary of the Corporation for such fiscal year, prepared in accordance with
generally accepted accounting principles ("GAAP") consistent with the preceding
year, certified by the Corporation's independent public accountants. During such
period as the Corporation is subject to the periodic reporting requirements of
either Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended,
such report and financial statements shall be delivered to the holders of Series
C Preferred Stock at such time as the Corporation files with the Securities and
Exchange Commission its annual report on Form 10-K or 10-KSB (but in no event
later than 105 days after the end of each fiscal year of the Corporation).
During such period as the Corporation is not subject to the periodic reporting
requirements of either Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended, such report and financial statements shall be delivered to the
holders of Series C Preferred Stock as soon as available and in any event within
90 days after the end of each fiscal year of the Corporation. (b) a consolidated
balance sheet, statement of operations and statement of cash flow for the
Corporation and its subsidiaries, as of the end of, and for, each such quarter,
prepared in accordance with GAAP consistently applied (subject to the absence of
notes and to customary and reasonable year-end adjustments), certified by the
Corporation's chief financial officer as fairly and accurately representing the
financial condition of the Corporation and its subsidiaries as of the end of,
and for, the period covered thereby. During such period as the Corporation is
subject to the periodic reporting requirements of either Section 13 or 15(d) of
the Securities Exchange Act of 1934, as amended, such report and financial
statements shall be delivered to the holders of Series C Preferred Stock at such
time as the Corporation files with the Securities and Exchange Commission its
quarterly report on Form 10-Q or 10-QSB (but in no event later than 60 days
after the end of each fiscal quarter of the Corporation. During such period as
the Corporation is not subject to the periodic reporting requirements of either
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, such
report and financial statements shall be delivered to the holders of Series C
Preferred Stock as soon as available and in any event within 45 days after the
end of each fiscal quarter of the Corporation; and
(c) such other information with respect to the financial condition
and operations of the Corporation and its subsidiaries and affiliates as the
holders of Series C Preferred Stock may reasonably request or as the Corporation
may be required to provide the holders of the Common Stock under the Nevada
General Corporation Laws.
11. Preemptive Rights.
(a) Subsequent Offerings. Each of the holders of Series C Preferred
Stock shall have a right to purchase its pro rata share on a fully-diluted basis
of all Equity Securities
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<PAGE>
that the Corporation may, from time to time, propose to sell and issue after the
Original Issue Date, other than the Equity Securities excluded by Section 11(f)
hereof. Each such holder's "pro rata share on a fully-diluted basis" for
purposes of this Section shall be defined as the ratio of (A) the number of
outstanding shares of Common Stock (based on the shares of Common Stock issued
or issuable upon conversion of all outstanding shares of Series C Preferred
Stock into shares of Common Stock or upon the exercise of any outstanding
options and warrants for the purchase or acquisition of Series C Preferred
Stock) of which such holder of Series C Preferred Stock is deemed to be a holder
immediately prior to the issuance of such Equity Securities to (B) the total
number of outstanding shares of Common Stock (including all shares of Common
Stock issued or issuable upon conversion of outstanding shares of Preferred
Stock into shares of Common Stock or upon the exercise of any outstanding
options and warrants to acquire Common Stock immediately prior to the issuance
of the Equity Securities. As used herein, "Equity Security" shall mean any
equity security of the Corporation, including, but not limited to (i) any shares
of Common Stock or shares of Preferred Stock, (ii) any security convertible,
with or without consideration, into shares of Common Stock, shares of Preferred
Stock or other equity securities of the Corporation (including any option to
purchase such a convertible security), (iii) any right to subscribe to or
purchase shares of Common Stock, shares of Preferred Stock or other equity
security of the Corporation or (iv) any security carrying such right.
(b) Exercise of Rights. If the Corporation proposes to issue any
Equity Securities (the "Offered Securities"), it shall give the holders of
Series C Preferred Stock written notice of its intention, describing the Equity
Securities, the price thereof and the terms and conditions upon which the
Corporation proposes to issue the same. Each such holder of Series C Preferred
Stock shall have the right, for a period of fifteen (15) business days from the
receipt of such notice, to deliver a notice to the Corporation agreeing to
purchase its pro rata share on a fully-diluted basis of the Equity Securities
for the price and upon the terms and conditions specified in the Corporation's
notice, stating therein the quantity of Offered Securities to be purchased and
its agreement to close the purchase of such Equity Securities concurrently with
the Corporation's sale of the Equity Securities to other parties.
Notwithstanding the foregoing, the Corporation shall not be required to offer or
sell such Equity Securities to any such holder of Series C Preferred Stock who
would cause the Corporation to be in violation of applicable securities laws by
virtue of such offer or sale.
(c) Issuance of Equity Securities to Other Person. Following the
fifteen (15) day notice period set forth in Section 11(b) hereof, the
Corporation shall have one hundred twenty (120) days thereafter to issue the
Equity Securities in respect of which the holders of Series C Preferred Stock
rights were not exercised, at a price and upon general terms and conditions
materially no more favorable to the purchasers thereof than specified in the
Corporation's notice to the holders of Series C Preferred Stock pursuant to
Section 11(b) hereof. If the Corporation has not sold such Equity Securities
within such 120-day period set forth in this Section 11(c), the Corporation
shall not thereafter issue or sell any Equity Securities without first offering
such securities to the holders of Series C Preferred Stock in the manner
provided above.
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<PAGE>
(d) Termination of Preemptive Rights. The preemptive rights
established by this Article 11 shall not apply to, and shall terminate
immediately prior to the effective date of the registration statement pertaining
to, a Qualified Public Offering.
(e) Transfer of Preemptive Rights. The preemptive rights of the
holders of Series C Preferred Stock under this Article 11 may not be
transferred.
(f) Excluded Securities. The preemptive rights established by this
Article 11 shall have no application to any of the following Equity Securities:
(i) shares of Common Stock (and/or options or other shares of
Common Stock purchase rights issued pursuant to such options or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to, the Corporation or any subsidiary, pursuant to stock purchase or
stock option or other plans or other arrangements that are approved by the Board
of Directors;
(ii) any Equity Securities issued in connection with the
Corporation effectuating or entering into: (1) a merger, consolidation,
amalgamation, acquisition or similar business combination approved by the Board
of Directors; or (2) a joint venture, commercial transaction (including, without
limitation, equipment lessors or other persons guaranteeing the obligations of
the Corporation to equipment lessors) or other commercial relationship approved
by the Board of Directors; or
(iii) any Equity Securities described in Section 6(a)(i)(A) or
Section 6(a)(i)(B); or
(iv) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Corporation.
12. Amendment. The rights, designations, preferences, qualifications,
privileges, limitations and restrictions set forth herein may be modified or
amended by a writing executed by the Corporation and the holders of 66 2/3% of
the outstanding Series C Preferred Stock.
* * * *
IN WITNESS WHEREOF, the undersigned hereby certify that the foregoing
resolution was duly and unanimously adopted by the Board of Directors of the
Corporation on October 12, 1999, and have caused this Certificate to be executed
this 13th day of October, 1999.
-----------------------------------------
Troy D'Ambrosio, Vice President
-----------------------------------------
Anthony Sansone, Secretary
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<PAGE>
STATE OF NEW YORK )
) ss.:
COUNTY OF NEW YORK )
The foregoing instrument was acknowledged before me this 13th day of
October, 1999, by Troy D'Ambrosio and Anthony Sansone, the Vice President and
Secretary, respectively, of Convergence Communications, Inc.
----------------------------------------
Notary Public
My Commission Expires: Residing at:
-------------------------------
- ------------------------------
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Exhibit 6
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. 1 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 Telematica EDC, C.A. ("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
<PAGE>
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.
2. 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
2
<PAGE>
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.
3. 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.
4. 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.
3
<PAGE>
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.
5. 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.
4
<PAGE>
(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
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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).
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<PAGE>
(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
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<PAGE>
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.
6. 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.
7. 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
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<PAGE>
(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.
8. 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.
9. 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
9
<PAGE>
cancellation of this Warrant, the Company will issue, in lieu thereof,
a new Warrant of like tenor.
10. 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.
11. 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.
12. 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.
13. 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.
14. 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.
15. 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.
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<PAGE>
16. 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:
--------------------------------------
Name:
Title:
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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
Exhibit 7
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;
<PAGE>
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.
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"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.
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<PAGE>
"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).
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<PAGE>
"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
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"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
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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
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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.
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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.
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(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
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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
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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
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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
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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.
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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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONVERGENCE COMMUNICATIONS, INC.
By:__________________________________________
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:__________________________________________
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:__________________________________________
Name:_____________________________________
Title:____________________________________
Address: 333 Ludlow Street
Stamford, CT 06902
Fax No.: (203) 326-4578
<PAGE>
INTERNEXUS S.A.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
Address: Peron 925, 1er Floor
Buenos Aires 1038, Argentina
Fax No.: 011-5411-4320-7560
TELEMATICA EDC, C.A.
By:__________________________________________
Name:_____________________________________
Title:____________________________________
Address: Avenida Vollmer, San Bernardino
Apartado 2299, Caracas
1010-A-Venezuela
Fax No.: 011-582-502-3500
TCW/CCI HOLDING LLC
By:__________________________________________
Name:_____________________________________
Title:____________________________________
Address: 200 Park Avenue, Suite 2100
New York, New York 10166
Fax No.: (212) 771-4155
<PAGE>
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:__________________________________________
Name:_____________________________________
Title:____________________________________
Address: 2999 N.E. 191 Street
Suite 404
Aventura, Florida 33180
Fax No.: (305) 935-6512
<PAGE>
_____________________________________________
LANCE D'AMBROSIO
Address: 3276 East Almira Court
Salt Lake City, Utah 84121
_____________________________________________
TROY D'AMBROSIO
Address: 2914 Nila Way
Salt Lake City, Utah 84124
ESTATE OF GEORGE S. D'AMBROSIO
By:__________________________________________
Its:_________________________________________
Address: 5451 South 1410 East
Salt Lake City, Utah 84117
Exhibit 8
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
<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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
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<PAGE>
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).
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<PAGE>
(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").
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<PAGE>
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
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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.
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<PAGE>
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;
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<PAGE>
(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
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<PAGE>
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
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<PAGE>
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.
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<PAGE>
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
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<PAGE>
(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
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<PAGE>
(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").
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<PAGE>
(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.
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<PAGE>
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.
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<PAGE>
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.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
CONVERGENCE COMMUNICATIONS, INC.
By: ___________________________________
Its: ___________________________________
TELEMATICA EDC, C.A.
By: ___________________________________
Its: ___________________________________
TCW/CCI HOLDING LLC
By: ___________________________________
Its: ___________________________________
INTERNATIONAL FINANCE CORPORATION
By: ___________________________________
Its: ___________________________________
<PAGE>
GLACIER LATIN-AMERICA LTD.
By: ___________________________________
Its: ___________________________________
FONDELEC ESSENTIAL SERVICES
GROWTH FUND, L.P.
By: FondElec E.S.G.P. Corp.
Its: General Partner
By: ___________________________________
Its: ___________________________________
FONDELEC GROUP, INC.
By: ___________________________________
Its: ___________________________________
<PAGE>
PEGASUS FUND, L.P.
By: Pegasus Management Corp.
Its: General Partner
By: ___________________________________
Its: ___________________________________
INTERNEXUS S.A.
By: ___________________________________
Its: ___________________________________
________________________________________
Lance D'Ambrosio
________________________________________
Troy D'Ambrosio
ESTATE OF GEORGE S. D'AMBROSIO
By: ___________________________________
Its: ___________________________________
<PAGE>
Schedule 1
List of Securities Issued by Convergence Communication, Inc.
