SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported): November 22, 1996
INTELLICALL, INC.
Exact name of registrant as specified in its charter
Delaware
State or other jurisdiction of incorporation
0-10588 75-1993841
Commission File Number I.R.S. Employer
Identification No.
2155 Chenault, Suite 410 Carrollton, Texas 75006
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Address of Principal Executive Offices
Registrant's telephone number, including area code: (972) 416-0022
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ITEM 5. Other Events
On November 22, 1996 the Registrant entered into a Loan and Security
Agreement (the "Loan Agreement") with Finova Capital Corporation ("Finova")
pursuant to which Finova has agreed to loan the Registrant up to $12,000,000
(the "Loan") based on available borrowing base. The Loan is evidenced by a
Secured Revolving Credit Note (the "Note") payable to the order of Finova.
Borrowings under the Loan bear interest at the rate of prime plus 1.75%. The
interest rate may be decreased prospectively by up to 0.5% based on future
profitability of the Registrant.
The initial term of the Loan Agreement is three years at which time,
unless extended, all amounts then outstanding under the Loan must be repaid. The
Loan Agreement contains prepayment penalties in the event it is terminated prior
to its initial term.
The Loan is secured by first and prior liens and security interests
encumbering substantially all of the assets of the Corporation, including
inventory, equipment, accounts receivable, general intangibles, trademarks and
tradenames.
Also, on November 22, 1996 the Registrant closed the sale of $5.0
million of 8% convertible subordinated notes due 2001 (the "Notes") to Banca del
Gottardo in Lugano Switzerland (the "Purchaser") pursuant to a Note and Warrant
Purchase, Paying and Conversion/Exercise Agency Agreement. The Notes were sold
at face value of $5 million. The Notes were sold with warrants (the "Warrants")
to purchase 200,000 shares of the Registrant's Common Stock. The conversion
price of the Notes, and the exercise price of the Warrants, will be fixed on
December 18, 1996 at a price equivalent to the average of the closing prices of
the Registrant's Common Stock on the New York Stock Exchange during the period
from November 4 to December 18, 1996 but shall in any event not be higher than
$5.00 per share. The Registrant also issued a warrant to a non-affiliated party
to purchase 150,000 shares of the Registrant's Common Stock on similar terms as
the Warrants as commission consideration for arranging the sale of the Notes.
The Purchaser received a Global Note and a Global Warrant from the
Registrant at closing and intends to distribute some or all the Notes and the
Warrants after the date of filing this Form 8-K. The Registrant issued the Notes
and Warrants in reliance on the exemption from registration provided by
Regulation S promulgated under the Securities Act of 1933, as amended.
ITEM 7. Financial Statements and Exhibits
(c) The following exhibits are filed as a part of this Form 8-K Current
Report:
10.1 Loan and Security Agreement executed with Finova Capital
Corporation.
10.2 Secured Revolving Credit Note made payable to Finova Capital
Corporation in the original principal amount of $12,000,000.
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10.3 Note and Warrant Purchase, Paying and Conversion/Exercise Agency
Agreement executed with Banca del Gottardo.
10.4 Form of 8% Convertible Subordinated Notes (included within
Exhibit 10.3).
10.5 Form of Warrants issued with Notes (included within
Exhibit 10.3).
ITEM 9. Sales of Equity Securities Pursuant to Regulation S
See disclosures contained in Item 5. Other Events of this Form 8-K for
disclosures on the sales of the Registrant's Notes pursuant to the exemption
from registration provided by Regulation S.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
INTELLICALL, INC.
(Registrant)
Dated: December 4, 1996 /s/ William O. Hunt
William O. Hunt
Chairman of the Board, Chief Executive
Officer and President
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FINOVA
Loan and Security Agreement
Borrower: INTELLICALL, INC.
Address: 2155 Chenault Avenue, Suite 410
Carrollton, Texas 75006-5023
Date: November 13, 1996
THIS LOAN AND SECURITY AGREEMENT ("Agreement") dated the date set forth above,
is entered into by and between the Borrower named above (the "Borrower"), whose
address is set forth above and FINOVA Capital Corporation ("FINOVA"), whose
address is 355 South Grand Avenue, Suite 2400, Los Angeles, California 90071.
1. LOANS.
1.1 Total Facility. Upon the terms and conditions set forth herein and provided
that no Event of Default or event which, with the giving of notice or the
passage of time, or both, would constitute an Event of Default, shall have
occurred and be continuing, FINOVA shall, upon Borrower's request, make advances
to Borrower from time to time in an aggregate outstanding principal amount not
to exceed the Total Facility amount (the "Total Facility") set forth on the
schedule hereto (the "Schedule"), subject to deduction of reserves for accrued
interest and such other reserves, including, without limitation, to the extent
not already taken into account in determining the advance rate or determination
of Eligible Receivables reserves with respect to (i) past due federal excise
taxes, state taxes or public utility charges; (ii) billing and collection
charges payable to Eligible LECs, OAN or Integretel, Inc.; (iii) other sums
chargeable against Borrower's Loan Account as Revolving Loans under any section
of this Agreement; (iv) untrued up volume by Eligible LECs; (v) LEC access
charges; (vi) up to three (3) months of any sums due and owing to any landlord
or mortgage from whom FINOVA has not obtained a landlord's or mortgage's waiver:
and (vii) such other matters, events, conditions, or contingencies as to as
FINOVA deems proper from time to time in its reasonable credit judgment, and
less amounts FINOVA may be obligated to pay in the future on behalf of Borrower.
The Schedule is an integral part of this Agreement and all references to
"herein", "herewith" and words of similar import shall for all purposes be
deemed to include the Schedule.
1.2 Loans. Advances under the Total Facility ("Loans") shall be comprised of the
amounts and at the advance rates shown on the Schedule. FINOVA may, during the
continuance of an Event of Default, in its sole discretion, adjust the advance
rates set forth on the Schedule.
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1.3 Overadvance. If at any time or for any reason the outstanding amount of
advances made pursuant hereto exceeds any of the dollar or percentage
limitations contained in the Schedule (any such excess, an "Overadvance"), then
Borrower shall, upon FINOVA's demand, immediately pay to FINOVA, in cash, the
full amount of such Overadvance. Without limiting Borrower's obligation to repay
to FINOVA on demand the amount of any Overadvance, Borrower agrees to pay FINOVA
interest on the outstanding principal amount of any Overadvance, on demand, at
the rate set forth on the Schedule.
1.4. Loan Account. All advances made hereunder shall be added to and deemed part
of the Obligations when made. FINOVA may from time to time charge all
Obligations of Borrower to Borrower's loan account with FINOVA when due.
2. CONDITIONS PRECEDENT.
2.1 Initial Advance. The obligation of FINOVA to make the initial advance
hereunder (the "Initial Advance") is subject to the fulfillment and satisfaction
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of FINOVA and its counsel, of each of the following conditions on or prior to
the date set forth on the Schedule:
(a) Loan Documents. FINOVA shall have received each of the following Loan
Documents: (i) the Secured Revolving Credit Note, in such amount and on
such terms and conditions as FINOVA shall specify, executed by Borrower;
(ii)such security agreements, intellectual property assignments and deeds
of trust as FINOVA may require with respect to this Agreement, executed by
each of the parties thereto and, if applicable, duly acknowledged for
recording or filing in the appropriate governmental offices; (iii)no
offset agreements from Integretel, Inc. and Plymouth Capital; (iv) such
Blocked Account or Dominion Account agreements as FINOVA shall determine;
and (v) such other documents, instruments and agreements in connection
herewith as FINOVA shall require, executed, certified and/or acknowledged
by such parties as FINOVA shall designate;
(b) Terminations by Existing Lender(s). Borrower's existing lender(s) shall
have executed and delivered UCC termination statements and other
documentation evidencing the termination of its liens and security
interests in the assets of Borrower;
(c) Charter Documents. FINOVA shall have received copies of Borrower's
By-laws and Articles or Certificate of Incorporation, as amended, modified,
or supplemented to the Closing Date, certified by the Secretary of
Borrower;
(d) Good Standing. FINOVA shall have received a certificate of corporate
status with respect to Borrower, dated within ten (10) days of the Closing
Date, by the Secretary of State of the state of incorporation of Borrower,
which certificate shall indicate that Borrower is in good standing in such
state;
(e) Foreign Qualification. FINOVA shall have received certificates of
corporate status with respect to Borrower dated within ten (10) days of the
Closing Date, issued by the Secretary of State of each state in which such
party's failure to be duly qualified or licensed would have a material
adverse effect on its financial condition or assets indicating that such
party is in good standing;
(f) Authorizing Resolutions and Incumbency. FINOVA shall have received a
certificate from the Secretary of Borrower attesting to (i) the adoption of
resolutions of Borrower's Board of Directors and/or shareholders, as
appropriate, authorizing the execution and delivery of this Agreement and
the other Loan Documents to which Borrower is a party, and authorizing
specific officers of Borrower to execute same, and (ii) the authenticity of
original specimen signatures of such officers;
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(g) Insurance. FINOVA shall have received the insurance certificates and
certified copies of policies required by Section 4.4 hereof, all in form
and substance satisfactory to FINOVA and its counsel;
(h) Title Insurance. Not Applicable.
(i) Searches; Certificates of Title. FINOVA shall have received searches
reflecting the filing of its financing statements and fixture filings in
such jurisdictions as it shall determine, and shall have received
certificates of title with respect to the Collateral which shall have been
duly executed in a manner sufficient to perfect all of the security
interests granted to FINOVA;
(j) Landlord and Mortgagee Waivers. FINOVA shall have received landlord,
warehouseman and mortgagee waivers from the lessors and mortgagees of all
locations where any Collateral is located.
(k) Fees. Borrower shall have paid all fees payable by it pursuant to this
Agreement on the earlier of the date of the Initial Advance or November 30,
1996;
(l) Opinion of Counsel. FINOVA shall have received an opinion of Borrower's
counsel covering such matters as FINOVA shall determine in its sole
discretion;
(m) Officer Certificate. FINOVA shall have received a certificate of the
President and the Chief Financial Officer or similar official of Borrower,
attesting to the accuracy of each of the representations and warranties of
Borrower set forth in this Agreement and the fulfillment of all conditions
precedent to the initial advance hereunder;
(n) Solvency Certificate. If requested by FINOVA, a signed certificate of
the Borrower's duly elected Chief Financial Officer concerning the solvency
and financial condition of Borrower, on FINOVA's standard form;
(o) Blocked Account/Dominion Account. The Blocked Account or Dominion
Account referred to in Section 7.3 hereof shall have been established to
the satisfaction of FINOVA in its sole discretion;
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(p) Environmental Assessment. Borrower shall have provided FINOVA with a
Phase I Environmental Assessment conducted in 1994 on the real property of
Borrower located in McAllen, Hidalgo County, Texas all at Borrower's own
expense. Such assessment(s) shall have been conducted by an environmental
engineer acceptable to FINOVA and the results of such assessment(s) site
inspection shall be in form and substance acceptable to FINOVA in its sole
discretion. Such assessment(s) shall have included, in FINOVA's discretion,
core samplings, and shall have been conducted by an environmental engineer
acceptable to FINOVA;
(q) Environmental Certificate. FINOVA shall have received an Environmental
Certificate from Borrower, in form and substance satisfactory to FINOVA in
its sole and absolute discretion, with respect to all locations of
Collateral; and
(r) Other Matters. All other documents and legal matters in connection with
the transactions contemplated by this Agreement shall have been delivered,
executed or recorded and shall be in form and substance satisfactory to
FINOVA and its counsel.
2.2 Subsequent Advances. The obligation of FINOVA to make any advance hereunder
shall be subject to the further conditions precedent that, on and as of the date
of such advance:
(a) the representations and warranties of Borrower set forth in this
Agreement shall be accurate in all material respects, before and after
giving effect to such advance or issuance and to the application of any
proceeds thereof provided that any representation or warranty which
represents or warrants as to matters as of a specific date shall only be
required to be true as of that date;
(b) no Event of Default and no event which, with notice or passage of time
or both, would constitute an Event of Default has occurred and is
continuing, or would result from such advance or issuance or from the
application of any proceeds thereof;
(c) no material adverse change has occurred since September 30, 1996 in the
Borrower's business, operations, financial condition, or assets (not
including any provision for Inventory losses); and
(d) FINOVA shall have received such other approvals, opinions or documents
required hereunder.
(e) in the event that all parties to Validity and Support Agreements have
terminated their employment with or are terminated by Borrower, the
individual(s) assuming the responsibilities of such individual(s) shall
have executed and delivered a Validity and Support Agreement(s) in
substantially the same form to FINOVA.
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3. INTEREST RATE AND OTHER CHARGES.
3.1 Interest; Fees. Borrower shall pay FINOVA interest on the daily outstanding
balance of Borrower's loan account at the per annum rate set forth on the
Schedule. Borrower shall also pay FINOVA the fees set forth on the Schedule.
3.2 Default Interest Rate. Upon the occurrence and during the continuation of an
Event of Default, Borrower shall pay FINOVA interest on the daily outstanding
balance of Borrower's loan account at a rate per annum which is two percent (2%)
in excess of the rate which would otherwise be applicable thereto pursuant to
the Schedule. All such default interest shall be payable upon demand of FINOVA.
3.3 Examination Fees. Borrower agrees to pay to FINOVA an examination fee in the
amount set forth on the Schedule in connection with each audit or examination of
Borrower performed by FINOVA prior to or after the date hereof.
3.4 Excess Interest. The contracted for rate of interest of the loan
contemplated hereby, without limitation, shall consist of the following: (i)the
interest rate set forth on the Schedule, calculated and applied to the principal
balance of the Obligations in accordance with the provisions of this Agreement;
(ii)interest after an Event of Default, calculated and applied to the amount of
the Obligations in accordance with the provisions hereof; and (iii)all
Additional Sums (as herein defined), if any. Borrower agrees to pay an effective
contracted for rate of interest which is the sum of the above-referenced
elements. The examination fees, attorneys' fees, expert witness fees, letter of
credit fees, collateral monitoring fees, closing fees, facility fees,
Termination Fees, Minimum Interest Charges, Unused Line fees, other charges,
goods, things in action or any other sums or things of value paid or payable by
Borrower (collectively, the "Additional Sums"), whether pursuant to this
Agreement or any other documents or instruments in any way pertaining to this
lending transaction, or otherwise with respect to this lending transaction, that
under any applicable law
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may be deemed to be interest with respect to this lending transaction, for the
purpose of any applicable law that may limit the maximum amount of interest to
be charged with respect to this lending transaction, shall be payable by
Borrower as, and shall be deemed to be, additional interest and for such
purposes only, the agreed upon and "contracted for rate of interest" of this
lending transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury laws of the State of
Arizona (the "Applicable Usury Law"). Accordingly, it is agreed that
notwithstanding any provisions to the contrary in this Agreement, or in any of
the documents securing payment hereof or otherwise relating hereto, in no event
shall this Agreement or such documents require the payment or permit the
collection of interest in excess of the maximum contract rate permitted by the
Applicable Usury Law (the "Maximum Interest Rate"). In the event (a)any such
excess of interest otherwise would be contracted for, charged or received from
Borrower or otherwise in connection with the loan evidenced hereby, (b)the
maturity of the Obligations is accelerated in whole or in part, or (c)all or
part of the Obligations shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, shared or received in
connection with the loan evidenced hereby, would exceed the Maximum Interest
Rate, then in any such event (1)the provisions of this paragraph shall govern
and control, (2)neither Borrower nor any other person or entity now or
hereafter liable for the payment of the Obligations shall be obligated to pay
the amount of such interest to the extent that it is in excess of the Maximum
Interest Rate, (3)any such excess which may have been collected shall be either
applied as a credit against the then unpaid principal amount of the Obligations
or refunded to Borrower, at FINOVA's sole option, and (4)the effective rate of
interest shall be automatically reduced to the Maximum Interest Rate. It is
further agreed, without limiting the generality of the foregoing, that to the
extent permitted by the Applicable Usury Law; (x)all calculations of interest
which are made for the purpose of determining whether such rate would exceed the
Maximum Interest Rate shall be made by amortizing, prorating, allocating and
spreading during the period of the full stated term of the loan evidenced
hereby, all interest at any time contracted for, charged or received from
Borrower or otherwise in connection with such loan; and (y)in the event that
the effective rate of interest on the loan should at any time exceed the Maximum
Interest Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid to
FINOVA from time to time, if and when the effective interest rate on the loan
otherwise falls below the Maximum Interest Rate, to the extent that interest
paid to the date of calculation does not exceed the Maximum Interest Rate, until
the entire amount of interest which would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law has been paid in full.
Borrower further agrees that should the Maximum Interest Rate be increased at
any time hereafter because of a change in the Applicable Usury Law, then to the
extent not prohibited by the Applicable Usury Law, such increases shall apply to
all indebtedness evidenced hereby regardless of when incurred; but, again to the
extent not prohibited by the Applicable Usury Law, should the Maximum Interest
Rate be decreased because of a change in the Applicable Usury Law, such
decreases shall not apply to the indebtedness evidenced hereby regardless of
when incurred.
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4. COLLATERAL.
4.1 Security Interest in the Collateral. To secure the payment and performance
of the Obligations when due, Borrower hereby grants to FINOVA a first priority
security interest in all of Borrower's now owned or hereafter acquired or
arising Inventory, Equipment, Receivables, and General Intangibles, including,
without limitation, all of Borrower's Deposit Accounts, money, any and all
property now or at any time hereafter in FINOVA's possession (including claims
and credit balances), and all proceeds (including, without limitation, proceeds
of any insurance policies, proceeds of proceeds and claims against third
parties), all products and all books and records related to any of the foregoing
(all of the foregoing, together with all other property in which FINOVA may be
granted a lien, mortgage or security interest including, but not limited to, the
stock of ILD Communications, Inc. (the "ILD Stock") and that certain note
receivable from Murdock Remmes & Associates in favor of Borrower (the "Murdock
Note") is referred to herein, collectively, as the "Collateral").
4.2 Perfection and Protection of Security Interest. Borrower shall, at its
expense, take all actions reasonably requested by FINOVA at any time to perfect,
maintain, protect and enforce FINOVA's security interest and other rights in the
Collateral and the priority thereof from time to time, including, without
limitation, (i) executing and filing financing or continuation statements and
amendments thereof and executing and delivering such documents and titles in
connection with motor vehicles as FINOVA shall require, all in form and
substance satisfactory to
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FINOVA, (ii) maintaining a perpetual inventory reporting system and complete and
accurate stock records, (iii)delivering to FINOVA warehouse receipts covering
any portion of the Collateral located in warehouses and for which warehouse
receipts are issued, and, after an Event of Default, transferring Inventory to
warehouses designated by FINOVA, (iv) placing notations on Borrower's books of
account to disclose FINOVA's security interest therein, and (v) delivering to
FINOVA all letters of credit on which Borrower is named beneficiary. FINOVA may
file, without Borrower's signature, one or more financing statements disclosing
FINOVA's security interest under this Agreement. Borrower agrees that a carbon,
photographic, photostatic or other reproduction of this Agreement or of a
financing statement is sufficient as a financing statement. If any Collateral
constituting Eligible Inventory or after the occurrence of an Event of Default
any Collateral is at any time in the possession or control of any warehouseman,
bailee or any of Borrower's agents or processors, Borrower shall upon any
request by FINOVA notify such Person of FINOVA's security interest in such
Collateral and, upon FINOVA's request, instruct them to hold all such Collateral
for FINOVA's account subject to FINOVA's instructions. From time to time,
Borrower shall, upon FINOVA's request, execute and deliver confirmatory written
instruments pledging the Collateral to FINOVA, but Borrower's failure to do so
shall not affect or limit FINOVA's security interest or other rights in and to
the Collateral. Until the Obligations have been fully satisfied and FINOVA's
obligation to make further advances hereunder has terminated, FINOVA's security
interest in the Collateral shall continue in full force and effect.
4.3 Preservation of Collateral. FINOVA may, in its sole discretion, at any time
discharge any lien or encumbrance on the Collateral which is not a Permitted
Encumbrance or bond the same, pay any insurance, maintain guards, pay any
service bureau, obtain any record or take any other action to preserve the
Collateral and charge the cost thereof to Borrower's loan account as an
Obligation.
4.4 Insurance. Borrower will maintain and deliver evidence to FINOVA of such
insurance required, written by insurers and in amounts satisfactory to FINOVA.
All premiums shall be paid by Borrower as and when due. Accurate and complete
copies of the policies shall be delivered by Borrower to FINOVA. If Borrower
fails to do so, FINOVA may (but shall not be required to) procure such insurance
at Borrower's expense and charge the cost thereof to Borrower's loan account as
an obligation. Each policy shall include a provision requiring thirty days'
prior written notice to FINOVA of any cancellation or substantial modification.
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5. EXAMINATION OF RECORDS; FINANCIAL REPORTING.
5.1 Examinations. FINOVA shall at all times have full access to and the
right to examine, audit, make abstracts and copies from and inspect Borrower's
records, files, books of account and all other documents, instruments and
agreements relating to the Collateral and the right to check, test and appraise
the Collateral. Borrower shall deliver to FINOVA any instrument necessary for
FINOVA to obtain records from any service bureau maintaining records for
Borrower. All instruments and certificates prepared by Borrower showing the
value of any of the Collateral shall be accompanied, upon FINOVA's request, by
copies of related purchase orders and invoices. FINOVA may, at any time during
the continuance of an Event of Default, remove from Borrower's premises
Borrower's books and records (or copies thereof) or require Borrower to deliver
such books and records or copies to FINOVA. FINOVA may, without expense to
FINOVA, use such of Borrower's personnel, supplies, copiers, facsimiles, other
equipment, and premises as may be reasonably necessary for maintaining or
enforcing FINOVA's security interest and rights hereunder.
5.2 Reporting Requirements. Borrower shall furnish FINOVA, upon request,
such information and statements as FINOVA shall reasonably request from time to
time regarding Borrower's business affairs, financial condition and the results
of its operations. Without limiting the generality of the foregoing, Borrower
shall provide FINOVA with (i) upon request, copies of sales invoices, customer
statements and credit memoranda issued, remittance advices and reports and
copies of deposit slips, daily; (ii) upon request, copies of shipping and
delivery documents, upon request; (iii) on or prior to the date set forth on the
Schedule, monthly agings and reconciliations of Receivables with listings of
concentrated accounts, payables reports, inventory reports and unaudited
financial statements with respect to the prior month prepared on a basis
consistent with such statements prepared in prior months and otherwise in
accordance with generally accepted accounting principles, consistently applied;
(iv) audited annual consolidated and consolidating financial statements,
prepared in accordance with generally accepted accounting principles applied on
a basis
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consistent with the most recent Prepared Financials provided to FINOVA
by Borrower, including balance sheets, income and cash flow statements of
Borrower and its subsidiaries, accompanied by the unqualified (other than a
qualification which would result in a positive adjustment to Borrower's
financial statement) report thereon of independent certified public accountants
acceptable to FINOVA as soon as available, and in any event, within ninety (90)
days after the end of each of Borrower's fiscal years; and (v) such certificates
relating to the foregoing as FINOVA may reasonably request, including, without
limitation, a monthly certificate from the president and the chief financial
officer of Borrower showing Borrower's compliance with each of the financial
covenants set forth in this Agreement, and stating whether any Event of Default
has occurred or event which, with giving of notice or the passage of time, or
both, would constitute an Event of Default, and if so, the steps being taken to
prevent or cure such Event of Default.
6. COLLATERAL REPORTING; INVENTORY.
6.1 Invoices. Borrower shall not re-date any invoice or sale from the original
date thereof or make sales on extended terms beyond those customary in
Borrower's industry, or otherwise extend or modify the term of any Eligible
Receivable existing on the Closing Date or of any Receivable thereafter created,
except in connection with the disposition of slow moving or obsolete Inventory.
If Borrower becomes aware of any matter materially affecting the enforceability
or collectability of any Eligible Receivable existing on the Closing Date or of
any Receivable thereafter created, in an amount greater than $25,000 in the
aggregate, including information adversely affecting the credit of the account
debtor thereon, Borrower shall promptly notify FINOVA in writing.
6.2 Instruments. In the event any Receivable is or becomes evidenced by a
promissory note, trade acceptance or any other instrument for the payment of
money, Borrower shall immediately deliver such instrument to FINOVA
appropriately endorsed to FINOVA and, regardless of the form of any presentment,
demand, notice of dishonor, protest or notice of protest with respect thereto,
Borrower shall remain liable thereon until such instrument is paid in full.
6.3 Physical Inventory. Borrower shall conduct a physical count of the Inventory
at such intervals as its auditors require, but not less than annually and after
the occurrence of an Event of Default as requested by FINOVA, promptly supply
FINOVA with a copy of such accounts accompanied by a report of the value
(calculated at the lower of cost or market value on a first in, first out basis)
of the Inventory and such additional information with respect to the Inventory
as FINOVA may request from time to time.
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6.4 Returns. For so long as no Event of Default has occurred and is continuing
and subject to the provisions of Section 9.4, if any account debtor returns any
Inventory to Borrower in the ordinary course of its business with an aggregate
value greater than $10,000, Borrower shall promptly determine the reason for
such return and, if appropriate, promptly issue a credit memorandum to the
account debtor (sending a copy to FINOVA) in the appropriate amount. In the
event any attempted return occurs after the occurrence of any Event of Default,
Borrower shall (i)hold the returned Inventory in trust for FINOVA,
(ii) segregate all returned Inventory from all of Borrower's other property,
(iii) conspicuously label the returned Inventory as FINOVA's property, and
(iv) immediately notify FINOVA of the return of any Inventory, specifying the
reason for such return, the location and condition of the returned Inventory,
and on FINOVA's request deliver such returned Inventory to FINOVA. Borrower
shall not consign any Eligible Inventory.
7. PRINCIPAL PAYMENTS; PROCEEDS OF COLLATERAL.
7.1 Principal Payments. Except where evidenced by notes or other instruments
issued or made by Borrower to FINOVA specifically containing payment provisions
which are in conflict with this Section 7.1 (in which event the conflicting
provisions of said notes or other instruments shall govern and control), that
portion of the Obligations consisting of principal payable on account of
Revolving Loans shall be payable by Borrower to FINOVA immediately upon the
earliest of (i) the receipt by FINOVA or Borrower of any proceeds of any of the
Collateral, to the extent of said proceeds, (ii) the occurrence of an Event of
Default in consequence of which FINOVA elects to accelerate the maturity and
payment of such loans, or (iii) any termination of this Agreement pursuant to
Section 16 hereof; provided, however, that any Overadvance shall be payable on
demand pursuant to the provisions of Section 1.3 hereof.
7.2 Collections. Until FINOVA notifies Borrower to the contrary after the
Initial Advance hereunder, Borrower may make collection of all Receivables for
FINOVA and shall receive all payments as trustee of
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FINOVA at all times after the Initial Advance hereunder and immediately deliver
all payments to FINOVA in their original form as set forth below, duly endorsed
in blank. FINOVA or its designee may, at any time after the Initial Advance
hereunder, pursuant to a Notice of Assignment in the form attached hereto as
Exhibit "7.2", notify account debtors and LECs that the Receivables have been
assigned to FINOVA and of FINOVA's security interest therein, and may collect
the Receivables directly and charge the collection costs and expenses to
Borrower's loan account. Borrower agrees that, solely for the purpose of
computing the charges under this Agreement, all items of payment shall be deemed
applied by FINOVA on account of the Obligations two (2) Business Days after
receipt by FINOVA of good funds which have been finally credited to FINOVA's
account, whether such funds are received directly from Borrower or from the
Blocked Account bank or the Dominion Account bank, pursuant to Section 7.3
hereof. FINOVA may charge Borrower's loan account for the amount of any item of
payment which is returned to FINOVA unpaid. In this Agreement or in any Loan
Document, whenever, there is a reference to "receipt by FINOVA of funds," or
language of similar effect regarding the receipt of funds by FINOVA, in order to
be credited to the applicable account on the date that good funds were received
by FINOVA (either directly or through a bank account or lockbox arrangement,
etc. ...) the funds must reach FINOVA no later than 2:00 p.m., Philadelphia,
Pennsylvania time, on that date. Any funds reaching FINOVA after 2:00 p.m.,
Philadelphia, Pennsylvania time, will be credited to the applicable account on
the next immediately following Business Day.
7.3 Establishment of a Lockbox Account or Dominion Account. At all times after
the Initial Advance hereunder, all proceeds of Collateral shall, at the
direction of FINOVA, be deposited by Borrower into a lockbox account, or such
other "blocked account" as FINOVA may require (each, a "Blocked Account")
pursuant to an arrangement with such bank as may be selected by Borrower and be
acceptable to FINOVA. At all times after the Initial Advance hereunder, Borrower
shall issue to any such bank an irrevocable letter of instruction directing said
bank to transfer such funds so deposited to FINOVA, either to any account
maintained by FINOVA at said bank or by wire transfer to appropriate account(s)
of FINOVA. All funds deposited in a Blocked Account shall immediately become the
sole property of FINOVA and Borrower shall obtain the agreement by such bank to
waive any offset rights against the funds so deposited. FINOVA assumes no
responsibility for any Blocked Account arrangement, including, without
limitation, any claim of accord and satisfaction or release with respect to
deposits accepted by any bank thereunder. Alternatively, FINOVA may, after the
Initial Advance hereunder, establish depository accounts in the name of FINOVA
at a bank or banks for the deposit of such funds (each, a "Dominion Account")
and Borrower shall deposit all proceeds of Receivables and all cash proceeds of
any sale of Inventory or, to the extent permitted herein, Equipment, or cause
same to be deposited, in kind, in such Dominion Accounts of FINOVA in lieu of
depositing same to Blocked Accounts.
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7.4 Payments Without Deductions. Borrower shall pay principal, interest, and all
other amounts payable hereunder, or under any related agreement, without any
deduction whatsoever, including, but not limited to, any deduction for any
setoff or counterclaim.
7.5 Collection Days Upon Repayment. In the event Borrower repays the Obligations
in full at any time hereafter, such payment in full solely for the purpose of
computing charges under this Agreement shall be credited (conditioned upon final
collection) to Borrower's loan account two (2) Business Days after FINOVA's
receipt thereof.
7.6 Monthly Accountings. FINOVA shall provide Borrower with an account of
advances, charges, expenses and payments and other transactions made pursuant to
this Agreement on a monthly basis. Such account shall be deemed correct,
accurate and binding on Borrower and an account stated (except for reverses and
reapplications of payments made and corrections of errors discovered by FINOVA),
unless Borrower notifies FINOVA in writing to the contrary within forty-five
(45) days after each account is rendered, describing the nature of any alleged
errors or admissions.
7.7 Collections and Administration. FINOVA may, after the date of the Initial
Advance, whether or not an Event of Default has occurred, without notice to or
assent of Borrower, (i) notify any account debtor of the fact that the Accounts
and other Collateral have been assigned to FINOVA by Borrower and that payment
thereof is to be made to the order of and directly to FINOVA, and after the
occurrence of an Event of Default (ii) demand, collect or enforce payment of any
Accounts or such other Collateral, but without any duty to do so, and FINOVA
shall not be liable for any failure to collect or enforce payment thereof. After
the date of the Initial Advance, at FINOVA's request, all invoices, or bills and
statements sent to any account debtor, other
<PAGE>
obligor or bailee, shall state that the Accounts and such Collateral shall have
been assigned to FINOVA and are payable directly and only to FINOVA. FINOVA
shall have the right, after the date of the Initial Advance, in FINOVA's name or
in the name of a nominee of the FINOVA, to verify the validity, amount or any
other matter relating to the Accounts or the other Collateral, by mail,
telephone or otherwise.
8. POWER OF ATTORNEY.
After the date of the Initial Advance Borrower irrevocably appoints FINOVA and
its officers, agents and designees as Borrower's attorney, with the power to
endorse Borrower's name on any checks, notes, acceptances, money orders or other
forms of payment or security that come into FINOVA's possession; to sign
Borrower's name on any invoice or bill of lading relating to any Receivable, on
drafts against customers, on assignments of Receivables, on notices of
assignment, financing statements and other public records, on verifications of
accounts and on notices to customers or account debtors; to send requests for
verification of Receivables to customers or account debtors; and after the
occurrence of any Event of Default, to notify the post office authorities to
change the address for delivery of Borrower's mail to an address designated by
FINOVA and to open and dispose of all mail addressed to Borrower, provided that
FINOVA shall within one business day of receipt forward all mail other than
checks and other items of payment to Borrower; and to do all other things FINOVA
deems necessary or desirable to carry out the terms of this Agreement. Borrower
hereby ratifies and approves all acts of such attorney. Neither FINOVA nor any
of its officers, agents and designees shall be liable for any acts or omissions
nor for any error of judgment or mistake of fact or law while acting as
Borrower's attorney other than matters constituting gross negligence or willful
misconduct. This power, being coupled with an interest, is irrevocable until the
Obligations have been fully satisfied and FINOVA's obligation to provide loans
hereunder shall have terminated.
9. RECEIVABLES AND INVENTORY.
9.1 Representations and Warranties.
(a) Receivables. Borrower hereby represents and warrants to FINOVA that:
(i) each existing Eligible Receivable represents, and each future
Receivable will represent, a bona fide sale or lease and delivery of goods
or services by Borrower, in the ordinary course of Borrower's business
except for Receivables resulting from the sale of excess or slow moving
inventory not made in the ordinary course of Borrower's business; (ii) each
existing Eligible Receivable is, and each future Receivable will be, for a
liquidated amount payable by the account thereon on the terms set forth in
the invoice therefor or in the schedule thereof delivered to FINOVA, and to
the extent such Receivable is an Eligible Receivable is and will be without
offset, deduction, defense, right of return, lien, encumbrance,
counterclaim or other condition except commissions payable in the ordinary
course of Borrower's business to owners of coin operated telephones;
(iii) no payment will be received with respect to any
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(page 8 continued)
Receivable, and no credit, discount (other than those discounts given in
the ordinary course of business), or extension, or agreement therefor will
be granted on any Receivable, except as reported to FINOVA to the extent
required in accordance with this Agreement; (iv) each copy of an invoice
delivered to FINOVA by Borrower will be a genuine copy of the original
invoice sent to the account debtor named therein; and (v) all goods
described in each invoice will have been delivered to the account debtor
and all services of Borrower described in each invoice will have been
performed.
(b) Invoices. Borrower represents and warrants that Borrower shall not
re-date any invoice or sale or for Receivables, make sales on extended
dating beyond that customary in Borrower's business or extend or modify any
Eligible Receivable existing on the Closing Date or of any Receivable
thereafter created. If Borrower becomes aware of any matter materially
affecting the enforceability or collectibility of any Eligible Receivable
existing on the Closing Date or of any Receivable thereafter created, in an
amount greater than $25,000 in the aggregate, including, without
limitation, information regarding the account debtor's creditworthiness,
Borrower will immediately so advise FINOVA in writing.
9.2 Inventory. With respect to Inventory, Borrower represents and warrants
to FINOVA that FINOVA may rely, in determining which items of Inventory
constitute Eligible Inventory, on all statements and representations made by
Borrower with respect to any Inventory and that: (a) all Eligible Inventory is
presently and will continue to be located at Borrower's places of business
listed at Section 12.16 of the Schedule; (b) no Eligible Inventory is now, nor
shall any Eligible Inventory at any time or times hereafter be, stored with a
bailee, warehouseman or similar party without FINOVA's prior written consent
and, if FINOVA gives such consent, Borrower will concurrently therewith cause
any such bailee, warehouseman, or similar party to issue and
<PAGE>
deliver to FINOVA, in form and substance acceptable to FINOVA, warehouse
receipts therefor in FINOVA's name; (c) except as permitted in Section 6.4, no
Eligible Inventory is or will be consigned to any Person without FINOVA's prior
written consent, and, if such consent is given, Borrower shall, prior to the
delivery of any Eligible Inventory on consignment: (I) provide FINOVA with all
consignment agreements to be used in connection with such consignment, all of
which shall be acceptable to FINOVA; (II) prepare, execute and file appropriate
financing statements with respect to any consigned Inventory, showing FINOVA as
assignee; (III) conduct a search of all filings made against the consignee in
all jurisdictions in which any consigned Inventory is to be located and deliver
to FINOVA copies of the results of all such searches and (IV) notify, in
writing, all the creditors of the consignee which are or may be holders of liens
in the Inventory to be consigned that Borrower expects to deliver certain
Inventory to the consignee, all of which Inventory shall be described in such
notice by item or type; and (d) no Inventory is or will be produced in violation
of the Fair Labor Standards Act.
9.3 Breach of Warranty or Representation.
(a) If any representation or warranty herein or in any report submitted to
FINOVA is breached as to any Receivable or any Receivable ceases to be an
Eligible Receivable for any reason other than payment thereof, and FINOVA
has reason to believe that the representation or warranty may have been
breached as to other Receivables owing by that account debtor, then FINOVA
may, in addition to its other rights hereunder, designate any and all
Receivables owing by that account debtor as not Eligible Receivables;
provided, that FINOVA shall in any such event retain its security interest
in all Receivables, whether or not Eligible Receivables, until the
Obligations have been fully satisfied and FINOVA's obligation to provide
loans hereunder has terminated.
(b) If any representation or warranty herein or in any report submitted to
FINOVA is breached as to any Inventory or any Inventory ceases to be
Eligible Inventory for any reason other than sale thereof in the ordinary
course, then FINOVA may, in addition to its other rights hereunder,
designate any and all of such Inventory as not Eligible Inventory;
provided, that FINOVA shall in any such event retain its security interest
in all Inventory, whether or not Eligible Inventory, until the Obligations
have been fully satisfied and FINOVA's obligation to provide loans
hereunder has terminated.
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(page 9 continued)
9.4 Disputes. Borrower shall notify FINOVA promptly of all disputes or
claims relating to any Eligible Receivable existing on the Closing Date or
of any Receivable thereafter created, which involve an amount in
controversy greater than $25,000 and settle or adjust such disputes or
claims at no expense to FINOVA, but no discount, credit or allowance shall
be granted to any account debtor obligated on an Eligible Receivable and no
returns of merchandise shall be accepted by Borrower without FINOVA's
consent, except for discounts, credits and allowances made or given in the
ordinary course of Borrower's business. Borrower shall if requested by
FINOVA send FINOVA a copy of each credit memorandum related to a Receivable
in excess of $25,000 as soon as issued or as soon as known by Borrower (not
withstanding Section 5.2(i)). FINOVA may, at any time after the occurrence
of an Event of Default, settle or adjust disputes or claims directly with
account debtors for amounts and upon terms which FINOVA considers advisable
in its reasonable credit judgment and, in all cases, FINOVA shall credit
Borrower's loan account with only the net amounts received by FINOVA in
payment of any Receivables.
10. EQUIPMENT.
Borrower shall keep and maintain the Equipment in good operating condition
and repair and make all necessary replacements thereto to maintain and preserve
the value and operating efficiency thereof at all times consistent with
Borrower's past practice, ordinary wear and tear excepted. Borrower shall not
permit any item of Equipment to become a fixture (other than a trade fixture) to
real estate or an accession to other property.
11. OTHER LIENS; NO DISPOSITION OF COLLATERAL.
Borrower represents, warrants and covenants that (a) all Collateral is and shall
continue to be owned by it free and clear of all liens, claims and encumbrances
whatsoever (except for FINOVA's security interest, Permitted Encumbrances, and
such other liens, claims and encumbrances as may be permitted by FINOVA in its
sole discretion from time to time in writing), and (b) Borrower shall not while
any Loan is outstanding, without FINOVA's prior written approval, sell, encumber
or dispose of or permit the sale, encumbrance or disposal of any Eligible
Receivables or Inventory, or any interest of Borrower therein, except for
(i) the sale of Inventory or the sale of Receivables to Eligible LECs
<PAGE>
and to billing aggregators such as Integretel and OAN in the ordinary course of
Borrower's business, provided that any such sale of Receivables shall be subject
to FINOVA's security interest in the Receivables sold to the extent the
Receivable is due from an End User, provided that FINOVA shall agree that its
interest in such Receivable shall be subordinate to any interest of the LEC or
billing aggregator which has purchased such Receivable at all times while such
LEC or billing aggregator is attempting to collect payment of such Receivable
from the End User and that FINOVA shall take no action with respect to its lien
until such time as such Eligible Receivable has been returned to Borrower, or
(ii) the sale of obsolete Equipment in the ordinary course of Borrower's
business. While any Loans are outstanding, the proceeds of any such sales shall
be remitted to FINOVA pursuant to this Agreement for application to the
Obligations. Provided that no Event of Default has occurred which is continuing,
and if Loans are then outstanding, the proceeds of such sale have been paid to
FINOVA, upon the sale of any Collateral permitted hereunder, FINOVA shall
execute such UCC-3 Termination Statements, lien releases and other instruments
as Borrower shall reasonably request to evidence the termination of FINOVA's
liens and security interests in such Collateral.
12. GENERAL REPRESENTATIONS AND WARRANTIES.
Borrower represents and warrants that:
12.1 Due Organization. It is a corporation duly organized, validly existing
and in good standing under the laws of the State set forth on the Schedule,
is qualified and authorized to do business and is in good standing in all
states in which such qualification and good standing are necessary in order
for it to conduct its business and own its property, and has all requisite
power and authority to conduct its business as presently conducted, to own
its property and to execute and deliver each of the Loan Documents to which
it is a party and perform all of its Obligations thereunder;
12.2 Other Names. It has not, during the preceding five (5) years, been
known by or used any other corporate or fictitious name except as set forth
on the Schedule, nor has it been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any
person during such time except as set forth on the Schedule;
12.3 Due Authorization. The execution, delivery and performance by Borrower
of the Loan Documents to which it is a party have been authorized by all
necessary corporate action and do not and shall not constitute a violation
of any applicable law or of Borrower's Articles or Certificate of
Incorporation or By-Laws or any other document, agreement or instrument to
which Borrower is a party or by which Borrower or its assets are bound;
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(page 10 continued)
12.4 Binding Obligation. Each of the Loan Documents to which Borrower is a
party is the legal, valid and binding obligation of Borrower enforceable
against Borrower in accordance with its terms;
12.5 Intangible Property. Borrower possesses adequate assets, licenses,
permits, approvals, patents, patent applications, copyrights, trademarks,
trademark applications and trade names for the present and planned future
conduct of its business without any known conflict with the rights of
others, and each is valid and has been duly registered or filed with the
appropriate governmental authorities;
12.6 Capital. Borrower has capital sufficient to conduct its business and
is able to pay its debts as they mature and owns property having a fair
salable value greater than the amount required to pay all of its debts
(including contingent debts);
12.7 Material Litigation. Except as disclosed on Exhibit "12.7" attached
hereto, Borrower has no pending or overtly threatened litigation, actions
or proceedings which would materially and adversely affect its business,
assets, operations, prospects or condition, financial or otherwise, or the
Collateral or any of FINOVA's interests therein;
12.8 Title; Security Interests of FINOVA. Borrower has good, indefeasible
and merchantable title to the Collateral and, upon the filing of UCC-1
Financing Statements, the initial advance of Loans, the assignment of
Borrower's intellectual property rights and the recording of any mortgages
or deeds of trust with respect to real property, in each case in the
appropriate offices, this Agreement and such documents shall create valid
and perfected first priority liens in the Collateral, subject only to
Permitted Encumbrances;
12.9 Restrictive Agreements; Labor Contracts. Except with respect to
agreements which will terminate simultaneously with the initial advance of
the Loans hereunder, Borrower is not a party or subject to any contract or
subject to any charge, corporate restriction, judgment, decree or order
materially and adversely
<PAGE>
affecting its business, assets, operations, prospects or condition,
financial or otherwise, or which restricts its right or ability to incur
Indebtedness, and it is not party to any labor dispute except as disclosed
on the Schedule. In addition, no labor contract is scheduled to expire
during the Initial Term of this Agreement, except as disclosed to FINOVA in
writing prior to the date hereof.
12.10 Laws. Borrower is not in violation of any applicable statute,
regulation, ordinance or any order of any court, tribunal or governmental
agency, in any respect materially and adversely affecting the Collateral or
its business, assets, operations, prospects or condition, financial or
otherwise;
12.11 Consents. Borrower has obtained or caused to be obtained or issued
any required consent of a governmental agency or other Person in connection
with the financing contemplated hereby;
12.12 Defaults. Borrower is not in default in any material respect with
respect to any note, indenture, loan agreement, mortgage, lease, deed or
other material agreement to which it is a party or by which it or its
assets are bound, nor has any event occurred which, with the giving of
notice or the lapse of time, or both, would cause such a default;
12.13 Financial Condition. The Prepared Financials fairly present
Borrower's financial condition and results of operations and those of such
other Persons described therein as of the date thereof; there are no
material omissions from the Prepared Financials or other facts or
circumstances not reflected in the Prepared Financials; and there has been
no material and adverse change in such financial condition or operations
since the date of the initial Prepared Financials delivered to FINOVA
hereunder;
12.14 ERISA. Neither Borrower, any ERISA Affiliate, or any Plan is or has
been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a) or any of the published
interpretations thereunder, nor has Borrower or any ERISA Affiliate
received any notice to such effect. No notice of intent to terminate a Plan
has been filed under Section 4041 of ERISA, nor has any Plan been
terminated under ERISA. The PBGC has not instituted proceedings to
terminate, or appointed a trustee to administer, a Plan. No lien upon the
assets of Borrower has arisen with respect to a Plan. No prohibited
transaction or Reportable Event has occurred with respect to a Plan.
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(page 11 continued)
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal
liability with respect to any Multiemployer Plan. Borrower and each ERISA
Affiliate have made all contributions required to be made by them to any
Plan or Multiemployer Plan when due. There is no accumulated funding
deficiency in any Plan, whether or not waived;
12.15 Taxes. Borrower has filed all tax returns and such other reports as
it is required by law to file and has paid or made adequate provision for
the payment on or prior to the date when due of all taxes, assessments and
similar charges that are due and payable;
12.16 Locations. Borrower's chief executive office and the offices and
locations where it keeps the Collateral (except for Inventory in transit
and consigned Inventory or Inventory delivered to a processor or to a
customer on approval not to exceed at any time in the aggregate $1,000,000
which in each case is not Eligible Inventory) are at the locations set
forth on the Schedule, except to the extent that such locations may have
been changed after notice to FINOVA in accordance with Section 13.5 below;
12.17 Business Relationships. To Borrower's knowledge on the closing date,
there exists no actual or threatened termination, cancellation or
limitation of, or any modification or change in, the business relationship
between Borrower and any customer or any group of customers whose purchases
individually or in the aggregate are material to the business of Borrower,
or with any material supplier; and
12.18 Reaffirmations. Each request for a loan made by Borrower pursuant to
this Agreement shall constitute (i) an automatic representation and
warranty by Borrower to FINOVA that there does not then exist any Event of
Default and (ii) a reaffirmation as of the date of said request that each
of the representations and warranties of Borrower contained in this
Agreement and the other Loan Documents is accurate in all material
respects.
12.19 Deferred Compensation. As of the Closing Date, Borrower owes no
deferred compensation to any of its officers or directors.
13. AFFIRMATIVE COVENANTS.
Borrower covenants that, so long as any Obligation remains outstanding and this
Agreement is in effect, it shall:
13.1 Expenses. Promptly reimburse FINOVA for all costs, fees and expenses
incurred by FINOVA in
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connection with the negotiation, preparation, execution, delivery,
administration and enforcement of each of the Loan Documents, including,
but not limited to, the attorneys' and paralegals' fees of outside counsel,
expert witness fees, lien, title search and insurance fees, appraisal fees,
all charges and expenses incurred in connection with any and all
environmental reports and environmental remediation activities, and all
other costs, expenses, taxes and filing or recording fees payable in
connection with the transactions contemplated by this Agreement, including
without limitation all such costs, fees and expenses as FINOVA shall incur
or for which FINOVA shall become obligated in connection with (i) any
inspection or verification of the Collateral (subject to the limitations
set forth in the Schedule), (ii) any proceeding relating to the Loan
Documents or the Collateral, (iii) actions taken with respect to the
Collateral and FINOVA's security interest therein, including, without
limitation, the defense or prosecution of any action involving FINOVA and
Borrower or any third party, (iv) enforcement of any of FINOVA's rights and
remedies with respect to the Obligations or Collateral, and
(v) consultation with FINOVA's attorneys and participation in any workout,
bankruptcy or other insolvency or other proceeding involving any Loan Party
or any Affiliate, whether or not suit is filed, where FINOVA in its
reasonable discretion believes that the outcome of such proceeding, if
adversely determined, would have a material adverse effect on Borrower or
the Collateral, Borrower shall also pay all FINOVA charges in connection
with bank wire transfers, forwarding of loan proceeds, deposits of checks
and other items of payment, returned checks, establishment and maintenance
of lockboxes and other Blocked Accounts, and all other bank and
administrative matters, in accordance with FINOVA's schedule of bank and
administrative fees and charges in effect from time to time with respect to
its customers generally;
13.2 Taxes. File all tax returns and pay or make adequate provision for the
payment of all taxes, assessments and other charges on or prior to the date
when due;
13.3 Notice of Litigation. Promptly notify FINOVA in writing of any
litigation, suit or administrative proceeding which is reasonably expected
to materially and adversely affect the Collateral or Borrower's business,
assets, operations, prospects or condition, financial or otherwise, whether
or not the claim is covered by insurance;
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(page 12 continued)
13.4 ERISA. Notify FINOVA in writing (i) promptly upon the occurrence of
any event described in Section 4043 of ERISA, other than a termination,
partial termination or merger of a Plan or a transfer of a Plan's assets
and (ii) prior to any termination, partial termination or merger of a Plan
or a transfer of a Plan's assets;
13.5 Change in Location. Notify FINOVA in writing forty-five (45) days
prior to any change in the location of Borrower's chief executive office or
the location of any Collateral, other than consigned Inventory or Inventory
delivered to a processor or to a processor or to a customer on approval not
to exceed at any time in the aggregate $1,000,000, which in each case is
not Eligible Inventory or Borrower's opening or closing of any other place
of business;
13.6 Corporate Existence. Maintain its corporate existence and its
qualification to do business and good standing in all states necessary for
the conduct of its business and the ownership of its property and maintain
adequate assets, licenses, patents, copyrights, trademarks and trade names
for the conduct of its business;
13.7 Labor Disputes. Promptly notify FINOVA in writing of any labor dispute
to which Borrower is or may become subject and the expiration of any labor
contract to which Borrower is a party or bound;
13.8 Violations of Law. Promptly notify FINOVA in writing of any violation
of any law, statute, regulation or ordinance of any governmental entity, or
of any agency thereof, applicable to Borrower which may materially and
adversely affect the Collateral or Borrower's business, assets, prospects,
operations or condition, financial or otherwise;
13.9 Defaults. Notify FINOVA in writing within five (5) Business Days of
Borrower's default under any material provision of any note, indenture,
loan agreement, mortgage, lease or other material agreement to which
Borrower or any of its Subsidiaries is a party or by which Borrower or any
of its Subsidiaries is bound, or of any other default under any
Indebtedness of Borrower for more than $10,000;
13.10 Capital Expenditures. Promptly notify FINOVA in writing of the making
of any Capital Expenditure not permitted hereunder materially affecting
Borrower's business, assets, prospects, operations or condition, financial
or otherwise;
<PAGE>
13.11 Books and Records. Keep adequate records and books of account with
respect to its business activities in which proper entries are made in
accordance with generally accepted accounting principles consistently
applied, reflecting all of its financial transactions;
13.12 Leases; Warehouse Agreements. Provide FINOVA with (i) copies of all
agreements between Borrower and any landlord or warehouseman which owns any
premises at which any Collateral may, from time to time, be located, other
than any location where Borrower only stores Ineligible Inventory and (ii)
without limiting the landlord and mortgagee waivers to be provided pursuant
to Section 2.1(j) above, landlord and mortgagee waivers in form acceptable
to FINOVA with respect to all locations where any Collateral is hereafter
located;
13.13 Additional Documents. At FINOVA's request, promptly execute or cause
to be executed and delivered to FINOVA any and all documents, instruments
or agreements deemed necessary by FINOVA to facilitate the collection of
the Obligations or the Collateral or otherwise to give effect to or carry
out the terms or intent of this Agreement or any of the other Loan
Documents. Without limiting the generality of the foregoing, if any of the
Receivables with a face value in excess of $25,000, individually or in the
aggregate, arises out of a contract with the United States of America or
any department, agency, subdivision or instrumentality thereof, Borrower
shall promptly notify FINOVA of such fact in writing and shall execute any
instruments and take any other action required or requested by FINOVA to
comply with the provisions of the Federal Assignment of Claims Act; and
13.14 Financial Covenants. Comply with the financial covenants set forth on
the Schedule.
13.15 OAN Acknowledgement Letter. Borrower shall use its best efforts to
obtain from OAN, Inc. an acknowledgement and no offset letter in form and
substance reasonably acceptable to FINOVA and its counsel within 45 days
after the closing date. In the event Borrower is unable to obtain such
letter, and OAN, Inc. at any time thereafter is no longer a wholly owned
subsidiary of EDS Borrower shall cease using OAN, Inc. to provide billing
services on behalf of Borrower.
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(page 13 continued)
14. NEGATIVE COVENANTS.
Without FINOVA's prior written consent, which consent FINOVA may withhold
in its sole discretion, so long as any Obligation remains outstanding and this
Agreement is in effect, Borrower shall not:
14.1 Mergers. Merge or consolidate with or acquire any other Person;
14.2 Loans. Make advances, loans or extensions of credit to, or invest in,
any Person other than Permitted Investments;
14.3 Dividends. Declare or pay cash dividends upon any of its stock or
distribute any of its property or redeem, retire, purchase or acquire
directly or indirectly any of its stock or make any other distributions;
14.4 Adverse Transactions. Knowingly enter into any transaction which with
the knowledge that it will materially and adversely affect the Collateral
(excluding Eligible Receivables existing on the Closing Date) or its
ability to repay the Obligations in full as and when due;
14.5 Indebtedness of Others. Become directly or contingently liable for the
Indebtedness of any Person except (i) by endorsement of instruments for
deposit; (ii) prior to the date of the Initial Advance, Indebtedness
pursuant to that certain Note Purchase Agreement dated August 11, 1994
between Borrower and Nomura Holding America, Inc., and all instruments and
agreements related thereto (the "Nomura Debt"); and (iii) other contingent
liabilities not exceeding $25,000, individually or in the aggregate, at any
one time;
14.6 Repurchase. Make a sale to any customer on a bill-and-hold, guaranteed
sale, sale and return, sale on approval, consignment, or any other
repurchase or return basis;
14.7 Name. Use any corporate or fictitious name other than its corporate
name as set forth in its Articles or Certificate of Incorporation on the
date hereof or as set forth on the Schedule;
14.8 Prepayment. Prepay any Indebtedness other than trade payables, the
Nomura Debt with the proceeds of the Initial Advance and the Obligations;
14.9 Capital Expenditure. Make or incur any Capital Expenditure if, after
giving effect thereto, the aggregate amount of all Capital Expenditures by
Borrower in any fiscal year would exceed the amount set forth on the
Schedule;
<PAGE>
14.10 Compensation. Intentionally omitted;
14.11 Indebtedness. Create, incur, assume or permit to exist any
Indebtedness (including Indebtedness in connection with Capital Leases) in
excess of the amount set forth on the Schedule, other than (i) the
Obligations, (ii) other Indebtedness existing on the date of this Agreement
and reflected in the Prepared Financials (except Indebtedness paid on the
date of this Agreement from proceeds of the initial advances hereunder),
(iii) from the date hereof until the date of the Initial Advance the Nomura
Debt and (iv) Indebtedness issued through Banca Del Gottardo in the
principal amount of up to $15,000,000;
14.12 Affiliate Transactions. Except as set forth below, or disclosed in
writing to Lender prior to the date hereof, sell, transfer, distribute or
pay any money or property to any Affiliate, or invest in (by capital
contribution or otherwise) or purchase or repurchase any stock or
Indebtedness, or any property, of any Affiliate, or become liable on any
guaranty of the indebtedness, dividends or other obligations of any
Affiliate. Notwithstanding the foregoing, Borrower may pay compensation to
employees who are Affiliates and, if no Event of Default has occurred,
Borrower may engage in transactions with Affiliates in the normal course of
business, in amounts and upon terms which are fully disclosed to FINOVA if
they are no less favorable to Borrower than would be obtainable in a
comparable arm's length transaction with a Person who is not an Affiliate;
14.13 Nature of Business. Enter into any new business other than the
delivery of telecommunications services and the manufacture and sale of
telecommunications products in each case similar to those currently
manufactured or sold by Borrower to End Users and other providers of
telecommunications services or make any material change in any of
Borrower's business objectives, purposes or operations;
14.14 FINOVA's Name. Use the name of FINOVA in connection with any of
Borrower's business or activities, except in connection with internal
business matters or as required in dealings with governmental agencies and
financial institutions or with trade creditors of Borrower, solely for
credit reference purposes; or
14.15 Margin Security. Own, purchase or acquire (or enter into any contract
to purchase or acquire) any "margin security" as defined by any regulation
of the Federal Reserve Board as now in effect or as the same may hereafter
be in effect.
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(page 14 continued)
15. ENVIRONMENTAL MATTERS.
15.1 Definitions. The following definitions apply to the provisions of this
Section 15:
(a) The term "Applicable Law" shall include, but shall not be limited
to, each statute named or referred to in this Section 15.1 and all
rules and regulations thereunder, and any other local, state and/or
federal laws, rules, regulations or ordinances, whether currently in
existence or hereafter enacted, which govern, to the extent applicable
to the Property or to Borrower, (i) the existence, cleanup and/or
remedy of contamination on real property; (ii) the protection of the
environment from soil, air or water pollution, or from spilled,
deposited or otherwise emplaced contamination; (iii) the emission or
discharge of hazardous substances into the environment; (iv) the
control of hazardous wastes; or (v) the use, generation, transport,
treatment, removal or recovery of Hazardous Substances;
(b) The term "Hazardous Substance" shall mean (i) any oil, flammable
substance, explosives, radioactive materials, hazardous wastes or
substances, toxic wastes or substances or any other wastes, materials
or pollutants which either pose a hazard to the Property or to persons
on or about the Property or cause the Property to be in violation of
any Applicable Law; (ii) asbestos in any form which is or could become
friable, urea formaldehyde foam insulation, transformers or other
equipment which contain dielectric fluid containing levels of
polychlorinated biphenyls, or radon gas; (iii) any chemical, material
or substance defined as or included in the definition of "hazardous
substances," "waste," "hazardous wastes," "hazardous materials,"
"extremely hazardous waste," "restricted hazardous waste," or "toxic
substances" or words of similar import under any Applicable Law,
including, but not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act ("CERCLA"), 42 USC 9601 et
seq.; the Resource Conservation and Recovery Act ("RCRA"), 42 USC 6901
et seq.; the Hazardous Materials Transportation Act, 49 USC 1801 et
seq.; the Federal Water Pollution Control Act, 33 USC 1251 et seq.;
(iv) any other chemical, material or substance, exposure to which is
prohibited, limited or regulated by any governmental authority which
may or could pose a hazard to the health or safety of the occupants of
the
<PAGE>
Property or the owners and/or occupants of property adjacent to or
surrounding the Property, or any other person coming upon the Property
or adjacent property; and (v) any other chemical, materials or
substance which may or could pose a hazard to the environment; and
(c) The term "Property" shall mean all real property, wherever
located, in which Borrower has any right, title or interest, whether
now existing or hereafter arising, and including, without limitation,
as owner, lessor or lessee.
15.2 Covenants and Representations.
(a) Borrower represents and warrants that there have not been during
the period of Borrower's possession of any interest in the Property
and, to the best of its knowledge after reasonable inquiry, except as
provided on Exhibit 15.2 attached hereto, there have not been at any
other times, any activities on the Property involving, directly or
indirectly, the use, generation, treatment, storage or disposal of any
Hazardous Substances except in material compliance with Applicable Law
(i) under, on or in the land included in the Property, whether
contained in soil, tanks, sumps, ponds, lagoons, barrels, cans or
other containments, structures or equipment, (ii) incorporated in the
buildings, structures or improvements included in the Property,
including any building material containing asbestos, or (iii) used in
connection with any operations on or in the Property.
(b) Except as provided on Exhibit 15.2 attached hereto, without
limiting the generality of the foregoing and to the extent not
included within the scope of this Section 15.2, Borrower represents
and warrants that it is in full compliance with Applicable Law and has
received no notice from any person or any governmental agency or other
entity of any violation by Borrower or its Affiliates of any
Applicable Law.
(c) Borrower agrees to indemnify FINOVA, protect and defend FINOVA
with counsel and experts reasonably acceptable to FINOVA, and hold
FINOVA harmless from and against any claims, actions, administrative
proceedings, judgments, damages, punitive damages, penalties, fines,
costs, liabilities (including sums paid in settlements of claims),
interest or losses, attorneys' fees (including any fees and expenses
incurred in enforcing this indemnity), consultant fees, expert fees,
and other out-of-pocket costs or expenses actually incurred by FINOVA
(collectively, the "Environmental Costs"), that may, at any time or
from time to time, arise directly or indirectly from or in connection
with: (i) the presence, suspected presence, release or suspected
release of any Hazardous Substance whether into the air, soil, surface
water or groundwater of or at the Property, or any other violation of
Applicable Law, or (ii) any breach of the foregoing representations
and covenants; except to the extent any of the foregoing result from
the actions of FINOVA, its employees, agents and representatives. All
Environmental Costs incurred or advanced by FINOVA shall be deemed to
be made by FINOVA in good faith and shall constitute Obligations
hereunder.
15
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(page 15 continued)
16. TERM; TERMINATION.
16.1 Term. The initial term of this Agreement shall be as set forth on
the Schedule (the "Initial Term") and may, in the sole discretion of
FINOVA, be renewed for successive periods of one (1) year (each, a
"Renewal Term"), unless earlier terminated as provided herein.
16.2 Prior Notice. Each party shall have the right to terminate this
Agreement at the end of the Initial Term or at the end of any Renewal
Term by giving the other party written notice not less than sixty (60)
days prior to the effective date of such termination, by registered or
certified mail.
16.3 Payment in Full. Upon the effective date of termination, the
Obligations shall become immediately due and payable in full in cash.
16.4 Early Termination; Termination Fee. In addition to the procedure
set forth in Section 16.2, Borrower may terminate this Agreement at
any time but only upon not less than fifteen (15) days' prior written
notice and prepayment of the Obligations in full in immediately
available funds. Upon any such early termination by Borrower or any
termination of this Agreement by FINOVA upon the occurrence of an
Event of Default, then, and in any such event, Borrower shall pay to
FINOVA upon the effective date of such termination a fee (the
"Termination Fee") in an amount equal to the amount shown on the
Schedule.
17. DEFAULT.
17.1 Events of Default. Any one or more of the following events shall
constitute an Event of Default under this Agreement:
(a) Borrower fails to pay when due and payable any portion of the
Obligations at stated maturity, upon acceleration or otherwise;
(b) Borrower or any other Loan Party fails or neglects to
perform, keep, or observe any term,
<PAGE>
provision, condition, covenant or agreement contained in any Loan
Document to which Borrower or such other Loan Party is a party,
and with respect to Sections 13.2, 13.6, 13.11 and 13.12 only if
such failure is not cured within fifteen (15) days after Borrower
becomes aware of or FINOVA notifies Borrower of such failure;
(c) The value or priority of FINOVA's security interest in a
portion of the Collateral with a value in excess of $75,000 is
impaired;
(d) Any material portion of Borrower's assets is seized,
attached, subjected to a writ or distress warrant, is levied upon
or comes into the possession of any judicial officer;
(e) Borrower shall generally not pay its debts as they become due
or shall enter into any agreement (whether written or oral), or
offer to enter into any agreement, with all or a significant
number of its creditors regarding any moratorium or other
indulgence with respect to its debts or the participation of such
creditors or their representatives in the supervision, management
or control of the business of Borrower;
(f) Any bankruptcy or other insolvency proceeding is (i)
commenced by Borrower, or (ii) commenced against Borrower and
remains undischarged or unstayed for sixty (60) days from the
date of the involuntary petition;
(g) Any notice of lien, levy or assessment other than a Permitted
Encumbrance is filed of record with respect to the Collateral and
such lien, levy or assessment has not been discharged within
fifteen (15) days after such filing;
(h) Any final non-appealable judgments in an aggregate amount
exceeding $100,000 which are not covered by insurance are entered
against Borrower;
(i) Any default by Borrower shall occur under any capital lease
or loan, between Borrower and any third party which would result
in a right by such third party to accelerate the maturity of any
Indebtedness of Borrower to such third party unless cured during
any applicable grace period, provided however, that if the amount
outstanding under such capital lease or loan shall be less than
Two Hundred Fifty Thousand Dollars ($250,000), Borrower shall
have thirty (30) days from the date of such default to cure such
default(s) so that such third party shall no longer have a right
to accelerate the maturity of the related indebtedness.
16
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(page 16 continued)
(k) Any representation or warranty made or deemed to be made by
Borrower or any Affiliate in any Loan Document or any other
statement, document or report made or delivered to FINOVA in
connection therewith shall prove to have been misleading in any
material respect;
(l) Any Prohibited Transaction or Reportable Event shall occur
with respect to a Plan which could have a material adverse effect
on the financial condition of Borrower; any lien upon the assets
of Borrower in connection with any Plan shall arise; Borrower or
any of its ERISA Affiliates shall fail to make full payment when
due of all amounts which Borrower or any of its ERISA Affiliates
may be required to pay to any Plan or any Multiemployer Plan as
one or more contributions thereto; Borrower or any of its ERISA
Affiliates creates or permits the creation of any accumulated
funding deficiency, whether or not waived; or
(m) Any person or group (as defined in Section 13(d)(3) or
14(d)(2) of the Securities Exchange Act of 1934) shall become the
direct or indirect beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934 of more than 40% of the
total voting power of all classes of capital stock then
outstanding of Borrower entitled (without regard to the
occurrence of any contingency) to vote in elections of directors
of Borrower; (m) The Initial Advance has not been made on or
before November 30, 1996.
17.2 Remedies. Upon the occurrence of an Event of Default, FINOVA may, at
its option and in its sole discretion and in addition to all of its other
rights under the Loan Documents, terminate this Agreement and declare all
of the Obligations to be immediately payable in full. FINOVA shall also
have all of its rights and remedies under applicable law, including,
without limitation, the default rights and remedies of a secured party
under the Code. Further, FINOVA may at any time during the continuance of
an Event of Default take possession of the Collateral and keep it on
Borrower's premises, at no cost to FINOVA, or remove any part of it to such
other place(s) as FINOVA may desire, or Borrower shall during the
continuance of an Event of Default, upon FINOVA's demand, at Borrower's
sole cost, assemble the Collateral and make it available to FINOVA at a
place reasonably convenient to FINOVA. During the continuance of an Event
of Default, FINOVA may sell and deliver any Collateral at public or private
sales, for cash, upon credit or otherwise, at
<PAGE>
such prices and upon such terms as FINOVA deems advisable, at FINOVA's
discretion, and may, if FINOVA deems it reasonable, postpone or adjourn any
sale of the Collateral by an announcement at the time and place of sale or
of such postponed or adjourned sale without giving a new notice of sale.
Borrower agrees that FINOVA has no obligation to preserve rights to the
Collateral or marshall any Collateral for the benefit of any Person. FINOVA
is hereby granted a license or other right to use, without charge during
the continuance of an Event of Default, Borrower's labels, patents,
copyrights, name, trade secrets, trade names, trademarks and advertising
matter, or any similar property, in completing production, advertising or
selling any Collateral and Borrower's rights under all licenses and all
franchise agreements shall inure to FINOVA's benefit. Any requirement of
reasonable notice shall be met if such notice is mailed postage prepaid to
Borrower at its address set forth in the heading to this Agreement at least
ten (10) days before sale or other disposition. The proceeds of sale shall
be applied, first, to all attorneys fees and other expenses of sale, and
second, to the Obligations in such order as FINOVA shall elect, in its sole
discretion. FINOVA shall return any excess to Borrower and Borrower shall
remain liable for any deficiency to the fullest extent permitted by law.
FINOVA shall also have the right during the continuance of an Event of
Default to reduce the Total Facility amount, the Borrowing Base or any
portion thereof or the advance rates or to modify the terms and conditions
upon which FINOVA is willing to consider making advances under the Total
Facility or to take additional reserves in the Borrowing Base for any
reason.
17.3 Standards for Determining Commercial Reasonableness. Borrower and
FINOVA agree that the following conduct by FINOVA with respect to any
disposition of Collateral shall conclusively be deemed commercially
reasonable (but other conduct by FINOVA, including, but not limited to,
FINOVA's use in its sole discretion of other or different times, places and
manners of noticing and conducting any disposition of Collateral shall not
be deemed unreasonable): Any public or private disposition as to which on
no later than the fifth calendar day prior thereto written notice thereof
is mailed or personally delivered to Borrower and, with respect to any
public disposition, on no later than the tenth calendar day prior thereto
notice thereof describing in general non-specific terms, the Collateral to
be disposed of is published once in a newspaper of general circulation in
the county where the sale is to be conducted. The public disposition shall
be at any place designated by FINOVA, with or without the Collateral being
present, and which commences at any time between 8:00 a.m. and 5:00 p.m.
(provided that no notice of any public or private disposition need be given
to the Borrower if the Collateral is perishable or threatens to decline
speedily in value or is of a type customarily sold on a recognized market).
Without limiting the generality of the foregoing, Borrower expressly agrees
that, with respect to any disposition of accounts, instruments and general
intangibles, it shall be commercially reasonable for FINOVA to direct any
prospective purchaser thereof to ascertain directly from Borrower any and
all information concerning the same, including, but not limited to, the
terms of payment, aging and delinquency, if any, the financial condition of
any obligor or account debtor thereon or guarantor thereof, and any
collateral therefor.
17
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(page 17 continued)
18. DEFINITIONS.
18.1 Defined Terms. As used in this Agreement, the following terms have the
definitions set forth below:
"Affiliate" means any Person controlling, controlled by or under common
control with Borrower. For purposes of this definition, "control" means the
possession, directly or indirectly, of the power to direct or cause
direction of the management and policies of any Person, whether through
ownership of common or preferred stock or other equity interests, by
contract or otherwise. Without limiting the generality of the foregoing,
each of the following shall be an Affiliate: any officer, director,
employee or other agent of Borrower, any shareholder or subsidiary of
Borrower, and any other Person with whom or which Borrower has common
shareholders, officers or directors.
"Billing Contract" means any agreement for billing and/or collection
services by and between any LEC and Borrower, and any tariff of any LEC for
billing and/or collection services pursuant to which Borrower directly
receives billing and/or collection services.
"Billing Services Agreements" means the billing services agreements in the
form delivered by Borrower to FINOVA prior to the date hereof, executed and
delivered and by and between Borrower and certain billing aggregators
acceptable to FINOVA (such as Integretel, Inc. or OAN), as the same may
from time to time be amended, with such changes therein as shall be
acceptable to FINOVA, and any other billing services agreement between
Borrower and an Eligible LEC entered into after the date hereof.
17
<PAGE>
(page 17 continued)
"Billing Tape" means a billing tape in EMI or other format designated by an
Eligible LEC and presentable to billing aggregator or LEC in accordance
with the applicable Billing Contract.
"Business Day" means any day on which commercial banks in both
Philadelphia, Pennsylvania and Phoenix, Arizona are open for business.
"Capital Expenditures" means all expenditures made and liabilities incurred
for the acquisition of any fixed asset or improvement, replacement,
substitution or addition thereto which has a useful life of more than one
year and including, without limitation, those arising in connection with
Capital Leases.
"Capital Lease" means any lease of property by Borrower that, in accordance
with generally accepted accounting principles, should be capitalized for
financial reporting purposes and reflected as a liability on the balance
sheet of Borrower.
"Closing Date" means the date on which this Agreement is executed.
"Code" means the Uniform Commercial Code as adopted and in effect in the
State of Arizona from time to time.
"Collateral" has the meaning set forth in Section 4.1 above.
"Current Assets" at any date means the amount at which the current assets
of Borrower would be shown on a balance sheet of Borrower as at such date,
prepared in accordance with generally accepted accounting principles,
provided that amounts due from Affiliates and investments in Affiliates
shall be excluded therefrom.
"Current Liabilities" at any date means the amount at which the current
liabilities of Borrower would be shown on a balance sheet of Borrower as at
such date, prepared in accordance with generally accepted accounting
principles, but excluding current maturities on long-term Indebtedness and
the Receivable Loans.
"Deposit Accounts" has the meaning set forth in Section 9105 of the Code.
"Direct Billed Receivables" means any Receivable which is invoiced or
billed solely by Borrower to an End User.
18
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(page 18 continued)
"Earnings Before Interest and Taxes" for any fiscal period of Borrower
means the net income of Borrower for such fiscal period, plus interest
expense and provision for income taxes for such fiscal period, and minus
non-recurring miscellaneous income and expenses, all calculated in
accordance with generally accepted accounting principles, consistently
applied.
"Eligible LEC" means any LEC set forth on Exhibit "A" attached hereto and
incorporated herein by reference and any other LEC hereafter expressly
approved by FINOVA in writing.
"Eligible Inventory" means such Inventory of Borrower which FINOVA, in its
reasonable discretion based on such credit and collateral considerations as
FINOVA deems appropriate deems to be Eligible Inventory. Without limiting
the generality of the foregoing, no Inventory shall be Eligible Inventory
unless it (i) is calculated on the basis of the lower of cost or market and
on a first-in, first-out basis; (ii) is not obsolete or unmerchantable;
(iii) conforms in all respects to the warranties and representations set
forth in Section 9.2 hereof; (iv) is at all times subject to FINOVA's duly
perfected, first priority security interest and no other Lien; and (v) is
presently and will continue to be situated at a location set forth at
Section 12.6 of the Schedule and is not in-transit. In addition, no
Inventory shall be Eligible Inventory if it consists of work in process,
packaging materials, overhead allocated to raw materials (excluding freight
charges related thereto), and slow-moving goods (which shall include,
without limitation, the lower of (A) the amount of reserves for slow moving
items as set forth in Borrower's financial statements as delivered to
FINOVA hereunder; or (B) the Borrower's internal report which reflects
quantities of Inventory which are at any time in excess of past three
years' running usage, as measured on a month to month basis), all as
determined by FINOVA in its sole and absolute discretion.
"Eligible Lease Contracts" means: leases arising in the ordinary course of
Borrower's business from the lease of pay telephones, network equipment and
software which FINOVA, shall reasonably deem eligible based on such credit
and collateral, considerations as FINOVA may from time to time deem
reasonably appropriate. Without limiting the foregoing, a lease shall not
be deemed to be an Eligible Lease Contract if (i) two or more payments
under the lease are past due or the lessee is otherwise in default under
the lease (ii) the lessee has failed to pay more than twenty-five percent
(25%) of all amounts owed to Borrower under all of such lessee's leases
with Borrower within ninety (90) days after such amounts become due and
owing (iii) the
<PAGE>
lessee is an Affiliate of Borrower; (iv) the lessee is not located in the
United States or Canada, unless the lease is supported by a letter of
credit or other form of guaranty or security, in each case in form and
substance satisfactory to FINOVA; (v) the lessee is the United States or
any department, agency or instrumentality thereof or any state, city or
municipality of the United States; (vi) Borrower is or may become liable to
the lessee for goods sold or services rendered by the lessee to Borrower to
the extent of such offset; (vii) the total obligations of the lessee to
Borrower exceed the greater of $250,000 or twenty-five (25%) of all
obligations to Borrower under Eligible Lease Contracts to the extent of
such excess; (viii) the lessee disputes liability or makes any claim with
respect thereto (up to the amount of such liability or claim), or is
subject to any insolvency or bankruptcy proceeding, or becomes insolvent,
fails or goes out of a material portion of its business; (ix) the
obligations of the lessee thereunder consists of late charges or finance
charges; (x) the net book value of the payments due Borrower thereunder
exceeds $50,000, unless accompanied by evidence of shipment and lessee's
acceptance of the goods relating thereto satisfactory to FINOVA in its sole
discretion; (xi) all or a portion of the payments due thereunder consists
of a finance, interest or late charges, to the extent thereof; (xii) the
lease payments are payable in any manner other than lawful money of the
United States; (xiii) such lease is subject to any offset, deduction,
counterclaim, rights of return, cancellation, or other condition to the
extent of such offset; (xiv) such lease relates to goods not yet delivered
and accepted by lessee; (xv) FINOVA is not in possession of the sole
original lease, or, if a lease consists of a Master Lease Agreement and
specific schedules which describe the terms of any specific items to be
leased pursuant to such schedule, the sole original schedule, provided that
the terms of the Master Lease Agreement make it clear that the sole
original schedule is a separate loan for and "Chattel Paper" purposes under
the UCC and possession of such schedule constitutes possession of "Chattel
Pager" under the UCC; or (xvi) with respect to the lessee, Borrower has
entered into any agreement which provides, directly or indirectly, for the
crediting of any of Borrowers obligations or liabilities to such lessee
against future rentals accruing under the lease with the exception of
commissions payable to owners of coin operated telephones in the ordinary
course of Borrower's business to the extent of such credit;
"Eligible Receivables" means: a LEC Receivable due from an Eligible LEC, an
OAN Receivable, an Integretel Receivable or a Direct Billed Receivable in
each case arising in the ordinary course of the "0+", "1+" or operator
services rendered by Borrower which FINOVA reasonably deems to be an
Eligible Receivable based on such credit and collateral considerations as
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(page 19 continued)
FINOVA deems reasonably appropriate; provided, however, that no such
Receivable shall be an Eligible Receivable if: (i) such Receivable arises
out of the rendering of services by Borrower to an Affiliate of Borrower or
by Borrower to a Person controlled by an Affiliate of Borrower; or (ii)
such LEC Receivable, OAN Receivable, or Integretel Receivable, is unpaid
more than ninety (90) days after the date of the applicable Billing Tape or
such Direct Billed Receivable is unpaid more than sixty (60) days from the
invoice date; or (iii) with respect to LEC Receivables from a particular
LEC, if twenty-five percent (25%) or more of the LEC Receivables from the
LEC that is the account debtor are not deemed Eligible Receivables of such
LEC hereunder; or (iv) any covenant, representation or warranty contained
in this Agreement with respect to such Receivable has been breached; or (v)
the LEC has disputed liability with respect to a Receivable or has made any
claim with respect to any other LEC Receivable due from the LEC to Borrower
(whether with respect to a LEC Billed Receivable or Integretel Receivable
or OAN Receivable) to the extent of any dispute or claim, or (vi) such
Receivable is due from or processed by an account debtor that has commenced
a voluntary case under the federal bankruptcy laws, as now constituted or
hereafter amended, or made assignment for the benefit of creditors, or a
decree or order for relief has been entered by a court having jurisdiction
over such account debtor in an involuntary case under the federal
bankruptcy laws, as now constituted or hereafter amended, or any other
petition or other application for relief under the federal bankruptcy laws
has been filed against the account debtor, or if the account debtor has
failed, suspended business, ceased to be solvent, or consented to or
suffered a receiver, trustee, liquidator, or custodian to be appointed for
it or for all or a significant portion of its assets or affairs; or (vii)
FINOVA believes, in its reasonable judgment, that collection of such
Receivable is insecure or that payment thereof is doubtful or will be
delayed by reason of the LEC's, OAN's or Integretel's or other account
debtors financial condition; or (viii) the Receivable is subject to a Lien
other than FINOVA's; or (ix) the Receivable is evidenced by chattel paper
or an instrument of any kind or has been reduced to judgment; or (x)
Borrower has made any agreement with a LEC, OAN, Integretel any other
account debtors for any deduction therefrom, except for post-billing
adjustments which are made in the ordinary course of business and except as
provided in the applicable Billing
<PAGE>
Contract, but only to the extent of such deduction; or (xii) Borrower has
made an agreement with the LEC to extend the time of payment thereof,
unless, notwithstanding such agreement, payment is made within ninety (90)
days of the Billing Tape date or with respect to a Direct Billed Receivable
sixty (60) days from the invoice date; or (xiii) such Receivable is subject
to setoff, carve-out or other adjustment under a contract other than a
Billing Contract or telecommunications service contract with an End User;
or (xiv) such Receivable is a duplicate billing; or (xv) such Receivable
has not been confirmed by a billing agent.
"Eligible Trade Receivables" means Receivables arising in the ordinary
course of Borrower's business from the sale of parts, repairs and Inventory
including pay telephones, retrofit kits, various component parts and
Intelligent Network Platform systems, prepaid phone cards, and parts
repairs which FINOVA, based on such credit and collateral considerations as
FINOVA deems appropriate, reasonably deems to be an Eligible Trade
Receivable. Without limiting the foregoing, a Receivable shall not be
deemed to be an Eligible Trade Receivable if (i) the account debtor has
failed to pay the Receivable within a period of ninety (90) days after
invoice date, to the extent of any amount remaining unpaid after such
period; (ii) the account debtor has failed to pay more than twenty-five
percent (25%) of all outstanding Receivables owed by it to Borrower within
ninety (90) days after invoice date; (iii) the account debtor is an
Affiliate of Borrower; (iv) the goods relating thereto are placed on
consignment, guaranteed sale or other terms pursuant to which payment by
the account debtor may be conditional; (v) the account debtor is not
located in the United States or Canada, unless the Receivable is supported
by a letter of credit or other form of guaranty or security, in each case
in form and substance satisfactory to FINOVA; (vi) the account debtor is
the United States or any department, agency or instrumentality thereof or
any state, city or municipality of the United States; (vii) Borrower is or
may become liable to the account debtor for goods sold or services rendered
by the account debtor to Borrower; (viii) the total obligations of the
account debtor to Borrower exceed fifteen percent (15%) of all Eligible
Receivables, to the extent of such excess; (ix) the account debtor disputes
liability or makes any claim with respect thereto (up to the amount of such
liability or claim), or is subject to any insolvency or bankruptcy
proceeding, or becomes insolvent, fails or goes out of a material portion
of its business; (x) the amount thereof consists of late charges or finance
charges; (xi) the amount thereof consists of a credit balance more than
ninety (90) days past due; (xii) the face amount thereof exceeds $50,000,
unless accompanied by evidence of shipment of the goods relating thereto
20
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(page 20 continued)
satisfactory to FINOVA in its sole discretion; (xiii) all or a portion of
such Receivable consists of a finance, interest or late charges, to the
extent thereof; (xiv) the Receivable is payable in any manner other than
lawful money of the United States; (xv) such Receivable is subject to any
offset, deduction, counterclaim, rights of return, cancellation, or other
condition; (xvi) such Receivable consists of a deposit for goods not yet
delivered, warranty charges or relates to a demonstration; or (xvii) such
Receivable does not result from a bona fide sale and delivery by Borrower
of the goods by Borrower in the ordinary course of its business.
"End Users" means Persons to whom Borrower renders telecommunication
services.
"End User Accounts" means Accounts arising from services rendered by the
Borrower to End Users of telecommunications services, which accounts have
been processed and formatted for billing on a Billing Tape to be submitted
to a LEC. Each End User Account shall cease to be an End User Account and
become a LEC Receivable upon its sale, assignment, or transfer by Borrower
to a LEC for billing and collection pursuant to a Billing Contract.
"Equipment" means all of Borrower's present and hereafter acquired
machinery, molds, machine tools, motors, furniture, equipment, furnishings,
fixtures, trade fixtures, motor vehicles, tools, parts, dyes, jigs, goods
and other tangible personal property (other than Inventory) of every kind
and description used in Borrower's operations or owned by Borrower and any
interest in any of the foregoing, and all attachments, accessories,
accessions, replacements, substitutions, additions or improvements to any
of the foregoing, wherever located.
"ERISA" means the Employment Retirement Income Security Act of 1974, as
amended, and the regulations thereunder.
"ERISA Affiliate" means each trade or business (whether or not incorporated
and whether or not foreign) which is or may hereafter become a member of a
group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.
<PAGE>
"Event of Default" means any of the events set forth in Section 17.1 of
this Agreement.
"General Intangibles" means all general intangibles of Borrower, whether
now owned or hereafter created or acquired by Borrower, including, without
limitation, any moneys due or to become due and other sums due Borrower
from any LEC under any Billing Contract or from any billing company
(including, without limitation, Integretel, Inc. and OAN) under a Billing
Services Agreement, with which Borrower is now or may hereafter contract
with, all choses in action, rights under judgments, rights under tort
claims, causes of action, corporate or other business records (including,
without limitation, Billing Tapes), Deposit Accounts, inventions, designs,
drawings, blueprints, patents, patent applications, trademarks and the
goodwill of the business symbolized thereby, names, trade names, trade
secrets, goodwill, copyrights, registrations, licenses, franchises,
customer lists, security and other deposits, rights in all litigation
presently or hereafter pending for any cause or claim (whether in contract,
tort or otherwise), and all judgments now or hereafter arising therefrom,
all claims of Borrower against FINOVA, rights to purchase or sell real or
personal property, rights as a licensor or licensee of any kind, royalties,
telephone numbers, proprietary information, purchase orders, and all
insurance policies and claims (including without limitation credit,
liability, property and other insurance) tax refunds and claims, computer
programs, discs, tapes and tape files, claims under guaranties, security
interests or other security held by or granted to Borrower to secure
payment of any of the Receivables by an account debtor, all rights to
indemnification and all other intangible property of every kind and nature
(other than Receivables).
"Indebtedness" means all of Borrower's present and future obligations,
liabilities, debts, claims and indebtedness, contingent, fixed or
otherwise, however evidenced, created, incurred, acquired, owing or
arising, whether under written or oral agreement, operation of law or
otherwise, and includes, without limiting the foregoing (i) the
Obligations, (ii) obligations and liabilities of any Person secured by a
lien, claim, encumbrance or security interest upon property owned by
Borrower, even though Borrower has not assumed or become liable therefor,
(iii) obligations and liabilities created or arising under any lease
(including Capital Leases) or conditional sales contract or other title
retention agreement with respect to property used or acquired by Borrower,
even though the rights and remedies of the lessor, seller or lender are
limited to repossession, (iv) all unfunded pension fund obligations and
liabilities, and (v) deferred taxes.
"Initial Term" has the meaning set forth on the Schedule.
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(page 21 continued)
"Integretel Receivables" means Receivables due from or processed by
Integretel, Inc.
"Inventory" means all of Borrower's now owned and hereafter acquired goods,
merchandise or other personal property, wherever located, to be furnished
under any contract of service or held for sale or lease, all raw materials,
work in process, finished goods and materials and supplies of any kind,
nature or description which are or might be used or consumed in Borrower's
business or used in connection with the manufacture, packing, shipping,
advertising, selling or finishing of such goods, merchandise or other
personal property, and all documents of title or other documents
representing them.
"IRC" means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
"LEC" means any Regional Bell Operating Company, Bell Operating Company,
independent local exchange company, credit card company or provider of
local telephone services which is a party to any Billing Contract.
"LEC Receivables" - shall mean all Receivables, General Intangibles for
money due or to become due, debts and any other amounts payable to Borrower
by any LEC pursuant to any Billing Contract.
"Loan Documents" means, collectively, this Agreement, any note or notes
executed by Borrower and payable to FINOVA, and any other agreement entered
into in connection with this Agreement, together with all alterations,
amendments, changes, extensions, modifications, refinancings, refundings,
renewals, replacements, restatements, or supplements, of or to any of the
foregoing.
"Loan Party" means Borrower, each Subordinating Creditor and each other
party (other than FINOVA) to any Loan Document.
"Month-end Reports" means all reports prepared by Borrower on a monthly
basis, which reports shall include, without limitation, general ledger,
trial balance, financial statements, Receivables and accounts payable
agings, agings of accounts payable accruals and sales
<PAGE>
and cash receipts journals and a monthly reconciliation of Receivables and
accounts payable and cash.
"Multiemployer Plan" means a "multiemployer plan" as defined in ERISA
Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.
"Net Worth" at any date means the Borrower's net worth as determined in
accordance with generally accepted accounting principles, consistently
applied.
"Notice of Assignment" shall mean, with respect to any Billing Contract, a
letter, in the form attached as Exhibit 7.2 sent to the applicable LEC, in
which the LEC is notified with respect to the assignment and grant of a
security interest by Borrower to FINOVA of and in all of Borrower's right,
title, and interest in and to all LEC Receivables relating to such Billing
Contract and directing such LEC to make all payments to the lockbox or
Dominion Account.
"OAN Receivables" means Receivables due from or processed by OAN, Inc.
"Obligations" means all present and future loans, advances, debts,
liabilities, obligations, covenants, duties and indebtedness at any time
owing by Borrower to FINOVA, whether evidenced by this Agreement, any note
or other instrument or document, whether arising from an extension of
credit, opening of a letter of credit, banker's acceptance, loan, guaranty,
indemnification or otherwise, whether direct or indirect (including,
without limitation, those acquired by assignment and any participation by
FINOVA in Borrower's debts owing to others), absolute or contingent, due or
to become due, including, without limitation, all interest, charges,
expenses, fees, attorney's fees, expert witness fees, examination fees,
letter of credit fees, Collateral Monitoring Fees, Closing Fees, Facility
Fees, Termination Fees, Minimum Interest Charges, Unused Line Fees,
Commitment Fee and any other sums chargeable to Borrower hereunder or under
any other agreement with FINOVA.
"Overadvance" has the meaning set forth in Section 1.3 hereof.
"PBGC" means the Pension Benefit Guarantee Corporation.
"Permitted Encumbrance" means each of the liens, mortgages and other
security interests set forth on the Schedule and incorporated herein by
this reference.
"Person" means any individual, sole proprietorship, partnership, joint
venture, trust, unincorporated organization, association, corporation,
limited liability entity, government, or any agency or political division
thereof, or any other entity.
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(page 22 continued)
"Plan" means any plan described in ERISA Section 3(2) maintained for
employees of Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.
"Prepared Financials" means the balance sheets of Borrower as of the date
set forth in the Schedule, and as of each subsequent date on which audited
balance sheets are delivered to FINOVA from time to time hereunder, and the
related statements of operations, changes in stockholder's equity and
changes in cash flow for the periods ended on such dates.
"Prohibited Transaction" means any transaction described in Section 406 of
ERISA which is not exempt by reason of Section 408 of ERISA, and any
transaction described in Section 4975(c) of the IRC which is not exempt by
reason of Section 4975(c)(2) of the IRC.
"Receivable Loans" has the meaning set forth on the Schedule.
"Receivables" means all of Borrower's now owned and hereafter acquired
accounts (whether or not earned by performance or processed and formatted
for billing), proceeds of any letters of credit naming Borrower as
beneficiary, contract rights, chattel paper, instruments, documents and all
other forms of obligations at any time owing to Borrower, all guaranties
and other security therefor, whether secured or unsecured, all merchandise
returned to or repossessed by Borrower, and all rights of stoppage in
transit and all other rights or remedies of an unpaid vendor, lienor or
secured party.
"Renewal Term" has the meaning set forth on the Schedule.
"Reportable Event" means a reportable event described in Section 4043 of
ERISA or the regulations thereunder, a withdrawal from a Plan described in
Section 4063 of ERISA, or a cessation of operations described in Section
4068(f) of ERISA.
"Shareholder" means any Person who is an owner of any of Borrower's stock.
<PAGE>
"Subordinated Debt" means liabilities of Borrower the repayment of which is
subordinated, to the payment and performance of the Obligations pursuant to
an agreement or language in the instrument evidencing such Subordinated
Debt.
"Subordinating Creditor" means the Persons set forth on the Schedule.
"Total Facility" has the meaning set forth on the Schedule.
18.2 Other Terms. All accounting terms used in this Agreement, unless
otherwise indicated, shall have the meanings given to such terms in
accordance with generally accepted accounting principles, consistently
applied. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meanings provided by the Code, to the extent such
terms are defined therein.
19. MISCELLANEOUS.
19.1 Recourse to Security; Certain Waivers. All Obligations shall be
payable by Borrower as provided for herein and, in full, at the termination
of this Agreement; recourse to security shall not be required at any time.
Borrower waives presentment and protest of any instrument and notice
thereof, notice of default and, to the extent permitted by applicable law,
all other notices to which Borrower might otherwise be entitled.
19.2 No Waiver by FINOVA. Neither FINOVA's failure to exercise any right,
remedy or option under this Agreement, any supplement, the Loan Documents
or other agreement between FINOVA and Borrower nor any delay by FINOVA in
exercising the same shall operate as a waiver. No waiver by FINOVA shall be
effective unless in writing and then only to the extent stated. No waiver
by FINOVA shall affect its right to require strict performance of this
Agreement. FINOVA's rights and remedies shall be cumulative and not
exclusive. 19.3 Binding on Successor and Assigns. All terms, conditions,
promises, covenants, provisions and warranties shall inure to the benefit
of and bind FINOVA's and Borrower's representatives, successors and
assigns.
19.4 Severability. If any provision of this Agreement shall be prohibited
or invalid under applicable law, it shall be ineffective only to such
extent, without invalidating the remainder of this Agreement.
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(page 23 continued)
19.5 Amendments; Assignments. This Agreement may not be modified, altered
or amended, except by an agreement in writing signed by Borrower and
FINOVA. Borrower may not sell, assign or transfer any interest in this
Agreement or any other Loan Document, or any portion thereof, including,
without limitation, any of Borrower's rights, title, interests, remedies,
powers and duties hereunder or thereunder. Borrower hereby consents to
FINOVA's participation, sale, assignment, transfer or other disposition, at
any time or times hereafter, of this Agreement and any of the other Loan
Documents, or of any portion hereof or thereof, including, without
limitation, FINOVA's rights, title, interests, remedies, powers and duties
hereunder or thereunder. In connection therewith, FINOVA may disclose all
documents and information which FINOVA now or hereafter may have relating
to Borrower's businesses. To the extent that FINOVA assigns its rights and
obligations hereunder to a third party, FINOVA shall thereafter be released
from such assigned obligations to Borrower and such assignment shall effect
a novation between Borrower and such third party; provided however, that at
any time other than in connection with the sale of FINOVA, the sale of a
portfolio of loans or the securitization of the Loan and other than during
an Event of Default, FINOVA shall obtain the prior written consent of
Borrower to such assignment of rights and obligations, which consent shall
not be unreasonably withheld..
19.6 Integration. This Agreement, together with the Schedule (which is a
part hereof) and the other Loan Documents, reflect the entire understanding
of the parties with respect to the transactions contemplated hereby.
19.7 Governing Law; Waivers. THIS AGREEMENT SHALL BE INTERPRETED IN
ACCORDANCE WITH THE INTERNAL LAWS (AND NOT THE CONFLICT OF LAWS RULES) OF
THE STATE OF ARIZONA GOVERNING CONTRACTS TO BE PERFORMED ENTIRELY WITHIN
SUCH STATE. BORROWER HEREBY CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF MARICOPA, THE STATE OF
ARIZONA OR, AT THE SOLE OPTION OF FINOVA, IN ANY OTHER COURT IN WHICH
FINOVA SHALL INITIATE LEGAL OR EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT
MATTER JURISDICTION OVER THE MATTER IN CONTROVERSY TO THE EXTENT NECESSARY
<PAGE>
TO PURSUE ITS REMEDIES WITH RESPECT TO BORROWER OR ANY COLLATERAL. BORROWER
WAIVES ANY OBJECTION OF FORUM NON CONVENIENS AND VENUE. BORROWER WAIVES
PERSONAL SERVICE OF ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH
SERVICE OF PROCESS BE MADE IN THE MANNER SET FORTH IN SECTION 19.13 HEREOF
FOR THE GIVING OF NOTICE. BORROWER FURTHER WAIVES ANY RIGHT IT MAY
OTHERWISE HAVE TO COLLATERALLY ATTACK ANY JUDGMENT ENTERED AGAINST IT.
19.8 Survival. All of the representations and warranties of Borrower
contained in this Agreement shall survive the execution, delivery and
acceptance of this Agreement by the parties. No termination of this
Agreement or of any guaranty of the Obligations shall affect or impair the
powers, obligations, duties, rights, representations, warranties or
liabilities of the parties hereto and all shall survive any such
termination.
19.9 Evidence of Obligations. Each Obligation may, in FINOVA's discretion,
be evidenced by notes or other instruments issued or made by Borrower to
FINOVA. If not so evidenced, such Obligation shall be evidenced solely by
entries upon FINOVA's books and records.
19.10 Collateral Security. The Obligations shall constitute one loan
secured by the Collateral. FINOVA may, in its sole discretion, (i)
exchange, enforce, waive or release any of the Collateral, (ii) apply
Collateral and direct the order or manner of sale thereof as it may
determine, and (iii) settle, compromise, collect or otherwise liquidate any
Collateral in any manner without affecting its right to take any other
action with respect to any other Collateral.
19.11 Application of Collateral. FINOVA shall have the continuing and
exclusive right to apply or reverse and re-apply any and all payments to
any portion of the Obligations. To the extent that Borrower makes a payment
or FINOVA receives any payment or proceeds of the Collateral for Borrower's
benefit which is subsequently invalidated, declared to be fraudulent or
preferential, set aside or required to be repaid to a trustee, debtor in
possession, receiver or any other party under any bankruptcy law, common
law or equitable cause, then, to such extent, the Obligations or part
thereof intended to be satisfied shall be revived and continue as if such
payment or proceeds had not been received by FINOVA.
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(page 24 continued)
19.12 Loan Requests. Each oral or written request for a loan by any Person
who purports to be any employee, officer or authorized agent of Borrower
shall be made to FINOVA on or prior to 11:00 a.m., Philadelphia time, on
the Business Day on which the proceeds thereof are requested to be paid to
Borrower and shall be conclusively presumed to be made by a Person
authorized by Borrower to do so and the crediting of a loan to Borrower's
operating account shall conclusively establish Borrower's obligation to
repay such loan. Unless and until Borrower otherwise directs FINOVA in
writing, all loans shall be wired to Borrower's operating account set forth
on the Schedule.
19.13 Notices. Any notices or consents required or permitted by this
Agreement shall be deemed given if delivered in person with receipt, sent
by telegram (with messenger service specified) or sent by nationally
recognized overnight courier service, or sent by certified or registered
mail postage prepaid, return receipt requested, or sent by facsimile
transmission as follows, unless such address is changed by written notice
hereunder:
If to FINOVA:
FINOVA Capital Corporation
1060 First Avenue
Suite 100
King of Prussia, PA 19406
Attn: Jeffrey D. Weiss
FAX: 610/354-8476
FINOVA Capital Corporation
355 South Grand Avenue
Suite 2400
Los Angeles, CA 90071
Attn: John Bonano
FAX: 213/625-3729
FINOVA Capital Corporation
1850 N. Central Avenue
P.O. Box 2209
Phoenix, AZ 85002-2209
Attn: Joseph D'Amore, Esq.
FAX: 602/207-5036
<PAGE>
With copies to:
Blank Rome Comisky & McCauley
1200 Four Penn Center Plaza
Philadelphia, PA 19103
Attn: Lawrence F. Flick, II, Esquire
FAX: 215/569-5555
If to Borrower:
Intellicall, Inc.
2155 Chenault Avenue, Suite 410
Carrollton, Texas 75006-5023
Attn: John Carradine
FAX: 972/416-9454
with copies to: Gardere & Wynne, LLP
1601 Elm Street
3000 Thanksgiving Tower
Dallas, TX 75201
Attn: William Young, Esquire
FAX: 214/999-4667
19.14 Brokerage Fees. Borrower represents and warrants to FINOVA that, with
respect to the financing transaction herein contemplated, no Person is
entitled to any brokerage fee or other commission and Borrower agrees to
pay any fee or commission due to such Person and to indemnify and hold
FINOVA harmless against any and all such claims.
19.15 Disclosure. No representation or warranty made by Borrower in this
Agreement, or in any financial statement, report, certificate or any other
document furnished in connection herewith contains any untrue statement of
a material fact or omits to state any material fact necessary to make the
statements herein or therein not misleading.
19.16 Publicity. FINOVA is hereby authorized to issue appropriate press
releases and to cause a tombstone to be published announcing the
consummation of this transaction and the aggregate amount thereof.
19.17 Captions. The Section titles contained in this Agreement are without
substantive meaning and are not part of this Agreement.
19.18 Injunctive Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to FINOVA.
Therefore, FINOVA, if it so requests, shall be entitled to temporary and
permanent injunctive relief in any such case without the necessity of
proving actual damages.
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(page 25 continued)
19.19 Counterparts. This Agreement may be executed in one or more
counterparts, each of which taken together shall constitute one and the
same instrument.
19.20 Construction. The parties acknowledge that each party and its counsel
have reviewed this Agreement and that the normal rule of construction to
the effect that any ambiguities are to be resolved against the drafting
party shall not be employed in the interpretation of this Agreement or any
amendments or exhibits hereto.
19.21 Time of Essence. Time is of the essence for the performance by
Borrower of the Obligations set forth in this Agreement.
19.22 Limitation of Actions. Borrower agrees that any claim or cause of
action by Borrower against FINOVA, or any of FINOVA's directors, officers,
employees, agents, accountants or attorneys, based upon, arising from, or
relating to this Agreement, or any other present or future agreement, or
any other transaction contemplated hereby or thereby or relating hereto or
thereto, or any other matter, cause or thing whatsoever, whether or not
relating hereto or thereto, occurred, done, omitted or suffered to be done
by FINOVA, or by FINOVA's directors, officers, employees, agents,
accountants or attorneys, whether sounding in contract or in tort or
otherwise, shall be barred unless asserted by Borrower by the commencement
of an action or proceeding in a court of competent jurisdiction by the
filing of a complaint within one year after Borrower discovers or should
have discovered, the occurrence or omission upon which such claim or cause
of action, or any part thereof, is based and service of a summons and
complaint on an officer of FINOVA or any other person authorized to accept
service of process on behalf of FINOVA, within 60 days thereafter. Borrower
agrees that such one-year period of time is a reasonable and sufficient
time for Borrower to investigate and act upon any such claim or cause of
action. The one-year period provided herein shall not be waived, tolled, or
extended except by a specific written agreement of FINOVA. This provision
shall survive any termination of this Loan Agreement or any other
agreement.
19.23 Liability. Neither FINOVA nor any FINOVA Affiliate shall be liable
for any indirect, special, incidental or consequential damages in
connection with any breach of contract, tort or other wrong relating to
this Agreement or the Obligations or the establishment, administration or
collection thereof (including without
<PAGE>
limitation damages for loss of profits, business interruption, or the
like), whether such damages are foreseeable or unforeseeable, even if
FINOVA has been advised of the possibility of such damages. Neither FINOVA,
nor any FINOVA Affiliate shall be liable for any claims, demands, losses or
damages, of any kind whatsoever, made, claimed, incurred or suffered by the
Borrower through the ordinary negligence of FINOVA, or any FINOVA
Affiliate. "FINOVA Affiliate" shall mean FINOVA's directors, officers,
employees, agents, attorneys or other person or entity affiliated with or
representing FINOVA.
19.24 Notice of Breach by FINOVA. Borrower agrees to give FINOVA written
notice of (i) any action or inaction by FINOVA or any attorney of FINOVA in
connection with any Loan Documents that may be actionable against FINOVA or
any attorney of FINOVA or (ii) any defense to the payment of the
Obligations for any reason, including, but not limited to, commission of a
tort or violation of any contractual duty or duty implied by law. Borrower
agrees that unless such notice is fully given as promptly as possible (and
in any event within thirty (30) days) after Borrower has knowledge, or with
the exercise of reasonable diligence should have had knowledge, of any such
action, inaction or defense, Borrower shall not assert, and Borrower shall
be deemed to have waived, any claim or defense arising therefrom.
19.25 Withholding and Other Tax Liabilities: FINOVA shall have the right to
refuse to make any advances from time to time unless Borrower shall, at
FINOVA's request, have given to FINOVA evidence, reasonably satisfactory to
FINOVA, that Borrower has properly deposited or paid, as required by law,
all withholding taxes and all federal, state, city, county or other taxes
due up to and including the date of the loan. Until all of Borrower's
liabilities and obligations to FINOVA have been indefeasibly paid and
satisfied in full, FINOVA shall be entitled to continue to hold any and all
of the Collateral until Borrower has given to FINOVA evidence, reasonably
satisfactory to FINOVA, that Borrower has properly deposited or paid, as
required by law, all federal withholding taxes due up to and including the
date of such expiration or termination. Copies of validated deposit slips
showing payment shall likewise constitute satisfactory evidence for such
purpose. In the event that any lien, assessment or tax liability against
26
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(page 26 continued)
Borrower shall arise in favor of any taxing authority, whether or not
notice thereof shall be filed or recorded as may be required by law, FINOVA
shall have the right (but shall not be obligated, nor shall FINOVA hereby
assume the duty) upon reasonable prior notice to Borrower to pay any such
lien, assessment or tax liability by virtue of which such charge shall have
arisen; provided, however, that FINOVA shall not pay any such tax,
assessment or lien if the amount, applicability or validity thereof is
being contested in good faith and by appropriate proceedings by Borrower
and further provided that Borrower's title to and its right to use, the
Collateral is not adversely affected and FINOVA's lien and priority in the
Collateral are not affected, altered or impaired thereby. In order to pay
any such lien, assessment or tax liability, FINOVA shall not be obliged to
wait until said lien, assessment or tax liability is filed before taking
such action as hereinabove set forth. Any sum or sums which FINOVA shall
have paid for the discharge of any such lien shall be added to the
Revolving Loans and shall be paid by Borrower to FINOVA with interest
thereon, upon demand, and FINOVA shall be subrogated to all rights of such
taxing authority against Borrower. FINOVA may establish reserves against
the Borrowing Base for any amounts paid by FINOVA pursuant to this
paragraph or for any amounts being contested in good faith under this
paragraph.
<PAGE>
19.26 MUTUAL WAIVER OF RIGHT TO JURY TRIAL. FINOVA AND BORROWER EACH HEREBY
WAIVES THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON,
ARISING OUT OF, OR IN ANY WAY RELATING TO: (i) THIS AGREEMENT; (ii) ANY
OTHER PRESENT OR FUTURE INSTRUMENT OR AGREEMENT BETWEEN FINOVA AND
BORROWER; OR (iii) ANY CONDUCT, ACTS OR OMISSIONS OF FINOVA OR BORROWER OR
ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS OR ANY OTHER
PERSONS AFFILIATED WITH FINOVA OR BORROWER; IN EACH OF THE FOREGOING CASES,
WHETHER SOUNDING IN CONTRACT OR TORT OR OTHERWISE.
Borrower:
INTELLICALL, INC.
By /s/ William O. Hunt date signed
President 11/13/96
By /s/ Michael H. Barnes date signed
Secretary 11/13/96
Tax I.D. No. 751993841
FINOVA CAPITAL CORPORATION
By /s/ Sean R. Hughes date signed
11/13/96
Title: Vice President
27
<PAGE>
FINOVA
Schedule to
Loan and Security Agreement
Borrower: INTELLICALL, INC.
Address: 2155 Chenault Avenue, Suite 410
Carrollton, Texas 75006-5023
Date: November 13, 1996
This Schedule forms an integral part of the Loan and Security Agreement
between the above Borrower and FINOVA Capital Corporation ("FINOVA") dated the
above date, and all references herein and therein to "this Agreement" shall be
deemed to refer to said Agreement and to this Schedule.
TOTAL FACILITY (Section 1.1):
TWELVE MILLION DOLLARS ($12,000,000)
LOANS (Section 1.2):
Revolving Loans: a revolving line of credit consisting of loans against
Borrower's Eligible Receivables ("Receivable Loans") in an aggregate outstanding
principal amount not to exceed the lesser of:
(a) an amount equal to the amount of the Total Facility, or
(b) the sum of an amount equal to (i) seventy five percent (75%)
of Eligible Trade Receivables; plus (ii) the LEC Advance Percentage of
the net amount of Eligible LEC receivables; plus (iii) the Integretel
Advance percentage of the net amount of Eligible Integretel
Receivables; plus (iv) the OAN Advance percentage of the net amount of
Eligible OAN Receivables; plus (v) the Direct Billed Advance
Percentage of all Eligible Direct Billed Receivables; plus (vi) the
lesser of (A) sixty percent (60%) of the net book value of Eligible
Lease Contracts or (B) Five Hundred Thousand Dollars ($500,000); plus
(vii) the lesser of (A) fifty percent (50%) of Borrower's Eligible
Inventory or (B) the difference between (I) One Million Five Hundred
Thousand Dollars ($1,500,000) and (II) the product of One Hundred
Thousand Dollars ($100,000) multiplied by the number of calendar
months that have expired, rounded down to the nearest whole number,
since the Closing Date, provided that, in no event, shall such product
exceed One Million Five Hundred Thousand Dollars ($1,500,000) (the
"Borrowing Base").
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For the purposes of this section, absent an Event of Default, the LEC
Advance Percentage shall be eighty five percent (85%). Provided, however, that
for every increase in the LEC Dilution Factor by one percentage point (1.0%) in
excess of fifteen percent (15%), the LEC Advance Percentage shall decrease by up
to two percentage points (2.0%).
For the purposes of this section, absent an Event of Default, the
Integretel Advance Percentage shall be eighty five percent (85%). Provided,
however, that for every increase in the Integretel Dilution Factor by one
percentage point (1.0%) in excess of fifteen percent (15%), the Integretel
Advance Percentage shall decrease by up to two percentage points (2.0%).
For the purposes of this section, absent an Event of Default, the OAN
Advance Percentage shall be eighty five percent (85%). Provided, however, that
for every increase in the OAN Dilution Factor by one percentage point (1.0%) in
excess of fifteen percent (15%), the OAN Advance Percentage shall decrease by up
to two percentage points (2.0%).
For the purposes of this section, absent an Event of Default, the Direct
Billed Advance Percentage shall be eighty five percent (85%). Provided, however,
that for every increase in the Direct Billed Dilution Factor by one percentage
point (1.0%) in excess of fifteen percent (15%), the Direct Billed Advance
Percentage shall decrease by up to two percentage points (2.0%).
In addition, FINOVA shall determine the LEC Dilution Factor, the Integretel
Dilution Factor, the OAN Dilution Factor and the Direct Billed Dilution Factor,
in its reasonable discretion, based on the results of its periodic field
examinations or on such other information as may be available to FINOVA from
time to time.
CONDITIONS PRECEDENT (Section 2.1):
The obligation of FINOVA to make the initial advance hereunder is subject
to the fulfillment, to the satisfaction of FINOVA and its counsel, of each of
the following conditions, in addition to the conditions set forth in Sections
2.1 and 2.2 of the Agreement: (a) Borrower shall have excess borrowing
availability under the Borrowing Base of not less than $750,000, after giving
effect to the initial advance hereunder and after having paid in full or making
provision for payment in full of all of Borrower's accounts payable outstanding
beyond their due date and all book overdrafts; (b) Borrower shall have delivered
to FINOVA that certain Validity and Support Agreement in form and substance
satisfactory to FINOVA signed by Michael Barnes; (c) FINOVA must have reviewed
all Billing Contracts and related arrangements and found such contracts and
arrangements satisfactory in form and substance, including but not limited to
confirming that (i) Integretel and OAN are billing and collection agents of
Borrower; and (ii) the cash collected by Integretel and OAN pursuant to such
contracts is deposited into dominion bank accounts, and the cash in such bank
accounts is the property of Borrower and, if applicable, other providers for
whom Integretel and OAN provide billing services; (d) there shall have been no
material adverse change in the business, operations, profits or prospects of
Borrower, or in the condition of the assets of Borrower as represented by the
financial information, dated September 30, 1996, delivered by Borrower to Lender
and the Closing Date; (e) Borrower shall have caused Nomura Holding America,
Inc. ("Nomura") to have returned to
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FINOVA all UCC Termination Statements previously delivered to Nomura in
escrow; (f) Borrower shall have provided FINOVA with evidence of an additional
$5,000,000 in Subordinated Debt from Banca Del Gottardo; and (g) Nomura shall
have provided its consent to Borrowers entering into the Agreement and shall
have been paid in full, released its liens and security interests and provided
FINOVA with or agreed to provide FINOVA with all appropriate UCC termination
statements and other documents deemed reasonably necessary by FINOVA to evidence
such termination. Borrower shall cause the conditions precedent set forth in
Section 2.1 of this Agreement and set forth above in this Schedule to be
satisfied on or before the date of the initial advance hereunder.
INTEREST AND FEES (Section 3.1):
Interest. Borrower shall pay FINOVA interest on the daily outstanding
balance of Borrower's Revolving Loans at the "Contract Rate." The Contract Rate
shall equal one and three-quarters percentage points (1.75%) in excess of the
Base Rate. The Base Rate shall equal the "prime rate" of Citibank, N.A. as
announced from time to time by Citibank, N.A. as its "prime rate". The interest
rate chargeable hereunder shall be increased or decreased, as the case may be,
without notice or demand of any kind, upon any change in the Base Rate. Each
change in the Base Rate shall be effective hereunder on the day of any such
change. Interest charges and all other fees and charges herein shall be computed
on the basis of a year of 360 days and actual days elapsed and shall be payable
to FINOVA in arrears on the first day of each month. Upon the occurrence and
continuance of an Event of Default, interest shall accrue at two percentage
points (2.0%) in excess of the rate set forth above.
Provided however, if Borrower's interim financial statements for any month
reflect EBITDA greater than or equal to Three Million Dollars ($3,000,000) for
the trailing twelve months on a cumulative basis, the Contract Rate shall be
reduced during such month to one and one-half points (1.50%) in excess of the
Base Rate. If Borrower's interim financial statements for any month reflect
EBITDA greater than or equal to Five Million Dollars ($5,000,000) for the
trailing twelve months on a cumulative basis, the Contract Rate shall be reduced
during such month to one and one-quarter percentage points (1.25%) in excess of
the Base Rate. Any reduction in the Contract Rate is further conditioned on the
following: (i) FINOVA's review of and satisfaction with such interim financial
statements, which review shall be completed within forty-five (45) days of
FINOVA's receipt of such interim financial statements; and (ii) the absence of
any Event of Default having occurred during the Initial Term, which has not been
waived. Borrower hereby expressly permits FINOVA to contact its accountants
directly to discuss any information contained in the interim financial
statements delivered by Borrower to FINOVA and Borrower shall cause its
accountants to cooperate with FINOVA and to provide FINOVA with answers to any
questions FINOVA may have regarding the interim financial statements. The
reduction in the Contract Rate shall be effective upon the earlier of: (i)
forty- five (45) days from the date of Borrower's delivery of the interim
audited financial statement; or (ii) the date of a letter from FINOVA to
Borrower expressly reducing the Contract Rate.
Minimum Interest Charge. With respect to each calendar month or portion
thereof during the term of this Agreement (excluding the calendar month in which
this Agreement is executed), Borrower shall also pay Finova, on the first day of
the next month, as a minimum charge, the
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amount by which accrued interest pursuant to the section above for such month or
portion thereof is less than $4,000 (the "Minimum Interest Charge").
Notwithstanding the occurrence of any Event of Default hereunder or termination
of this Agreement by FINOVA as a result thereof, the Minimum Interest Charge
shall be paid by Borrower for the unexpired portion of the Initial Term or any
Renewal Term of this Agreement.
Unused Line Fee. Borrower shall pay to FINOVA an unused line fee equal to
one- quarter of one percent (.25%) per annum of the unused portion of the Total
Facility. The unused line fee shall be deemed fully earned at the time when due
and is payable monthly commencing upon the first day of the month after the date
of this Agreement and continuing on the first day of every month thereafter.
Facility Fee. Borrower shall pay to FINOVA a facility fee in an amount
equal to One Hundred Twenty Thousand Dollars ($120,000) payable at the Closing
and an annual fee equal to one-half of one percent (0.50%) per annum of the
amount of the Total Facility payable on the first anniversary of the date of
this Agreement and on each subsequent anniversary thereof.
Examination Fees. Borrower agrees to pay to FINOVA a fee in the amount of
Five Hundred Dollars ($500) per person per day, (absent the occurrence of an
Event of Default limited to $30,000 in any calendar year) plus all costs and
expenses of such persons, in connection with each examination, audit or
visitation by FINOVA prior to or after the date hereof.
REPORTING REQUIREMENTS (Section 5.2):
1. Borrower shall provide FINOVA with monthly accounts receivable
agings aged by invoice date and reconciliations of Receivables within
ten (10) days after the end of each month.
2. Borrower shall provide FINOVA with monthly accounts payable
agings aged by invoice date, and outstanding or held check registers
within fifteen (15) days after the end of each month. If such monthly
accounts payable agings do not breakout accounts payable by LEC,
Borrower shall provide a supplementary report which shall reflect such
information together with the regular monthly accounts payable agings
report.
3. Borrower shall provide FINOVA with monthly inventory reports
for the Inventory valued on a first-in, first-out basis at the lower
of cost or market (in accordance with general accepted accounting
principles), and such inventory reports as are reasonably requested by
FINOVA, all within fifteen (15) days after the end of each month.
Borrower shall also provide FINOVA with copies of Borrower's annual
physical inventory counts within fifteen (15) days after such counts
are tabulated and reconciled to the general ledger.
4. Borrower shall provide FINOVA with internally prepared monthly
unaudited consolidated and consolidating financial statements within
thirty (30) days after the end of each month.
5. Borrower shall provide FINOVA with annual operating budgets
(including income statements, balance sheets and cash flow statements,
by month, together with a list of all
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material assumptions made by Borrower in preparing such annual
operating budgets) for the upcoming fiscal year of Borrower upon
approval of Borrower's Board of Directors, not more than thirty (30)
days after the end of each fiscal year of Borrower.
6. Borrower shall, upon FINOVA's request, provide FINOVA with
certified Federal excise tax receipts and state and local utility tax
receipts.
7. Borrower shall, upon FINOVA's request, provide FINOVA with
copies of all information and reports received from or submitted to
Integretel or OAN including, but not limited to backup copies of
Billing Tapes.
BORROWER INFORMATION:
Borrower's State of Incorporation (Section 12.1):
Fictitious Names/Prior Corporate Names/Mergers (Section 12.2):
Borrower and Collateral Locations (Section 12.16):
Permitted Encumbrances (Section 18.1):
FINANCIAL COVENANTS (Section 13.14):
Borrower shall comply with all of the following covenants. Compliance shall
be determined as of the end of each quarter, except as otherwise specifically
provided below:
Net Worth. Borrower shall have and maintain at all times a Net Worth greater
than the following amounts as of the end of each of the following
calendar quarters.
Amount Time Period
8,300,000 4th Quarter 1996
7,500,000 1st Quarter 1997
7,700,000 2nd Quarter 1997
8,300,000 3rd Quarter 1997
9,500,000 4th Quarter 1997 and all times
thereafter
Calculation of Net Worth shall be performed quarterly and
shall exclude provisions net of applicable income tax benefits
for slow moving and obsolete Inventory.
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Total Debt Service Coverage Ratio.
- ----------------------------------
Borrower shall have and maintain at all times a Total Debt
Service Coverage ratio greater than the ratio set forth below for
the periods corresponding thereto:
Ratio Time Period
0.50 to 1.00 3rd Quarter 1997
1.00 to 1.00 4th Quarter 1997 and at all times
thereafter
For the purposes of this section, the calculation of Total Debt
Service Coverage Ratio shall equal the ratio of (A) Operating
Cash Flow- Actual; to (B) Total Debt Service.
The calculation of Total Debt Service Coverage Ratio shall be
performed quarterly on a twelve (12) month rolling basis. All
calculations shall be based on the profit and loss statements of
Borrower, prepared in accordance with generally accepted
accounting principles.
Current Ratio
Borrower shall have and maintain at all times a Current Ratio
greater than 2.25 to 1.0. For the purposes of this section, the
calculation of the Current Ratio shall equal the ratio of (A)
Current Assets to (B) Current Liabilities.
NEGATIVE COVENANTS (Section 14):
Capital Expenditures:
Borrower shall not make or incur any Capital Expenditure if,
after giving effect thereto, the aggregate amount of all Capital
Expenditures by Borrower in any fiscal year would exceed
$800,000.
Indebtedness:
Borrower shall not, other than as permitted in Section 14.11 of
the Agreement, create, incur, assume or permit to exist any
additional Indebtedness (including Indebtedness in connection
with Capital Leases).
TERM (Section 16.1):
The initial term of this Agreement shall be three (3) years from the date
hereof (the "Initial Term") and may automatically be renewed for successive
periods of one (1) year each upon the express written agreement of FINOVA (each,
a "Renewal Term"), unless earlier terminated as provided in Section 16 or 17
above or elsewhere in this Agreement.
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TERMINATION FEE (Section 16.4):
The Termination Fee provided in Section 16.4 shall be an amount equal to
the following percentage of the Total Facility:
(i) two and one half percent (2.5%), if such termination occurs
prior to the first anniversary of this Agreement;
(ii) one and one half percent (1.5%), if such termination occurs
on or after the first anniversary of this Agreement but prior to the
second anniversary of this Agreement; and
(iii) one half percent (.05%), if such termination occurs on or
after the second anniversary of this Agreement but prior to the third
anniversary of this Agreement.
ADDITIONAL DEFINITIONS (Section 18.1):
"Direct Billed
Dilution Factor"
means the average, as calculated by FINOVA, of the dilution
factors attributable to the Direct Billed Receivables, calculated
as a percentage, (a) the numerator of which is all non-cash
reductions to Direct Billed Receivables made by Borrower; (b) the
denominator of which is equal to gross billings to the Direct
Billed Receivable account debtors.
"EBITDA"
means the following, without duplication, for any period, each
calculated for such period: (A) net income plus (B) any provision
for (or less any benefit from ) income and franchise taxes
included in the determination of net income; plus (C) interest
expense deducted in the determination of net income; plus (D)
amortization and depreciation deducted in the determination of
net income; plus (E) losses (or less gains) from asset
dispositions or other non-cash items (excluding sales, expenses
or losses related to Current Assets) included in the
determination of net income; less (F) after tax extraordinary
gains (or plus after tax extraordinary losses), each of the above
as calculated in accordance with generally accepted accounting
principles, consistently applied.
"Fiscal Year"
Borrower's fiscal years each ending December 31.
"GAAP"
means generally accepted accounting principles as set forth in
statements from Auditing Standards No. 69 entitled "The Meaning
of "Present Fairly in Conformance with Generally Accepted
Accounting Principles in the Independent Auditors Reports" issued
by the Auditing Standards Board of the American Institute of
Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board (or any successor
authority) that are applicable to the circumstances as of the
date of determination.
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"Integretel
Dilution Factor"
means the average, as calculated by FINOVA, of the dilution
factors charged by Integretel to Borrower (or passed through by
Integretel to Borrower from the LECs), calculated as a
percentage, (a) the numerator of which is all non- cash
reductions to Integretel Receivables made by Integretel; (b) the
denominator of which is equal to gross billings under the Billing
Tapes transmitted to Integretel.
"Investment"
means, with respect to any Person, any loan, advance, extension
of credit, capital contribution to, investment in or purchase of
the stock or other securities of, or interests in, any other
Person; provided, that "Investment" shall not include current
customer and trade accounts which are payable in accordance with
customary trade terms.
"LEC Dilution
Factor"
means the average, as calculated by FINOVA, of the dilution
factors charged by LECs to Borrower, calculated as a percentage,
(a) the numerator of which is all non-cash reductions to LEC
Receivables made by LECs; (b) the denominator of which is equal
to confirmed billings under the Billing Tapes transmitted by
Borrower directly to LECs.
"Lien"
means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind, whether voluntary or involuntary
(including any conditional sale or other title retention
agreement, any lease in the nature thereof, and any agreement to
give any security interest).
"OAN Dilution
Factor"
means the average, as calculated by FINOVA, of the dilution
factors charged by OAN to Borrower (or passed through by OAN to
Borrower from the LECs), calculated as a percentage, (a) the
numerator of which is all non-cash reductions to OAN Receivables
made by OAN; (b) the denominator of which is equal to gross
billings under the Billing Tapes transmitted to OAN.
"Operating Cash
Flow-Actual"
for any period, Borrower's EBITDA less (A) all Capital
Expenditures actually made by Borrower during such period not
financed; and (B) any income or franchise taxes actually paid by
Borrower.
"Permitted
Encumbrances"
means the following types of Liens:
(a) Liens or deposits for taxes, assessments or other
governmental charges not yet due and payable or, if due and
payable, which are being contested in good faith and for which
adequate reserves have been established in accordance with GAAP
but only if such Liens have not been filed or recorded;
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(b) Statutory Liens of landlords, carriers, warehouseman,
mechanics, materialmen and other similar liens imposed by law,
which are incurred in the ordinary course of business for sums
not more than thirty (30) days delinquent or which are being
contested in good faith; provided, that a reserve or other
appropriate provision, if any, as shall be required by GAAP,
shall have been made therefor;
(c) Liens incurred or deposits made in the ordinary course
of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to
secure the performance of tenders, statutory obligations, surety,
stay, customs and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds
and other similar obligations (exclusive of obligations for the
payment of borrowed money);
(d) Deposits, in an aggregate amount not to exceed $100,000
made in the ordinary course of business to secure liability to
insurance carriers;
(e) Liens for purchase money obligations permitted hereunder
not to exceed $500,000 in the aggregate;
(f) Leases or subleases granted to others and licenses of
intellectual property granted to others, in any such case not
interfering in any material respect with the business or property
of any Loan Party;
(g) Easements, rights-of-way, restrictions, zoning
restrictions, encroachments, protrusions and other similar
charges or encumbrances or other Liens which appear on the title
policies, commitments or surveys delivered to and approved by
FINOVA, with respect to easements, rights of way, restrictions,
encroachments, protrusions, other similar charges or
encumbrances, which are hereafter replaced on the property, in
each case (i) not interfering in any material respect with the
ordinary conduct of the business of any Loan Party or the value
of any collateral, (ii) not affecting the perfection or the
priority of the Liens granted in favor of FINOVA, and (iii)
otherwise not interfering in any material respect with the Liens
granted in favor of FINOVA.
(h) Liens securing the Nomura Debt, prior to the initial
advance of Loans hereunder provided such Liens are terminated on
or before November 30, 1996;
(i) Any interest or title of a lessor or sublessor under any
lease permitted by this Agreement; and
(j) Liens arising from filing Uniform Commercial Code
financing statements regarding leases permitted by this
Agreement.
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"Permitted
Investments"
means (a) readily marketable direct obligations of the United
States of America (or investments in mutual funds or similar fund
which invest solely in such obligations), (b) fully insured time
deposits and certificates of deposit with maturities of one year
or less of any commercial bank operating in the United States
having capital and surplus in excess of $50,000,000, (c)
commercial paper of a domestic issuer if at the time of purchase
such paper is rated in one of the two highest ratings categories
of Standard and Poor's Corporation or Moody's Investors Service
(d) any Investment in lease receivables, and (e) other
Investments; provided, that, the aggregate amount of all other
Investments made pursuant to this clause (e) outstanding at any
time shall not exceed $500,000.
"Prepared
Financials"
means the balance sheets of Borrower as of September 30, 1996,
and as of each subsequent date on which audited balance sheets
are delivered to FINOVA from time to time hereunder, and the
related statements of operations, changes in stockholder's equity
and changes in cash flow for the periods ended on such dates.
"Senior Debt
Service"
for any period, the sum of payments made or required to be made
by Borrower during such period for the following (i) interest on
the Revolving Loans; (ii) fees payable to FINOVA pursuant to this
Loan Agreement; and (iii) payments associated with a Capital
Lease.
"Subordinating
Creditors"
means Banca Del Gottardo and Berthel Investments.
"Total Debt
Service"
for any period, the sum of payments made (or, as to clause (i) of
this sentence, required to be made) by Borrower during such
period for the following: (i) Senior Debt Service and (ii)
principal and interest payments on the Subordinated Debt; and
(iii) dividends on preferred capital stock of Borrower.
DISBURSEMENT (Section 19.12):
Unless and until Borrower otherwise directs FINOVA in writing, all loans
shall be wired to Borrower's following operating account: Bank One, Texas, N.A.,
1717 Main Street, Dallas, Texas 75201, ABA #111 000 614, Account #1884830264, To
Credit INTELLICALL, INC.
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Borrower:
INTELLICALL, INC.
By: /s/ William O. Hunt date signed
President 11/13/96
By: /s/ Michael H. Barnes date signed
Secretary 11/13/96
Borrower's Tax I.D. No.: 751993841
FINOVA CAPITAL CORPORATION
By: /s/ Sean R. Hughes date signed
11/13/96
Title: Vice President
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FINOVA
SECURED REVOLVING CREDIT NOTE
$12,000,000 November , 1996
FOR VALUE RECEIVED, the undersigned, INTELLICALL, INC. (the
"Undersigned"), a Delaware corporation with a principal place of business at
2155 Chenault Avenue, Suite 410, Carrollton, Texas 75006-5023, hereby promises
to pay to FINOVA CAPITAL CORPORATION ("FINOVA"), or order, at 355 South Grande
Avenue, Suite 2400, Los Angeles, California 90071 or at such other address as
the holder may specify in writing, the principal sum of Twelve Million Dollars
($12,000,000), or such lesser sum which represents the principal balance of
Loans outstanding under the Total Facility established pursuant to the
provisions of that certain Loan and Security Agreement dated of even date
herewith, between the Undersigned and FINOVA (the "Agreement"), plus interest in
the manner and upon the terms and conditions set forth below. This Secured
Revolving Credit Note ("Note") is made pursuant to the Agreement, the provisions
of which are incorporated herein by this reference. Capitalized terms herein,
unless otherwise noted, shall have the meaning set forth in the Agreement. The
actual amount due and owing hereunder shall be evidenced by FINOVA's records of
receipts and disbursements with respect to Loans, which records shall be
conclusive evidence of such amount due and owing under the Loan Agreement absent
manifest error.
1.0 Rate And Payment Of Interest.
The outstanding principal balance of this Note shall bear interest at
the Contract Rate. The Contract Rate shall be a per annum rate of one and three
quarters percentage points (1.75%) in excess of the Base Rate subject to
reduction as set forth in the Schedule to the Agreement. The interest rate
chargeable hereunder shall be increased or decreased, as the case may be,
without notice or demand of any kind, upon the announcement of any change in the
Base Rate. Each change in the Base Rate shall be effective hereunder on the
first day following the announcement of such change. Interest charges and all
other fees and charges herein shall be computed on the basis of a year of 360
days and actual days elapsed and shall be payable to FINOVA in arrears on the
first day of each month hereafter at its address set forth above. Accrued but
unpaid interest under this Note shall be due and payable on the first day of
each month, commencing December 1, 1996, and at maturity, on which date all
interest remaining unpaid shall be due and payable.
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<PAGE>
2.0 Schedule Of Principal Payments.
A final installment of all outstanding principal, accrued and unpaid
interest and all other sums payable pursuant to the Loan Documents on November
30, 1999, unless due earlier pursuant to the terms of the Loan Agreement.
3.0 Prepayment.
Prepayment may be made under this Note in whole or in part, subject to
the Termination Fee, as applicable, as set forth in the Agreement.
4.0 Holder's Right Of Acceleration.
If the Agreement is terminated for any reason whatsoever, or if there
shall occur an Event of Default or if this Note is not paid when due, the entire
remaining principal balance and all accrued and unpaid interest and other fees
and charges with respect to this Note shall, at FINOVA's option, become
immediately due and payable.
5.0 Holder's Rights Upon Default.
If any Event of Default occurs, then from the date such Event of
Default occurs until it is cured or waived in writing, in addition to any agreed
upon charges, the principal balance of this Note shall thereafter, at FINOVA's
option, bear interest at two percentage points (2.0%) per annum in excess of the
Contract Rate, computed on the basis of a year of three hundred sixty (360) days
and the actual number of days elapsed.
6.0 Additional Rights Of Holder.
If any installment of principal or interest hereunder is not paid when
due, the holder shall have, in addition to the rights set forth herein, in the
Agreement and under law, the right to compound interest by adding the unpaid
interest to principal, with such amount thereafter bearing interest at the rate
provided in this Note.
7.0 General Provisions.
7.1 If this Note is not paid when due or upon the occurrence of an
Event of Default, the Undersigned further promises to pay all costs of
collection, foreclosure fees, attorneys' fees and expert witness fees
incurred by the holder, whether or not
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<PAGE>
suit is filed hereon, and the fees, costs and expenses as
provided in the Agreement.
7.2 The Undersigned hereby consents to any and all renewals,
replacements and/or extensions of time for payment of this Note before,
at or after maturity.
7.3 The Undersigned hereby consents to the acceptance,
release or substitution of security for this Note.
7.4 Presentment for payment, notice of dishonor, protest and
notice of protest are hereby expressly waived by the
Undersigned.
7.5 The contracted for rate of interest of the loan contemplated
hereby, without limitation, shall consist of the following: (i) the
interest rate set forth on the Schedule, calculated and applied to the
principal balance of this Note in accordance with the provisions of
this Note; (ii) interest after an Event of Default, calculated and
applied to the amounts due under this Note in accordance with the
provisions hereof including, without limitation, after entry of a
judgment; and (iii) all Additional Sums (as herein defined), if any.
The Undersigned agrees to pay an effective contracted for rate of
interest which is the sum of the above-referenced elements. All
examination fees, attorneys' fees, expert witness fees, letter of
credit fees, collateral monitoring fees, closing fees, Facility Fees,
Termination Fees, Unused Line Fees, minimum interest charges, other
charges, goods, things in action or any other sums or things of value
paid or payable by the Undersigned (collectively, the "Additional
Sums), whether pursuant to this Note, the Agreement or any other
documents or instruments in any way pertaining to this lending
transaction, or otherwise with respect to this lending transaction,
that under any applicable law may be deemed to be interest with respect
to this lending transaction, for the purpose of any applicable law that
may limit the maximum amount of interest to be charged with respect to
this lending transaction, shall be payable by the Undersigned as, and
shall be deemed to be, additional interest and for such purposes only,
the agreed upon and "contracted for rate of interest" of this lending
transaction shall be deemed to be increased by the rate of interest
resulting from the inclusion of the Additional Sums.
It is the intent of the parties to comply with the usury law of the
State of Arizona (the "Applicable Usury Law"). Accordingly, it is
agreed that notwithstanding any provisions to the contrary in this
Note, or in any of the documents securing payment hereof or otherwise
relating hereto, in no event shall this Note or such documents require
the payment or permit the collection of interest in excess of the
maximum
3
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<PAGE>
contract rate permitted by the Applicable Usury Law (the "Maximum
Interest Rate"). In the event (a) any such excess interest otherwise
would be contracted for, charged or received from the Undersigned or
otherwise in connection with the loan evidenced hereby, (b) the
maturity of indebtedness evidenced by this Note is accelerated in whole
or in part, or (c) all or part of the principal or interest of this
Note shall be prepaid, so that under any of such circumstances the
amount of interest contracted for, shared or received in connection
with the loan evidenced hereby, would exceed the Maximum Interest Rate,
then in any such event (1) the provisions of this paragraph shall
govern and control, (2) neither the Undersigned nor any other person or
entity now or hereafter liable for the payment hereof shall be
obligated to pay the amount of such interest to the extent that it is
in excess of the Maximum Interest Rate, (3) any such excess which may
have been collected shall be either applied as a credit against the
then unpaid principal amount hereof or refunded to the Undersigned, at
FINOVA's option, and (4) the effective rate of interest shall be
automatically reduced to the Maximum Interest Rate. It is further
agreed, without limiting the generality of the foregoing, that to the
extent permitted by the Applicable Usury Law; (x) all calculations of
interest which are made for the purpose of determining whether such
rate would exceed the Maximum Interest Rate shall be made by
amortizing, prorating, allocating and spreading during the period of
the full stated term of the loan evidenced hereby as modified by any
actual termination thereof, all interest at any time contracted for,
charged or received from the Undersigned or otherwise in connection
with such loan; and (y) in the event that the effective rate of
interest on the loan should at any time exceed the Maximum Interest
Rate, such excess interest that would otherwise have been collected had
there been no ceiling imposed by the Applicable Usury Law shall be paid
to FINOVA from time to time, if and when the effective interest rate on
the loan otherwise falls below the Maximum Interest Rate, to the extent
that interest paid to the date of calculation does not exceed the
Maximum Interest Rate, until the entire amount of interest which would
otherwise have been collected had there been no ceiling imposed by the
Applicable Usury Law has been paid in full. The Undersigned further
agrees that should the Maximum Interest Rate be increased at any time
hereafter because of a change in the Applicable Usury Law, then to the
extent not prohibited by the Applicable Usury Law, such increases shall
apply to all indebtedness evidenced hereby regardless of when incurred.
7.6 No delay or omission on the part of the holder of this Note in
exercising any right shall operate as a waiver thereof or of any other
right.
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<PAGE>
7.7 No waiver by the holder of this Note upon any one occasion shall be
effective unless in writing nor shall it be construed as a bar or
waiver of any right or remedy on any future occasion.
7.8 Time is of the essence for the performance by the
Undersigned of the obligations set forth in this Note.
7.9 Should any one or more of the provisions of this Note be
determined illegal or unenforceable, all other provisions
shall nevertheless remain effective.
7.10 This Note cannot be changed, modified, amended or
terminated orally.
7.11 This Note shall be governed by, construed and enforced in
accordance with the laws of the State of Arizona, without reference to
the principles of conflicts of laws thereof.
7.12 THE UNDERSIGNED HEREBY IRREVOCABLY WAIVES ANY RIGHT TO A TRIAL BY
JURY IN ANY ACTION TO ENFORCE OR DEFEND ANY MATTER ARISING FROM OR
RELATED TO THIS NOTE AND ACKNOWLEDGES THAT FINOVA ALSO WAIVES SUCH
RIGHT.
8.0 Security For This Note.
This Note is secured pursuant to the Agreement and is subject to all of
the terms and conditions thereof, including, but not limited to, the remedies
specified therein.
IN WITNESS WHEREOF, this Secured Revolving Credit Note has been
executed and delivered as of the date first set forth above.
INTELLICALL, INC.
date signed By:/s/ William O. Hunt
11/13/96 William O. Hunt
Title: President
Tax I.D. No.: 751993841
5
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NOTE AND WARRANT PURCHASE,
PAYING AND CONVERSION/EXERCISE AGENCY AGREEMENT
INTELLICALL, INC.
CARROLLTON, TEXAS, U.S.A.
USD 5'000'000.--
8% Subordinated Convertible Notes of 1996 due
November 22, 2001 and 200'000 Warrants expiring
November 22, 2001
November 15, 1996
<PAGE>
TABLE OF CONTENTS
DEFINITIONS
I. SUBJECT 3
II. ANNEXES 4
III. SALES RESTRICTIONS 5
IV. COMMISSION AND EXPENSES 8
V. WARRANTIES 9
VI. PAYMENT TO THE COMPANY 12
VII. CONDITIONS TO THE OBLIGATIONS
OF BANCA DEL GOTTARDO 12
VIII. INFORMATION MEMORANDUM 13
IX. PRINTING OF THE NOTES AND WARRANTS 13
X. SERVICING OF THE NOTES 15
XI. CANCELLATION OF NOTES AND COUPONS AND WARRANTS 16
XII. COVENANTS 17
XIII. RIGHT OF TERMINATION 18
XIV. COMMUNICATIONS 19
XV. APPLICABLE LAW AND JURISDICTION 19
XVI. EFFECTIVENESS 20
XVII. CURRENCY INDEMNITY 20
XVIII. ENTIRE AGREEMENT 20
XIX. AMENDMENT, CANCELLATION AND WAIVER 21
ANNEX A TERMS OF THE NOTES 22
ANNEX B DEFINITIVE NOTE (FACE) 38
ANNEX C INTEREST COUPONS 40
ANNEX D GLOBAL NOTE 41
ANNEX E TERMS OF THE WARRANTS 43
ANNEX F DEFINITIVE WARRANT (FACE) 60
ANNEX G GLOBAL WARRANT 62
ANNEX H CONVERSION AGENCY AGREEMENT 64
ANNEX I WARRANT AGENCY AGREEMENT 79
ANNEX J-1/J-2 CERTIFICATION OF NON U.S. BENEFICIAL OWNERSHIP 89/90
ANNEX K CERTIFICATE OF NO MATERIAL ADVERSE CHANGE 91
ANNEX L SPECIMEN SIGNATURE FORM 92
ANNEX M CERTIFICATE BY BANCA DEL GOTTARDO 93
<PAGE>
NOTE AND WARRANT PURCHASE,
PAYING AND CONVERSION/EXERCISE AGENCY AGREEMENT
entered into effective as of November 15, 1996
between
INTELLICALL, INC.
being a corporation existing under the laws of the State of Delaware, whose head
office is situated at 2155 Chenault, Suite 410, Carrollton, Texas 75006-5023,
U.S.A.,(hereinafter called the "Company")
on the one part
and
BANCA DEL GOTTARDO
being a corporation duly organized with limited
liability and existing under the laws of Switzerland, whose registered office is
situated at Viale Stefano Franscini 8, 6901 Lugano, Switzerland,
on the other part
Some Definitions
The Company's 8% subordinated Convertible Notes of 1996 due November 22, 2001,
are referred to herein as the "Notes" and the Warrants of 1996 expiring November
22, 2001 as the "Warrants".
Until the Notes have been printed in definitive form pursuant to Article IX
hereof, the expression "Notes" herein shall include entitlements under the
Global Note, and the expressions "Noteholder(s)" and "Couponholder(s)", mutatis
mutandis, shall mean and include persons and entities entitled to the benefits
under the Global Note. Each Noteholder possesses a co-ownership in the Global
Note in relation to the principal amount of Notes of which he is an owner.
"Global Note" means a global note for the total principal amount of USD
5'000'000.-- issued in bearer form and representing 1'000 single Notes each in
the amount of USD 5'000.-- and representing the aforementioned total principal
amount. The Global Note will be destroyed by Banca del Gottardo when the Notes
are printed.
Until the Warrants have been printed in definitive form pursuant to Article IX
hereof, the expression "Warrants" herein shall include entitlements under the
Global Warrant, and the expressions "Warrantholder(s)", mutatis mutandis, shall
mean and include persons and entities entitled to the benefits under the Global
Warrant. Each Warrantholder possesses a co-ownership in the Global Warrant in
relation to the principal number of Warrants he is an owner of.
<PAGE>
"Global Warrant" means a global warrant for the total number of 200'000 Warrants
issued in bearer form. The Global Warrant will be destroyed by Banca del
Gottardo when the Warrants are printed.
Global Note and Global Warrant are hereinafter sometimes collectively referred
to as the "Global Certificates".
I. SUBJECT
Subject to the terms and conditions hereof
- the Company, pursuant to authorization by its Board of Directors,
agrees to issue and sell to Banca del Gottardo USD 5'000'000.--
Notes at a price of 100% of their principal amount, and 200'000
Warrants in a ratio of one Note and 200 Warrants and
- Banca del Gottardo agrees not later than November 22, 1996
(1) to purchase (i.e. underwrite) on a firm basis for USD 5'000'000.
-- Notes at a price of 100% of their principal amount and
200'000 Warrants, and
(2) to offer the Notes and Warrants in a placement exclusively to
its clients and other financial institutions at a price of 100%
of their principal amount,
(i) Notes
with a total principal amount of USD 5'000'000.--
(United States Dollars five million)
maturing on November 22, 2001
bearing interest at the rate of 8% per annum, payable
semi-annually in arrear each
May 22 and November 22,
commencing May 22, 1997
until maturity
and
<PAGE>
(ii) Warrants
in a total number of 200'000 (two hundred thousand)
expiring on November 22, 2001
The aggregate amount for which Notes and Warrants are sold are hereinafter
referred to as the "Proceeds".
The net Proceeds of the Notes will be utilized by the Company as follows:
A. USD 3'500'000.-- to be utilized to repay in the amount of USD
3'500'000.-- the variable Rate Senior Bridge Notes Due 1996,
Series A floated by the Company under a note purchase agreement
dated August 11, 1994 by and between the Company and Nomura
Holding America Inc.; and
B. the remaining proceeds are at the Company's free disposal for the
financing of acquisitions, working capital and general corporate
purposes.
Banca del Gottardo shall not have any responsibility for or be obliged to
concern itself with the application of the net Proceeds of the Notes.
II. ANNEXES
The contents of each of the Annexes attached hereto, i.e.
Annex A: Terms of the Notes
Annex B: Form of Definitive Note (face)
Annex C: Form of Interest Coupons
Annex D: Form of Global Note
Annex E: Terms of the Warrants
Annex F: Form of Definite Warrant (face)
Annex G: Form of Global Warrant
Annex H: Conversion Agency Agreement
Annex I: Warrant Agency Agreement
Annex J: Certification of Non U.S. Beneficial Ownership
Annex K: Form of Certificate of No Material Adverse Change
Annex L: Specimen signature form
Annex M: Certificate by Banca del Gottardo
shall constitute an integral part of this Agreement.
<PAGE>
III. SALES RESTRICTIONS
a) The Notes and Warrants to be issued pursuant to this Agreement have not
been registered under the United States Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered, sold or delivered, directly or
indirectly, in the United States or to, or for the account of, any U.S. person
except in transactions exempt from the registration requirements of the
Securities Act.
b) As to the Company, the Notes and Warrants are intended to be obligations
that are not required to be in registered form for purposes of United States
federal tax laws and the principal (to the extent characterized as original
issue discount) and interest payable on the Notes are intended to be "portfolio
interest" under Sections 871(h) and 881(c) of the United States Internal Revenue
Code of 1986 as amended (the "Code"). Accordingly, the Notes and the Warrants
may not, as part of any part of the initial distribution, be offered for sale or
resale, sold or delivered, directly or indirectly, to a person in the United
States or to a United States person. Banca del Gottardo (i) agrees and
represents that no Notes or Warrants will be offered, sold or delivered to or on
behalf of a person within the United States or a United States person, (ii)
represents and agrees that (a) it will not offer or sell, and, during the period
beginning on the earlier of the first date that the Notes and Warrants are
offered or the date on which the Notes are issued and ending on the date forty
(40) days after the later of the date upon which the Notes and Warrants were
first offered or the date of closing of this offering (the "Restricted Period"),
it will not offer or sell, Notes or Warrants to a person who is within the
United States or to a United States person, (b) it has not delivered and will
not deliver within the United States definitive Notes or coupons or definitive
Warrants that are sold during the Restricted Period, (c) it has and throughout
the Restricted Period will have in effect procedures reasonably designed to
ensure that its employees or agents who are directly engaged in selling Notes or
Warrants are aware that such Notes or Warrants may not be offered or sold during
the Restricted Period to a person who is within the United States or to a United
States person and (d) it has not entered and will not enter into any contractual
arrangement with respect to the distribution and delivery of the Notes and the
Warrants, except with its affiliates or with the prior written consent of the
Company, (iii) represents and agrees with respect to each affiliate that
acquires from it Notes or Warrants for the purpose of offering or selling such
Notes or Warrants during the Restricted Period, repeating and confirming the
representations and agreements contained in clauses (ii) (a), (b), (c) and (d)
on each such affiliate's behalf and (iv) represents and agrees that it will not
sell or deliver Notes and Warrants to a holder which is (a) immediately after
the sale or delivery, a "10-percent. shareholder" of the Company within the
meaning of Section 871 (h) (3) of the Code, (b) a bank on an extension of credit
made pursuant to a loan agreement entered into in the ordinary course of its
trade or business, (c) a controlled foreign corporation which is related to the
<PAGE>
Company under section 864 (d) (4) of the Code, or (d) within a foreign country
which the United States Secretary of the Treasury has determined under section
871 (h) (6) of the Code that the exchange of information with the foreign
country is inadequate to prevent evasion of United States tax by United States
persons. Banca del Gottardo will deliver to the Company the certificate in the
form attached hereto as Annex M within ten business days of the commencement of
the Restricted Period. For purposes of this Agreement, whether an offer, sale or
delivery is made to a person within the United States or to a United States
person will be determined under the rules set out in the Code, and United States
Treasury Regulation Section 1.163-5(c)(2)(i)(D). Banca del Gottardo agrees that
it will comply fully with the selling restrictions set out in this Sub-Section
(b) and, in particular, Banca del Gottardo hereby covenants and agrees to the
effect set out in clauses (ii) and (iii) of the second preceding sentence.
c) The Notes will be represented initially by a temporary Global
Convertible Note (the "Global Note"), without interest coupons, and the Warrants
will be represented initially by a temporary Global Certificate (the "Global
Warrant"), the Global Note and Global Warrant to be deposited by the Company
with Banca del Gottardo, on the Payment Date. The Global Note may be exchanged,
as a whole or in part, for appropriate definitive Notes, in bearer form in the
denominations of USD 5'000.-- with interest coupons (the "coupons") attached,
and the Global Warrant may be exchanged, as a whole or in part, for appropriate
definitive Warrants, in bearer form not earlier than 40 days after the later of
the date on which the Notes and the Warrants are first offered or the Payment
Date, before which time no Notes represented by the Global Note or Warrants
represented by the Global Warrant or interest therein may be offered, sold or
transferred into the United States or to a U.S. person. Such exchange shall be
made upon certification, in the form attached hereto as Annex J-1, that the
beneficial owners of the Notes or Warrants either (i) are not United States
persons or U.S. persons or (ii) are financial institutions (within the meaning
of United States Treasury Regulation Section 1.165-12(c)(1)(v)) located outside
the United States that are not United States persons and have purchased such
Notes or Warrants for resale during the Restricted Period and certify they have
not acquired the Notes or the Warrants for purposes of resale directly or
indirectly to a United States person or to a person within the United States.
Any certificates provided by a clearing organization must be based on statements
provided to it by its members. A beneficial owner of Notes must exchange its
share of the Global Note for definitive Notes before such Notes or interests
therein may be transferred or as regards the Notes before interest payments or
other payments will be made and a beneficial owner of Warrants must exchange its
position of the Global Warrant for definitive Warrants before such Warrants will
be exercised. Banca del Gottardo agrees (i) to furnish to the Company a properly
completed certificate with respect to each Note and Warrant, in the form
attached hereto as Annex J-1 and J-2 (and, in the case of clearing
organizations, required statements of members of the clearing organization), on
the
<PAGE>
earlier of the date of the first actual payment of interest on the Note or
the date of delivery by the Company of the Note or Warrant in definitive form,
and (ii) to issue definitive Notes and Warrants within a reasonable time after
the end of the Restricted Period (for this purpose, a temporary global security
is not a security in definitive form).
d) In this Agreement, references to "dollars" and "USD" are to United
States dollars, the term "United States" means the United States of America
(including the States and the District of Columbia), its territories, its
possessions and other areas subject to its jurisdiction, and the term "United
States person" means a citizen or resident of the United States, a corporation,
partnership or other entity created or organized in or under the laws of the
United States or any political subdivision thereof, or an estate or trust the
income of which is subject to United States federal income taxation regardless
of its source, "U.S. person" shall have the meaning set forth in Sections
230.901 through 904 of Title 17 of the United States Code of Federal Regulations
("Regulation S").
e) The following legends will appear on the Global Note and all Notes and
coupons issued pursuant to the Offer: (i) "Any United States person who holds
this obligation will be subject to limitations under the United States income
tax laws, including the limitations provided in sections 165(j) and 1287(a) of
the Internal Revenue Code", and (ii) "This Note has not been and will not be
registered under the United Stated Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered, sold or delivered, directly or
indirectly, in the United States or to, or for the benefit of, any U.S. person
(as such terms are defined in Regulation S under the Securities Act) unless this
Note is registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available." The sections
referred to in the legend provide that, with certain exceptions, a United States
person will not be permitted to deduct any loss, and will not be eligible for
capital gain treatment with respect to any gain, realized on a sale, exchange or
redemption of such Notes or coupons.
f) The following legends will appear on the Global Warrant and all Warrants
issued pursuant to the Offer: "This Warrant has not been and will not be
registered under the United Stated Securities Act of 1933, as amended (the
"Securities Act"), and may not be offered, sold or delivered, directly or
indirectly, in the United States or to, or for the benefit of, any U.S. person
(as such terms are defined in Regulation S under the Securities Act) unless this
Warrant is registered under the Securities Act or an exemption from the
registration requirements of the Securities Act is available."
g) The Company represents, warrants and covenants that the Notes and the
Warrants have not been and shall not be offered or sold except in accordance
with Rule 903 promulgated under the Securities Act or in a transaction exempt
from the registration requirements of the
<PAGE>
Securities Act. Each of the Company and Banca del Gottardo represents,
warrants and covenants that (i) none of it, its affiliates or any person acting
on its behalf has engaged or will engage in any directed selling efforts (as
defined in Rule 902 promulgated under the Securities Act) in the United States
and it has complied and will comply with the offering restrictions of Regulation
S under the Securities Act in connection with the offer of the Notes and the
Warrants, (ii) none of it, its affiliates or any person acting on its behalf has
utilized or will utilize any form of general solicitation or general advertising
(as such terms are used in Regulation D promulgated under the Securities Act) in
connection with the offer of the Notes and the Warrants in the United States,
(iii) none of it, its affiliates or any person acting on its behalf has made or
will make an offer of the Notes in circumstances that would require the
registration of the Notes or Warrants under the Securities Act and (iv) requests
to purchase Notes and/or Warrants shall be accepted only from persons who are
not within the United States.
h) Banca del Gottardo has been advised by the Company and acknowledges and
confirms that it is aware (a) that a violation or breach of any of the terms and
conditions of Article III of this Agreement could directly cause the Company to
become subject to damages and liabilities (including, but not limited to, excise
taxes, a loss of the interest deduction and assumption of withholding taxes)
under various United States securities and tax laws, and (b) that, as a
consequence, Banca del Gottardo could be held liable for such damages and
liabilities, in the event Banca del Gottardo violated or breached such terms and
conditions.
IV. COMMISSION AND EXPENSES
a) The Company will pay on November 22, 1996 Lugano time (the "Closing
Date") to Banca del Gottardo
(1) a managing and underwriting commission of 6% calculated on
the principal amount of the Notes
(2) USD 35'000.-- for out-of-pocket expenses incurred by Banca
del Gottardo, which shall include all its legal fees and
expenses.
The payment by the Company of (1) and (2) above will be made by deduction
from the payment by Banca del Gottardo to the Company of the Proceeds, resulting
in the Net Proceeds as per Article VI.
b) The Company shall further bear when ascertainable and due
<PAGE>
- all present or future taxes, duties or other charges levied by
or within the United States of America in connection with the
execution and delivery of this Agreement, the Global Note and
the Global Warrant (excluding tax on interest or principal on
the Notes which is addressed in Annex A); and
- the commissions and expenses for the servicing and the
conversion of the Notes as per Article X and the exercise of
the Warrants as set forth in the Warrant Agency Agreement;
c) The Company will reimburse Banca del Gottardo on first demand for
all reasonable bank charges, legal fees and other reasonable costs
and expenses incurred or to be incurred by Banca del Gottardo in
case of or in connection with reorganization, merger,
restructuring or default, actual or threatened, of the Company as
well as in connection with the convening of a Noteholders' meeting
and the preservation and enforcement of any of the rights under
this Agreement, the Global Warrant or the Warrants, the Global
Note or the Notes.
d) Banca del Gottardo shall bear
- all costs and expenses in connection with the initial offering
and placement of the Notes and the Warrants incurred by it.
Banca del Gottardo shall further bear
- the cost for the printing and delivery to the holders of the
definitive Notes or of the definitive Warrants incurred by
Banca del Gottardo on behalf of the Company.
- all costs incurred by it in connection with the offering,
including the printing in Switzerland of the Information
Memorandum relating to the Notes and the Warrants.
V. WARRANTIES
A) The Company warrants to and for the benefit of Banca del
Gottardo that:
1. Status: it is a corporation duly incorporated and
existing in good standing under the laws of the State of
Delaware capable of suing and being sued and has the
power and authority to own its assets and to conduct the
business which it presently conducts;
2. Powers: it has the power to enter into, exercise its
rights and perform and comply with its obligations under
this Agreement;
3. Authorization and Consents: except as to the
registration requirements provided for
<PAGE>
herein, all
actions, conditions and things required by the laws of
the State of Delaware and the United States of America
have been taken, fulfilled and done (including the
obtaining of the necessary consents) in order
a) to enable it lawfully to enter into, exercise its
rights and perform and comply with its obligations
under this Agreement; and
b) to ensure that those obligations are legally binding
and enforceable in accordance with their terms subject
to general equity principles, to applicable
bankruptcy, insolvency, conservatorship,
reorganization and other similar debtor relief laws,
and to other laws establishing liens and priorities or
otherwise relating to or affecting creditors-rights;
4. Non-Violation of Laws, etc: its entry into, and exercise
of its rights and/or performance of or compliance with
its obligations under this Agreement, the terms of the
Global Note and the Notes and the terms of the Global
Warrant and the Warrants do not and will not violate
in any material way
a) any law to which it is subject; or
b) its Certificate of Incorporation; or
c) except for matters for which the Company has received
a waiver, any agreement to which it is a party or
which is binding on it or its assets, and does not and
will not result in the existence of, or obligate it to
increase, any security interest in those assets,
except to the extent that such violations in the
aggregate would not have a material adverse effect on
the financial conditions of the Company;
5. Obligations Binding: its obligations under this
Agreement, the Global Note and the Notes, the Global
Warrant and the Warrants when duly executed are valid,
binding and enforceable in accordance with their terms
subject to general equity principles, to applicable
bankruptcy, insolvency, conservatorship, reorganization
and other similar debtor relief laws, and to other laws
establishing liens and priorities or otherwise relating
to or affecting creditors' rights;
6. Information Memorandum: the information pertaining to the
Company and its subsidiaries which is contained in the
Information Memorandum (defined in Article VIII) is
accurate in all material respects and there are no other
facts the omission of which makes any statement
therein materially misleading;
<PAGE>
7. Accounts: the audited and unaudited consolidated
financial statements included as contained in the
Information Memorandum present fairly the results and
financial condition of the Company as a whole for the
periods and as of the dates thereof, and are in
accordance with generally accepted accounting principles
in the United States of America;
8. No Material Adverse Change: save as disclosed in the
Information Memorandum and the Company's filings with the
Securities and Exchange Commission in the U.S., there has
been no material adverse change in the consolidated
financial condition of the Company since September 30,
1996;
9. Litigation: except as disclosed in the Information Memo-
randum, no litigation, arbitration or administrative pro-
ceedings or judgment or award is current or, so far as
the Company is aware, threatened or pending
a) to restrain the entry into, exercise of its rights
under and/or performance or enforcement of or
compliance with its obligations under this
Agreement; or
b) which either individually or collectively are
material in the context of the issue and sale of the
Notes or the Warrants or the making and performance
of this Agreement;
10. No Breach or Default: neither failure by the Company to
comply with Article III nor any event described in
Sections 8, 9 or 10 of the Terms of the Notes has
occurred and is continuing. The Company is not in breach
or in default under any agreement to an extent or in a
manner which has had or could have a material adverse
effect on the financial condition of the Company and its
consolidated affiliates taken as a whole.
(B) Since the commitment of Banca del Gottardo to purchase the
Notes and the Warrants is made on the basis of the aforesaid
representations and warranties, the Company hereby undertakes
with Banca del Gottardo that it will hold Banca del Gottardo
harmless against all losses, liabilities, costs, charges and
expenses which it may incur as a noteholder as a result of or
in relation to any material misrepresentation or any material
breach of said representations and warranties by the Company,
and as long as any of the Notes and the Warrants are
outstanding Banca del Gottardo shall be given prompt notice by
the Company of any claim, action or proceeding which might
give rise to an obligation under this clause (B) of Article V.
This indemnification by the Company shall be in addition to
any other remedy available to Banca del Gottardo under
applicable law.
<PAGE>
VI. PAYMENT TO THE COMPANY
On the Closing Date, Banca del Gottardo will pay to the Company the net
proceeds (the "Net Proceeds") of the offering - after compensation with the
commissions and expenses mentioned in Article IV against the Global Note and the
Global Warrant being delivered to Banca del Gottardo pursuant to Article VII.
Such net proceeds will be placed by Banca del Gottardo in US Dollars to the
credit of the Company in a US Dollar denominated account designated by the
Company.
Such net proceeds will be at the free disposal of the Company subject to
any Swiss National Bank regulations or other regulations that may be in force on
the Closing Date.
VII. CONDITIONS TO THE OBLIGATIONS OF BANCA DEL GOTTARDO
Banca del Gottardo shall have received from the Company at the latest on
November 20, 1996 the following documents:
(1) a copy of the Certificate of Incorporation, together with all
amendments thereto, of the Company certified by the Secretary
or the Assistant Secretary of the Company and a copy of a
Certificate of the Secretary of State of the State of Delaware
as to the good standing of the Company, each dated as of a
recent date;
(2) a certified copy of a resolution or resolutions duly adopted
by the Board of Directors of the Company signed by a duly
authorized officer of the Company, conferring the necessary
authority upon the person(s) signing this Agreement, the
Information Memorandum, the Global Note, the Notes, the Global
Warrant, the Warrants and any related documents; and a
certificate of the Secretary, or Assistant Secretary of the
Company as to the incumbency and signatures of the officer(s)
of the Company signing the documents provided for in this
clause (2) on behalf of the Company and the approval of this
Agreement and the Information Memorandum;
(3) Global Note (in the form of Annex D, without interest coupons
and without reproduction of the Terms of the Notes) and the
Global Warrant (in the form of Annex G) both duly issued and
signed by an authorized officer of the Company to be held in
escrow by Banca del Gottardo pending payment of the Net
Proceeds pursuant to Article VI;
(4) an executed copy of the Conversion Agency Agreement as set
forth in Annex H hereto;
<PAGE>
(5) an executed copy of the Warrant Agency Agreement as set forth
in Annex I hereto;
(6) specimen signatures for the printing of the Notes;
(7) Certificate of No Material Adverse Change dated as of the
Closing Date and signed by an authorized officer of the
Company, substantially in the form of Annex K hereto;
(8) a legal opinion of Gardere & Wynne, L.L.P., external U.S.
counsel to the Company on the laws of the United States of
America, dated as of the Closing Date;
(9) an opinion of the Company's Tax Counsel with respect to the
status of the Notes in respect of United States taxes, dated
as of the Closing Date;
(10) a certificate of two officers of the Company approving the
terms of the Notes and of the Warrants and the issue and sale
thereof by the Company;
(11) 2 copies of the Information Memorandum duly signed by an
authorized officer of the Company; and
Each of documents 5, 6, 7, 8, 9 and 11 shall be substantially as agreed by
the Company and Banca del Gottardo prior to the Closing Date.
VIII. INFORMATION MEMORANDUM
The Company will supply Banca del Gottardo on behalf of the holders
of the Notes in due time with information and documentation for the preparation
by Banca del Gottardo of the Information Memorandum (the "Information
Memorandum") relating to the Issue, in compliance with Swiss law.
The Information Memorandum shall be reviewed by the Company and Banca
del Gottardo.
IX. PRINTING OF THE NOTES AND WARRANTS
Banca del Gottardo shall provide for the printing of all, but not some
only, of the Notes or of the Warrants, at its cost on behalf of the Company. A
proof of the Notes and of the Warrants shall be approved by the Company, unless
the Company is then in default, prior to the printing thereof.
<PAGE>
(1) The Notes shall
- be in the form of Annex B,
- have the Terms of the Notes (as per Annex A) reproduced in
English on the reverse side,
- be dated the Closing Date, and
- bear in facsimile the signature(s) of one or more duly
authorized officer(s) of the Company
- have Coupons attached, whereas
(2) the Coupons shall
- be in the form of Annex C, and
(3) The Warrants shall
- be in the form of Annex F
- have the Terms of the Warrants (as per Annex E) reproduced
in English on the reverse side
- to be dated the Closing Date, and
- bear in facsimile the signature(s) of one or more duly
authorized officer(s) of the Company.
(4) The Notes with Coupons attached shall be exchanged against the
Global Note delivered to Banca del Gottardo pursuant to
Article VII of this Agreement.
The Global Certificates so exchanged shall thereafter be cancelled and
returned to the Company.
The Company hereby irrevocably authorizes Banca del Gottardo to reproduce
on the Notes, the coupons and the Warrants the signature of the President of the
Company set forth in the specimen signature form of Annex L attached hereto,
with the same binding effect upon the Company as if the Notes and the coupons or
the Warrants had been issued and signed by the Company on the
<PAGE>
Closing Date.
Notes and/or Coupons or Warrants which are mutilated, lost or destroyed may
be replaced by Banca del Gottardo in accordance with the respective provisions
of the Terms of the Notes and the Terms of the Warrants respectively.
X. SERVICING OF THE NOTES
(1) Transfer of funds
The Company will effect transfer of the funds in freely
disposable United States Dollars required to make any payment
of principal or interest on the Notes, including the
commissions referred to in paragraph (2) hereafter, to Banca
del Gottardo, Lugano, as Paying Agent, for value the
respective due date provided that, if such due date does not
fall on a Business Day, the Company shall be obliged to effect
transfer of such payments for value the Business Day
immediately preceding such due date. Any transfer risk shall
be borne by the Company.
"Business Day" means a day on which commercial banks are open
for domestic business and foreign exchange (including dealings in US Dollars) in
Lugano and New York.
Banca del Gottardo will supply the Company, by facsimile or
otherwise in writing received by the Company not less than
five Business Days prior to each due date for any payment
under the Notes, with any necessary information including
reference numbers and the name of a contact person for the
receipt of funds. Further information regarding the transfer
may be obtained by Banca del Gottardo from the Company at the
address set out in Article XIV below.
Banca del Gottardo shall credit the funds received to separate
non-interest bearing accounts with Banca del Gottardo for each
Coupon due date and/or redemption date. The receipt by Banca
del Gottardo of the due and punctual payment of the funds in
Lugano shall release the Company of its obligations under the
Global Note or under the Notes for the interest and principal,
to the extent of such payment.
Any funds held by Banca del Gottardo which will not be used as
a consequence of Coupons and Notes not having been collected
within the relevant period described by the Statute of
Limitations, shall be held by Banca del Gottardo at the
disposal of the Company. Banca del Gottardo shall promptly
after the expiry of the relevant period inform the Company
about the respective amount.
<PAGE>
The risk of any exchange loss on the transfer of funds so held
by Banca del Gottardo from Banca del Gottardo to the Company shall be borne by
the Company, provided the transfer is made by order of, or with the consent of,
the Company.
(2) Commissions and Expenses
The Company will pay to Banca del Gottardo for the servicing
of the Notes a commission of
- 0.25% on the face amount of Coupons to be paid and - 0.125%
on the principal amount of Notes redeemed.
(3) Modalities
Except as provided in paragraph (1) of Article XI or in
Section 5 of the Terms of the Notes, any transfer by the
Company as per (1) and (2) above, shall be made in US Dollars
freely disposable, without any restrictions, and whatever the
circumstances may be, irrespective of the nationality or
domicile of the holder of Notes and/or Coupons, and without
requiring any affidavit, or the fulfilment of any other
formality.
(4) Paying Agency
The Company hereby appoints Banca del Gottardo as sole Paying
Agent (the "Paying Agent") and Banca del Gottardo agrees to pay to the
Noteholders all amounts to become due under the Notes.
The Company undertakes, in connection with the Issue, not to
appoint any institutions as paying agent without the consent
of Banca del Gottardo, which consent shall not be unreasonably
withheld and not to pay to other banks any commission or
remuneration for the payment of interest or principal on the
Notes.
XI. CANCELLATION OF NOTES AND COUPONS OR WARRANTS
The Company requests and authorizes Banca del Gottardo and Banca del
Gottardo undertakes to cancel and destroy all Coupons paid and Notes
redeemed, converted or replaced and Warrants exercised or replaced,
after the period prescribed by law, and to certify to the Company in
writing the serial numbers of Notes or Warrants, as the case may be,
destroyed, the dates when such destruction took place and the names
of the persons witnessing such destruction.
<PAGE>
Banca del Gottardo reserves the right to record cashed Coupons as
well as redeemed, repaid, converted or replaced Notes and exercised or replaced
Warrants on video tape or other data carriers and to store them in this way
instead of keeping them physically during the period prescribed by law and to
destroy them subsequently. This reproduction of Coupons and/or Notes or Warrants
will remain in safekeeping at Banca del Gottardo during the statutory
limitation.
XII. COVENANTS
As long as any of the Notes or Warrants remain outstanding, the Company
undertakes:
(1) To send to Banca del Gottardo
a) Annual Reports, on Form 10-K, as filed with the United
States Securities and Exchange Commission (the "SEC"),
which report shall include or be accompanied by a copy of
the report of the Company's independent auditor', and
b) such regular and periodic reports on Form 10-Q and Form
8-K (deemed material) as the Company files with the SEC.
Banca del Gottardo is authorized to hold these documents at the disposal of
the Noteholders and/or holders of Coupons and/or Warrantholders for inspection.
(2) To provide Banca del Gottardo forthwith upon becoming aware
thereof with
- any change of its Certificate of Incorporation By-laws (if
any), and without waiting for Banca del Gottardo to take
any of the actions mentioned in Section 8, 9 or 10 of the
Terms of the Notes, with
- a notice in writing of any event provided for in Section 8,
9 or 10 of the Terms of the Notes.
(3) To hold meetings of the Board of Directors on a at least
quarterly basis, i.e. at least one meeting each quarter.
(4) To provide Banca del Gottardo with quarterly financial state-
ments of the Company by no later than the 45th day of the
month following the quarter covered by such statements. Such
statements shall provide Banca del Gottardo with a summary of
all of the Company's operation, in addition to a brief summary
of how the Net Proceeds of this issue have been
<PAGE>
used by Company.
(5) To appoint two members of its Board of Directors upon request
of Banca del Gottardo, unless Banca del Gottardo has exercised
any similar right under any other agreement, and thereafter to
nominate such appointee for election by the Company's stock-
holders and use its best efforts to assure their election
until any Note or Notes shall be redeemed by the Company.
(6) (a) So long as any Notes are outstanding, to keep available
authorized shares of Common Stock sufficient to permit
all Notes or Warrants outstanding and unconverted or
unexercised to be converted or exercised in accordance
with the Provisions (Exhibit 1 to Annex H of the
Agreement) and the terms of the Warrants respectively;
(b) to assure that all shares of Common Stock delivered upon
conversion of Notes or exercise of Warrants will be
validly issued, fully-paid and non-assessable;
(c) to file, on or before February 3, 1997, if required, any
registration under the United States securities laws that
may be required before the Shares can be delivered upon
conversion of the Notes or exercise of Warrants and
freely marketed in the United States.
XIII. RIGHT OF TERMINATION
Notwithstanding anything contained in this Agreement, Banca del Gottardo
may by notice to the Company terminate this Agreement at any time before the
time on the Closing Date when payment would otherwise be due under this
Agreement to the Company in respect of the Notes and Warrants if:
(1) in the reasonable opinion of Banca del Gottardo, circumstances
shall be such as:
a) to prevent or to a material extent restrict payment for
the Notes and the Warrants in the manner contemplated in
this Agreement; or
b) to a material extent prevent or restrict settlement of
transactions in the Notes or Warrants in the market or
otherwise; or
(2) in the reasonable opinion of Banca del Gottardo, there shall
have been:
a) any change in national or international political, legal,
tax or regulatory conditions; or
<PAGE>
b) any calamity or emergency
which has in the view of Banca del Gottardo caused a substantial
deterioration in the price and/or value of the Notes or the Warrants.
Any such termination of this Agreement shall be without liability on the
part of Banca del Gottardo or on the part of the Company.
Upon any such termination of this Agreement pursuant to Article XIII (i),
the parties hereto shall (except for the liability of the Company in relation to
expenses as provided in Article IV (a) (2) hereof and except for any liability
arising before or in relation to such termination) be released and discharged
from their respective obligations under this Agreement.
XIV. COMMUNICATIONS
All communications among Banca del Gottardo and the Company regarding this
Agreement shall be made in the English language, by telex or facsimile, followed
by registered letter, and shall be transmitted
by the Company to: by Banca del Gottardo to:
Banca del Gottardo Intellicall, Inc.
Viale Stefano Franscini 8 2155 Chenault, Suite 410
6901 Lugano, Switzerland Carrollton, Texas 75006-5023,
U.S.A.
Attn: Capital Market Department Attn: Chief Financial Officer
Telex No.: 841 052
Facsimile: 0114191 808 18 43 Facsimile: 972-416-9454
XV. APPLICABLE LAW AND JURISDICTION
The Terms of this Agreement shall be governed by Swiss law, save and except
that paragraph 8 of the terms of the Notes shall be governed by the laws of the
State of New York.
Any dispute which might arise between Banca del Gottardo on the one hand
and the Company on the other hand regarding this Agreement shall fall within the
jurisdiction of the ordinary Courts of Justice of the Canton of Ticino, the
place of jurisdiction being Lugano, with the right of appeal to the Swiss
Federal Court of Justice in Lausanne where the law permits.
Solely for purposes of the preceding paragraph and for the purpose of
execution of a judgment in Switzerland, the Company elects legal and special
domicile at Banca del Gottardo's office in
<PAGE>
Lugano, and Banca del Gottardo shall send to the Company as soon as
possible any documents received by it in this connection.
Banca del Gottardo shall also be at liberty to enforce its rights and to
take legal action before the competent courts of the United States of America,
in which case Swiss law shall be applicable with respect to the construction and
interpretation of this Agreement.
XVI. EFFECTIVENESS
The effectiveness of this Agreement is subject to:
(a) the receipt by Banca del Gottardo of all documents as
requested in Article VII of this Agreement, in a form
acceptable to Banca del Gottardo,
(b) no exercise of the Right of Termination as per Article XIII.
XVII. CURRENCY INDEMNITY
If any sum due from the Company in favour of the Paying Agent has to be
converted from United States Dollars (the "first currency") into another
currency (the "second currency") for the purpose of (i) making or filing a claim
or proof against the Company, (ii) obtaining an order or judgment in any court
or other tribunal or (iii) enforcing any order or judgment given or made in
relation hereto, the Company shall indemnify and hold harmless Banca del
Gottardo from and against any loss suffered as a result of any discrepancy
between (a) the rate of exchange used for such pur pose to convert the sum in
question from the first currency into the second currency and (b) the rate or
rates of exchange at which Banca del Gottardo may in the ordinary course of
business purchase the first currency with the second currency upon receipt of a
sum paid to them in the second currency in satisfaction in whole or in part of
any such order, judgment, claim or proof.
This indemnity shall constitute a separate and independent obligation from
the other obligations contained herein, shall give rise to a separate and
independent cause of action and shall apply, irrespective of any waiver granted
by Banca del Gottardo from time to time and shall continue in full force and
effect notwithstanding any judgment or order for a liquidated sum or sums in
respect of amounts due hereunder or under any such judgment or order. Any such
loss or damage aforesaid shall be deemed to constitute a loss suffered by Banca
del Gottardo and no further proof or evidence of any actual loss shall be
required by the Company.
<PAGE>
XVIII. ENTIRE AGREEMENT
This Agreement together with the Annexes hereto and other agreements and
documents delivered pursuant hereto set forth the entire agreement and
understanding of the parties in respect of the subject matter hereof and thereof
and supersede all prior agreements, arrangements and understandings relating to
the subject matter hereof and thereof.
XIX. AMENDMENT, CANCELLATION AND WAIVER
This Agreement and the Annexes hereto may be amended, modified, superseded
or cancelled, and any of the terms hereof or thereof may be waived, only by a
written instrument executed by the Company and Banca del Gottardo hereto or
thereto, as the case may be, or, in the case of a waiver, by the party or
parties waiving compliance. The failure of any party at any time or times to
require performance of any provision hereof or of any Annex hereto shall in no
manner affect the rights at a later time to enforce the same. No waiver by any
party of any condition or of the breach of any term contained in this Agreement
or in any Annex hereto, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be construed as a further or continuing waiver of
any such breach or the breach of any other term of this Agreement or of the
Annexes hereto.
THUS DONE AND SIGNED in 2 originals, of which one is for the Company,
in Carrollton/Lugano effective as of November 15, 1996
INTELLICALL, INC.
By: /s/ William O. Hunt date signed
11/15/96
BANCA DEL GOTTARDO
By: /s/ Hans Gugolz date signed
11/15/96
<PAGE>
10.
ANNEX A
TERMS OF THE "CONVERTIBLE NOTES" OF THE COMPANY
(1) Form and Denomination
The Notes are issuable in bearer form in the denominations of USD 5'000.--
nominal amount each, with interest coupons (the "Coupons") attached. The Notes
will be represented initially by a temporary Global Note (the "Global Note"),
without interest coupons, to be deposited by the Company with Banca del Gottardo
on the Payment Date. The Global Note may be exchanged, as a whole or in part,
for appropriate definitive Notes, in bearer form in denominations of USD
5'000.-- with the Coupons attached, not earlier than 40 days after the later of
the date on which the Notes are first offered or the Payment Date. Such exchange
shall be made upon certification that the beneficial owners of the Notes either
(i) are not United States persons or U.S. persons or (ii) are financial
institutions (as defined in United States Treasury Regulation Section
1.165-12(c)(1)(v)) located outside the United States that are not United States
persons and that have purchased such Notes for purposes of resale directly or
indirectly to a United States person or U.S. person within the United States
during the Restricted Period and that certify that they have not acquired the
Notes for purposes of resale directly or indirectly to a United States person or
to a person within the United States. A beneficial owner of Notes must exchange
its share of the Global Note for definitive Notes before such Notes or interests
therein may be transferred or interest payments or other payments in respect of
the Notes will be made.
For purposes hereof, (i) the term "Restricted Period" means the period
beginning on the earlier of the first date that the Notes are offered or the
date on which the Notes are issued (the "Payment Date") and ending on the date
forty (40) days after the later of the date upon which the Notes and Warrants
were first offered or the date of closing of this offering, (ii) the term
"United States" means the United States of America (including the States and the
District of Columbia), its possessions, its territories and other areas subject
to its jurisdiction, (iii) the term "United States person" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source and (iv) the term
"U.S. person" has the meaning set forth in Sections 230.901 through .904 of
Title 17 of the United States Code of Federal Regulations ("Regulation S").
(2) Interest
The Notes bear interest from the Payment Date at the rate of 8% per annum,
payable semi-annually in arrear on May 22 and November 22 of each year until
maturity (the "Coupon Due Dates")
<PAGE>
whereby the first payment shall be made on May 22, 1997 in respect of the
period from November 22, 1996 to May 22, 1997. Such interest is payable in
United States Dollars. Each Note will cease to bear interest on the date on
which they become due for redemption or repayment unless payment of principal
and/or premium (if any) is improperly withheld or refused or default is
otherwise made in respect of such payment. In such event, interest will continue
to accrue (as well after as before any judgment) up to but exluding the date on
which payment in full of the principal of such Note is made or (if earlier) the
date on which, payment in full of the principal thereof having been received by
Banca del Gottardo, notice to that effect shall have been given to the holders
of the Notes. Interest is computed on the basis of a 360-day year of twelve
30-day months.
(3) Repayment
The Company undertakes to repay the principal amount of the Notes, unless
previously redeemed, without any previous notice on November 22, 2001.
(4) Optional Redemption and Conversion
(a) The Company reserves the right to call all, but not part, of the
outstanding Notes for redemption on February 4, 1997, or thereafter up to
the close of business on October 30, 2001, at a price of 110% of the
principal amount thereof, together with interest accrued to the date of
such redemption provided that the average of the daily closing sales prices
of a Share for a period of 30 consecutive trading days, the last day of
which trading days is not more than 10 days prior to the day upon which the
Company sends a notice to Banca del Gottardo of its intention to redeem the
Notes under this sub-section (a), is at least 200% of the Conversion Price
in effect on such last day (taking into account any retroactive adjustment
not then reflected in the Conversion Price). The closing sales price for
any day shall be the average of the closing prices on the New York Stock
Exchange and if not listed any longer thereon, the average of the closing
bid and asked prices on the National Association of Securities Dealers
Automated Quotation (NASDAQ). All outstanding Notes will become due 60 days
after receipt of the aforesaid notice of early redemption by Banca del
Gottardo.
As long as the Shares are listed on a stock exchange or exchanges in
the United States of America, reference in this sub-section (a) to the
sales price for any day shall be deemed to refer to the closing price
(regular way) of a Share as reported by the principal stock exchange on
which the Shares are listed for such day. If no such sales price is
reported for one or more trading days, such day or days shall not be deemed
as trading day or days and shall be disregarded in the calculation of the
said 30 trading day period.
(b) Each Noteholder will have the right to require the Company to
redeem any Note or Notes on
<PAGE>
November 22, 2000 at a price of 106% of the principal amount thereof,
together with interest accrued to the due date of redemption. This right
will have to be exercised by giving notice and surrendering the Note(s), so
to be redeemed to Banca del Gottardo, Lugano, at any time on or after
September 1, 2000 and prior to September 30, 2000 accompanied by an
irrevocable request for redemption. Notes called for redemption will become
due on November 22, 2000. Notes called for redemption shall cease to bear
interest from the date fixed for such redemption, unless the Company shall
default in providing for the payment of the redemption price. The Notes
must be presented for repayment with all unmatured Coupons attached. An
amount equal to any missing unmatured Coupon shall be deducted from the
amount due on redemption. Such Coupons shall, however, be paid upon
subsequent presentation provided they shall not have become barred pursuant
to Section 11 hereof.
(5) Payments
Payments with respect to the Notes and Coupons shall be made in
dollars of the United States of America against presentation and surrender
of such Notes or Coupons in the manner specified below. Such payments shall
be made without cost to the Noteholders, without any limitations and under
all circumstances notwithstanding any transfer restrictions, regardless of
any bilateral or multilateral payment or clearing agreement in existence
between the United States of America and the Swiss Confederation,
irrespective of the nationality, residence or domicile of any of the
Noteholders and without requiring any affidavit or the fulfillment of any
formalities. The funds required for the payment of principal and interest
shall be made available to Banca del Gottardo in Switzerland as Paying
Agent by the Company prior to each Coupon Due Date. The receipt of the
funds by Banca del Gottardo in Switzerland shall release the Company from
its obligations in respect of the payments due on the respective dates for
principal and interest.
Banca del Gottardo will arrange for payment of such funds as and when
due to the holders of Notes and Coupons. Notes and coupons may be presented
for payment at the principal amount printed on the Notes and the amount of
interest printed on the Coupons only at the offices in Switzerland of Banca
del Gottardo. No payment on the Notes or Coupons will be made by transfer
to an account in, or by mailing to an address in, the United States.
(6) Tax Status
All payments of principal and interest on the Notes and Coupons by the
Company shall be made without deduction for or on account of any present or
future tax, assessment or other governmental charge ("Taxes") imposed upon
such payment by the United States of America or any political subdivision
or taxing authority thereof or therein (the "United States"). If the
Company shall at any time be required by law to withhold any such Taxes,
the Company will pay as additional amounts to
<PAGE>
Banca del Gottardo for the account of the holders of Notes and
Coupons, such amounts as may be necessary so that every net payment on each
Note or Coupon, after withholding for or on account of any such Taxes
(including any backup withholding tax or similar charge that may be
required in order for such payment to be made without any certification or
disclosure of the nationality, residence or identity of the beneficial
owner of such Note or Coupon) will not be less than the amount provided in
such Note or Coupon to be then due or payable; provided, however, that the
Company will not be required to pay such additional amounts for or on
account of any such Taxes that are imposed (i) otherwise than by
withholding from a payment on a Note or Coupon, (ii) upon a holder of a
Note or Coupon who is subject to taxation by the United States for any
reason other than such holder's ownership or receipt of payments in respect
of such Note or Coupon, or (iii) on interest or principal received by a
holder of a Note or Coupon which is (a) a "10-per cent. shareholder" of the
Company within the meaning of section 871(h) (3) (B)(a) of the Code, (b) a
bank or an extension of credit made pursuant to a loan agreement entered
into in the ordinary course of its trade or business, (c) a controlled
foreign corporation which is related to the Company under section 864(d)(4)
of the Code, (d) other than a nonresident individual or a foreign
corporation (as determined under United States tax principles) with respect
to the United States, or (e) a holder whose Note or Coupon is presented for
retirement or redemption, or payment is otherwise made, other than outside
the United States as provided in United States Treasury Regulations. Any
reference in this Note to the payment of principal or interest shall be
deemed to include payment of the additional amounts payable pursuant to the
provisions of this paragraph.
If, as the result of any change in, enactment of, or amendment to any
laws or regulations of the United States or any political subdivision or
taxing authorities thereof affecting taxation, or any change in the
official application of such laws or regulations, or any change in,
execution of or amendment to any treaty or treaties affecting taxation to
which the United States is a party, it is determined by the Company that it
would be required at any time to pay additional amounts pursuant to the
preceding paragraph, the Company is entitled to redeem the Notes, as a
whole but not in part, on giving not more than 60 days' but not less than
30 days' prior notice to Banca del Gottardo, on or after May 22, 1997 at
par.
Notice of redemption shall be given by the Company in writing to Banca
del Gottardo and such notice so given shall constitute good and sufficient
notice and shall be binding upon all holders of the Notes, regardless of
who they may be or where they may be located.
Banca del Gottardo shall as soon as practicable notify the Noteholders
of such redemption in accordance with Section 12 hereof.
The Company has been advised by Banca del Gottardo that pursuant to
the Swiss federal laws at present in force, interest payments on the Notes
are not subject to Swiss withholding tax.
<PAGE>
(7) Authorizations
The Company has confirmed to Banca del Gottardo that no authorizations
or approvals are required under the laws of the United States for
performance of its obligations hereunder, except for the registration
requirements provided for herein.
(8) Status of the Notes and Subordination
1. Note Subordinated to Senior Indebtedness
The Company, for itself, its successors and assigns, covenants and
agrees, and each Holder of this Note ("Holder"), by his or its
acceptance hereof, likewise covenants and agrees, that the
indebtedness evidenced by this Note (and any renewals,
refinancings, modifications or extensions thereof), including the
principal of and interest thereon and any interest payable on such
interest and all fees, costs and expenses (including attorneys'
fees and collection costs) payable in connection with this Note,
and all requirements of the Company contained in this Note shall
be subordinate and junior in right of payment, to the extent and
in the manner hereinafter set forth, to the prior payment in full
of all Senior Indebtedness (as hereinafter defined), and that each
holder of Senior Indebtedness whether now outstanding or hereafter
created, incurred, assumed or guaranteed shall be deemed to have
acquired Senior Indebtedness in reliance upon the covenants and
provisions contained in this Note.
For purposes of this Note, the term "Senior Indebtedness" shall
mean any and all indebtedness, liabilities and obligations
consisting of all principal of and premium (if any) and accrued
and unpaid interest (including but not limited to interest
accruing after the commencement by or against the Company under
the Federal Bankruptcy Code (as now or hereafter in effect),
whether or not allowed as a claim), whether existing on the date
of this Note or hereafter incurred and whether created directly or
indirectly, acquired by assignment or otherwise, absolute or
contingent, joint or several, liquidated or unliquidated, due or
not due, contractual or tortuous, secured or unsecured, in respect
of (A) the indebtedness, obligations and liabilities of the
Company incurred pursuant to the Loan and Security Agreement with
Finova Capital Corporation ("Finova") dated November 22, 1996 up
to an aggregate principal amount of USD 12'000'000.--, as from
time to time amended (the "Loan Agreement"), (B) the indebtedness,
obligations and liabilities of the Company pursuant to that
certain Secured Revolving Credit Note, dated November 22, 1996
(the "Revolving Note") up to an aggregate principal amount of USD
12'000'000.-- executed by the Company, as may be modified or
amended from time to time, (C) any and all amendments,
modifications, supplements, renewals, refinancings, extensions,
replacements, restatements, substitutions, assignments, guaranties
and endorsements of any of the indebtedness, obligations and
liabilities described in clauses (A) and (B) above (collectively,
the "Finova Debt"), (D)
<PAGE>
indebtedness of the Company incurred after
the date hereof for money borrowed which is secured by any portion
of the assets of the Company and (or any of its subsidiaries
representing the incurrence of indebtedness from a third party
provided that any such incurrence of indebtedness from a third
party shall have been consented to by the Majority Holders (as
hereinafter defined), (E) all obligations incurred after the date
hereof required to be classified and accounted for as a capital
lease on the face of the balance sheets of the Company prepared in
accordance with generally accepted accounting principles provided
that such obligations shall have been consented to by the
Purchaser, (F) all factoring arrangements or similar type
arrangements entered into after the date hereof by the Company or
any of its subsidiaries, provided that such arrangements shall
have been consented to by the Purchaser, (G) all obligations
consisting of guaranties, endorsements, modifications, renewals,
refinancings, extensions or replacements of any obligations
described in clauses (D) through (G) above, provided, that any
such guaranties, endorsements, modifications, renewals,
refinancings, extensions or replacements shall have been consented
to by the holders holding in the aggregate at least 50.1% of the
outstanding principal amount of the Senior Indebtedness then
outstanding including any such modifications, renewals,
refinancings, extension or replacements thereof (the "Majority
Holders"), and (H) all fees, costs, expenses (including attorneys'
fees), indemnities and other amounts at any time due and payable
in connection with any of the foregoing.
2. Note Subordinated to Prior Payment of All Senior Indebtedness on
Dissolution, Liquidation, Reorganization, etc. of the Company
Upon any payment or distribution of the assets of the Company of
any kind or character, whether in cash, property or securities to
creditors upon any total or partial liquidation, dissolution or
reorganization of, or similar proceeding relating to, the Company
or its property (whether voluntary or involuntary, or in
bankruptcy, insolvency, reorganization, liquidation or
receivership proceedings), or upon an assignment for the benefit
of creditors, or any other marshaling of the assets and
liabilities of the Company, or otherwise, then in such event, any
payment or distribution of any kind or character, whether in cash,
property or securities, which shall be payable or deliverable upon
or with respect to the indebtedness evidenced by this Note shall
be paid or delivered directly to the holders of Senior
Indebtedness, ratably according to the aggregate amounts of
principal remaining unpaid on account of such Senior Indebtedness
held by each until the Senior Indebtedness has been fully paid and
satisfied (including premium, if any, and interest thereon
accruing after commencement of such proceedings whether or not an
allowed claim). The Holder hereby assigns to the holders of the
Senior Indebtedness, the right, in the name of the Holder, to file
appropriate claims or proofs of claim in respect of this Note and
vote the
<PAGE>
full amount of indebtedness represented by this Note in
any proceeding of the type described in the immediately proceeding
paragraph, including but not limited to a proceeding to confirm a
plan of reorganization in a bankruptcy case, as directed and
consented to by the Majority Holders. The Holder agrees to take or
refrain from taking any and all actions as required or requested
by the Majority Holders and to cooperate fully with the Majority
Holders in furtherance of and without hindrance of such filing of
claims or proofs of claim and such voting. This assignment shall
expire automatically at such time as the Senior Indebtedness has
been repaid in full.
3. Payments
The Company agrees not to pay to the Holder, and by accepting this
Note Holder agrees not to take or receive from the Company, in any
manner whatsoever, the whole or any part of indebtedness evidenced
by this Note, including without limitation any payment of
principal of or interest on this Note, unless and until the Senior
Indebtedness shall have been fully paid and satisfied; provided,
however, that notwithstanding the foregoing, the Holder shall have
the right to receive and retain from the Company, and the Company
shall have the right to pay to the Holder, scheduled payments of
interest only as and when they become due as provided herein, so
long as (i) the Company is not in default with respect to any
payment of principal, premium, if any, or interest on any Senior
Indebtedness, and (ii) no default or event of default exists and
is continuing, or would exist immediately after giving effect to
such payment to Holder, under any of the terms and provisions of
the documents relating to any of the Senior Indebtedness.
4. Proceedings
Holder shall not commence any action for the enforcement of this
Note (except an action commenced to avoid the expiration of an
applicable statute of limitations) and will not initiate or join
with any creditor, unless the Majority Holders shall also join, in
bringing any proceeding against the Company under any bankruptcy
or insolvency law or statute of the federal or any state
government or under any such law or statute relating to the relief
of debtors, readjustment of indebtedness, reorganization,
arrangement of debt, receivership or liquidation, and will not be
a proponent or co-proponent of a plan of reorganization in a
bankruptcy proceeding, unless and until all Senior Indebtedness
shall have been paid and satisfied in full or the Holder has
received the prior written consent of the Majority Holders.
5. Payments and Distributions Received by Holder
Should any payment or distribution (except payments currently due
which are received by the
<PAGE>
Holder as permitted herein) be received
by the Holder with respect to this Note prior to the payment and
satisfaction in full of all Senior Indebtedness, the Holder will
forthwith deliver such payments and distributions or proceeds
thereof to the holders of Senior Indebtedness, ratably according
to the aggregate amount of principal remaining unpaid on account
of such Senior Indebtedness held by each in precisely the form
received (except for the endorsements or assignment of the Holder
where necessary), for application to the Senior Indebtedness held
by such holders, and, until so delivered, the same shall be held
in trust by the Holder as property of the holders of Senior
Indebtedness.
6. Rights Concerning Senior Indebtedness
Without affecting the rights of the holders of Senior
Indebtedness, the Holder agrees that, with or without notice to or
further assent from the Holder, any holder of Senior Indebtedness
may at any time, and from time to time, either prior to or after
any default by the Company with respect to any indebtedness (a)
advance or refuse to advance additional credit and make other
accommodations to or for the account of the Company, (b) by
written agreement or otherwise, extend, refinance, renew or
change, modify, compromise, release, refuse to extend, renew or
change the Senior Indebtedness or any part thereof and waive any
default under all or any part thereof, and modify, rescind or
waive any provision of any related agreement or collateral
undertaking, including but not by way of limitation any provision
relating to acceleration or maturity, (c) fail to set off any or
all accrued balance or deposit balances or any part thereof on any
holder's books in favor of such holders and/or release the same,
(d) sell, surrender, release, exchange, resort to, realize upon or
apply, or fail to do any of the foregoing, with respect to any
collateral securing any part thereof held by any of the holders of
Senior Indebtedness or available to any of the holders of Senior
Indebtedness for the Senior Indebtedness, and (e) generally deal
with the Company in such manner as any of the holders of Senior
Indebtedness may see fit, including, without limiting the
generality of the foregoing, any forbearance, failure, delay or
refusal by any of the holders of Senior Indebtedness to exercise
any rights or remedies any of the holders of Senior Indebtedness
may have against the Company, all without impairing or affecting
any of such holders' rights and remedies. Each such action and
each such failure to act by any of the holders of Senior
Indebtedness shall be deemed to be at the request of the Holder
and in reliance on this Agreement. No failure by any of the
holders of Senior Indebtedness to file, record or otherwise
perfect any lien or security interest, nor any improper filing or
recording, nor any failure by any of the holders of Senior
Indebtedness to insure or protect any of its collateral nor any
other dealing (or failure to deal) with any such collateral by any
of the holders of Senior Indebtedness, shall impair or release the
rights of any of the holders of Senior Indebtedness hereunder.
<PAGE>
7. Repayment of Purchaser
Notwithstanding anything to the contrary contained herein, in the
event, and at such time as, the holders of Senior Indebtedness,
and their respective successors and assigns, have been repaid in
full all such Senior Indebtedness as described in clauses (A)
through (C), inclusive, and clause (H) as it relates to clauses
(A) through (C) of the definition of "Senior Indebtedness"
contained in this Section 8, Subsection 1, hereof, and all
obligations by the holders of Finova Debt to make Loans (as
defined in the Loan Agreement) has terminated, and all preference
periods under any bankruptcy laws as they might apply to the
holders of Senior Indebtedness, and it successors and assigns,
have expired, the restrictions set forth in this Section 8 of this
Note shall not thereafter be applicable to the Holder of this
Note.
8. Each Holder acknowledges that Finova is relying on the terms and
provisions of this Sub-Section 8 in connection with its execution
of the Loan Agreement a copy of which Loan Agreement is held by
Banca del Gottardo, pursuant to which Finova has consented to the
issuance of the Note by the Company, and each Holder hereby
acknowledges and agrees that the terms and provisions of this
Sub-Section 8 shall inure to the benefit of Finova.
(9) Conversion
Exhibit 1 to Annex H attached to the Agreement dated November 15, 1996
and entered into between the Company and Banca del Gottardo, which is
available for inspection at the Head Office in Lugano of Banca del
Gottardo, as Conversion Agent for the Notes, contains full provisions
relevant to conversion of the Notes into freely transferable Shares of
Common Stock which are duly registered under the 1933 Securities Act. The
following is a summary of such provisions:
The conversion price will be fixed on December 18, 1996 whereby such
conversion price shall be the equivalent of the average of the closing
prices of the shares of Common Stock during the period from November 4 to
December 18, 1996, but shall in any event not be higher than USD 5.00 (Such
price hereinafter called the "Conversion Price").
The holder of 10 Notes or more will be entitled at any time on and
after February 3, 1997 up to the close of business on November 22, 2001,
subject to prior redemption, to convert the Notes, at the principal amount
thereof, into freely transferable and non-restricted (such non-restriction
being subject to the effectiveness of a registration statement under the
U.S. securities laws covering such common stock, if required,) shares of
Common Stock of the Company, at the Conversion Price, subject to adjustment
as described below. No payment or adjustment will be made on conversion of
any Note for interest accrued thereon or dividends on any Common Stock
issued, except that accrued interest will be paid on the conversion of any
Note which has been called for redemption prior to the
<PAGE>
conversion date. The Company is not required to issue fractional
shares of Common Stock upon conversion of Notes and, in lieu thereof, will
pay a cash adjustment based upon the market price of the Common Stock on
the last trading day prior to the date of conversion. In the case of Notes
called for redemption, conversion rights will expire at the close of
business on the fifth business day prior to the redemption date. Notes may
be presented for conversion only to an office of Banca del Gottardo outside
the United States and Banca del Gottardo will deliver Common Stock or other
consideration received upon conversion only to an account or address
outside the United States.
The Conversion Price is subject to adjustment in the following events
occurring after December 18, 1996:
- the issuance of stock of the Company as a dividend or
distribution on the Common Stock;
- subdivisions of outstanding shares of the Common Stock into a
greater number of shares;
- combinations of outstanding shares of Common Stock into a
smaller number of shares;
- reclassification of the Common Stock into other shares of the
Company's capital stock;
- issuance to all holders of Common Stock of certain rights or
warrants entitling them to subscribe for Common Stock at a
price per share less than the current market price but not for
shares issuable under the Company's stock option and stock
purchase plans; and
- the distribution to all holders of Common Stock of debt
securities or assets of the Company or rights or warrants to
purchase assets or debt securities of the Company (excluding
cash dividends or distributions from retained earnings).
No adjustment in the Conversion Price will be made unless such
adjustment would require an increase or decrease of at least USD 0.05 in
the Conversion Price then in effect; but any adjustment that would
otherwise be required to be made shall be carried forward and taken into
account in any subsequent adjustment. No adjustment need be made for rights
to purchase Common Stock pursuant to a Company dividend or interest
reinvestment plan. The Company may at any time reduce the Conversion Price
by any amount, provided that the Conversion Price is not less than the par
value of a share of Common Stock. If the Company consolidates or merges
into or transfers or leases all or substantially all of its assets to any
person, or is a party to a merger that reclassifies or changes its
outstanding Common Stock, the Notes will become convertible into the kind
and amount of securities, cash or other assets which the Holders would have
owned immediately after the transaction if the holders had converted the
Notes immediately before the effective date of the transaction.
<PAGE>
(10) Events of Default
Subject to the provisions of Section 15, Banca del Gottardo as regards
all Notes or Holders having 10% or more of the aggregate principal amount
of all Notes outstanding shall have the right to declare by notice to the
Company the Notes held by such Holder, plus accrued interest, to be due and
payable if any of the following events of default shall occur:
(a) default in the payment of principal, or, for a period of 15 days,
in the payment of interest on any Note; or
(b) default in the performance or observance in any material respect
of any covenant or agreement of the Company in the Notes if such
default continues for a period of 30 days after notice thereof has
been given to the Company; or
(c) a default shall occur under any evidence of indebtedness for money
borrowed by the Company or under any instrument under which there
may be issued or by which there may be secured or guaranteed any
indebtedness for money borrowed by the Company, which default
involves the failure to pay when due (after any applicable grace
period and subject to any extension or postponement of such
maturity), or results in the acceleration of, indebtedness in an
amount in excess of USD 500'000.-- without such indebtedness
having been discharged or such default or acceleration having been
waived, rescinded or annulled, within a period of 30 days after
notice thereof shall have been given to the Company; or
(d) the entry of a decree or order in respect of the Company in an
involuntary case under any bankruptcy, insolvency or other similar
law, or appointing a receiver, liquidator, trustee or other
similar official of the Company or for any substantial part of its
property, or ordering the winding up or liquidation of its
affairs, and the continuance of any such decree or order unstayed
and in effect for a period of 45 consecutive days; or
(e) the Company shall commence a voluntary case under any bankruptcy,
insolvency or other similar law, or consent to the appointment of
or taking possession by a receiver, liquidator, trustee or other
similar official, of the Company or for any substantial part of
its property, or the making by it of a general assignment for the
benefit of creditors, or if it shall fail generally to pay its
debts as they become due, or shall take any corporate action in
furtherance of any of the foregoing; or
(f) if the Company shall merge or consolidate, or sell or convey all
or substantially all of its assets to, any other corporation,
unless (i) the Company is the surviving corporation, or (ii)
<PAGE>
the surviving or transferee corporation expressly assumes all
obligations of the Company under the Notes by supplemental
agreement, confirmed by an opinion of U.S. counsel reasonably
satisfactory to Banca del Gottardo and the Company, or (iii) the
Company or the surviving or transferee corporation irrevocably
deposits in trust with Banca del Gottardo, money or U.S.
government obligations sufficient to pay principal and interest on
the Notes to maturity.
Upon the occurrence of an event of default, the Company shall promptly
give notice thereof to Banca del Gottardo which shall publish such notice
of default in accordance with Section 12 hereof. Banca del Gottardo shall
in relation to any event of default have no other obligation than the
publication of such event of default.
The principal amount of all Notes declared to be due and payable plus
accrued interest thereon shall become due and payable 15 days after notice
to the Company by Banca del Gottardo or by each Holder of such event of
default; provided, however, that such declaration shall be rescinded if,
within 15 days of such notice, such event of default shall have been
remedied by payment, in the case of a payment default, or in a manner
reasonably satisfactory to Banca del Gottardo.
In the event that a Resolution or Extraordinary Resolution is passed
at a meeting of Holders held pursuant to Section 15, any actions taken
pursuant to this Section 10 by a Holder shall be subject to any previously
taken action pursuant to such Section 15.
(11) Prescription
In accordance with the Swiss Statute of Limitations the coupons will
become barred five years and the Notes ten years after their respective due
dates.
(12) Notices and Publications
All notices to the Holders shall be deemed to have been duly given if
published in the Feuille Officielle Suisse du Commerce and in a daily
newspaper in Zurich and Lugano. All notices to the Company by any Holder
shall be deemed to have been duly given if sent by cable or telex to the
principal office of the Company.
(13) Listing of the Notes
No application will be made for the admission and quotation of the
Notes on any stock exchange.
<PAGE>
(14) Replacement of Notes or Coupons
If any Note or coupon is defaced, mutilated, destroyed, stolen or
lost, it may be renewed or replaced at the head office of Banca del
Gottardo in Lugano, Switzerland on payment of such costs as may be incurred
in connection therewith and on presentation of such evidence and indemnity
as Banca del Gottardo may require. Defaced or mutilated Notes or coupons
must be surrendered before replacements may be issued.
(15) Noteholders' Meeting
a) A meeting of the Holders (hereinafter called a "Meeting") may be
convened by the Company or shall be convened by the Company if so
requested by Notes representing not less than 25% of the aggregate
principal amount of all Notes outstanding under the Terms of the
Notes (i) after the event of default shall have occurred and be
continuing to consider a waiver of an event of default or any
modification or amendment of the provisions of the terms of the
Notes, or (ii) a substitution of Banca del Gottardo.
The cost and expenses of a Meeting shall be borne by the Company.
b) Notice of the Meeting specifying the place, day and hour of the
Meeting shall be given at least 20 days prior to the proposed date
thereof (exclusive of the day on which the notice is given and the
day on which the Meeting is to be held) in accordance with Section
12 hereof. Such notice shall state generally the nature of the
business to be transacted at the Meeting thereby convened but
(except for an Extraordinary Resolution (as defined below)) it
shall not be necessary to specify in such notice the terms of any
resolution to be proposed.
c) The Meeting shall be held in Lugano and shall be chaired by a
representative of the Company or if such representative of the
Company shall not be present within 30 minutes after the time
appointed for the holding of the Meeting, the Noteholders present
shall choose one of their members to be chairman. The Meeting
shall be conducted in the English language exclusively.
d) Resolutions shall only be passed if a quorum of two or more
persons holding 25% or more of the aggregate principal amount of
all Notes outstanding are present. The quorum at any Meeting for
passing an Extraordinary Resolution shall be two or more persons
holding two-thirds or more of the aggregate principal amount of
all Notes outstanding. Resolutions shall be passed if approved by
the absolute majority of votes cast save that an Extraordinary
Resolution shall be passed only if approved by three-fourths or
more of votes cast. Any resolution passed at a Meeting duly
convened and held in accordance with the terms of the Notes shall
be binding upon all the Holders, whether present or not present at
such
<PAGE>
Meeting and whether or not voting, and upon all the holders
of coupons.
e) If within 30 minutes after the time appointed for any such Meeting
a quorum is not present, the Meeting shall, if convened upon the
request of Holders, be dissolved. In any other case, it shall
stand adjourned for such period being not less than 14 days nor
more than 28 days, and at such place as may be appointed by the
Company. At such adjourned Meeting, two or more persons present
holding 10% or more of the aggregate principal amount of all Notes
outstanding shall form a quorum, provided that if the business of
such adjourned Meeting includes consideration of a proposed
Extraordinary Resolution, the quorum shall be two or more persons
present holding one-third or more of the aggregate principal
amount of all Notes for the time being outstanding.
f) If within 30 minutes after the time appointed for any such
adjourned Meeting the respective quorum is not present the Meeting
shall stand further adjourned for such period being not less than
14 days nor more than 28 days, and at such place as may be
appointed by the Company and at such further adjourned Meeting two
or more persons present holding any Notes outstanding (whatever
the principal amount of the Notes so held by them) shall form a
quorum, provided that if the business of such further adjourned
Meeting includes consideration of a proposed Extraordinary
Resolution, the quorum shall be two or more persons present
holding one-third or more of the aggregate principal amount of all
Notes for the time being outstanding.
g) Notice of any adjourned Meeting or further adjourned Meeting shall
be given in the same manner as notice of an original Meeting and
such notice shall state, in the case of an adjourned Meeting, that
two or more persons present holding 10% (or in the case of a
Meeting the business of which includes consideration of a proposed
Extraordinary Resolution, one-third) or more of the aggregate
principal amount of all Notes for the time being outstanding will
form a quorum, or, in the case of a further adjourned Meeting,
that two or more persons present holding any Notes outstanding (or
in the case of a Meeting the business of which includes the
consideration of a proposed Extraordinary Resolution, two or more
persons present holding one-third or more of the aggregate
principal amount of all Notes for the time being outstanding),
shall form a quorum.
h) The voting rights of the Holders shall be determined according to
the principal amount of Notes held, each Note with a principal
amount of USD 5'000.-- giving the right to one vote. Holders of
the coupons shall not have any voting rights. Notes held by or on
behalf of the Company shall have no voting rights and shall be
disregarded for the purpose of this Section 15, save that the
Company shall be entitled to vote in respect of Notes held by it
for the benefit of and at the direction of an independent third
party. In the case of an equality of
<PAGE>
votes the chairman shall have a casting vote in addition to the
vote or votes (if any) to which he may be entitled as a Holder.
i) Any director or officer of the Company and its lawyers and any
other person authorized on its behalf by it may attend and speak
at any Meeting.
j) The Meeting shall have the following powers exercisable by
Extraordinary Resolution with the consent of the Company:
(i) extension of the date fixed for final maturity of the
Notes;
(ii) reduction or cancellation of the principal payable on the
Notes;
(iii) reduction or cancellation of the rate or amount payable, or
extension of the date of payment, in respect of any
coupons;
(iv) alteration of the majority required to pass an Extra-
ordinary Resolution; and
(v) waiver of any Event of Default.
k) Any reference in these Terms of the Notes to an "Extraordinary
Resolution" shall be construed as references to resolutions of the
Holders passed in accordance with the foregoing provisions of this
Section 15 with respect to any of the matters stated in sub-
section j) above.
(16) Applicable Law and Jurisdiction
The terms, conditions and form of the Notes and coupons (the English
language version of which shall govern) shall be governed by and construed
in accordance with Swiss law.
Any action or proceedings against the Company relating to the Notes
may be brought and enforced in the ordinary courts of the Canton of Ticino,
venue being in the City of Lugano, or, if such courts fail to grant
jurisdiction in the ordinary courts of the Canton of Basle-City, venue
being in Basle, and the Company hereby irrevocably submits to the
jurisdiction of such courts in respect of any such action or proceeding,
with the right to appeal, as provided by law, to the Swiss Federal Court in
Lausanne, the judgment of which shall be final. Solely for that purpose,
the Company hereby elects legal and special domicile at the office of Banca
del Gottardo, Viale Stefano Franscini 8, 6901 Lugano, Switzerland. The
Company covenants that so long as any Notes are outstanding it will
maintain an agent for service of process in Switzerland. The aforementioned
jurisdiction shall also be valid for the cancellation and replacement of
lost, stolen, defaced, mutilated or destroyed Notes and
<PAGE>
coupons. Payment effected to a holder of Notes who has been identified
as the legitimate holder of a Note or coupon by a final judgment of a Swiss
court shall release the Company from its payment obligations under such
Note or coupon.
Any Noteholder shall also have the right to bring any legal action or
proceeding against the Company in respect of a Note or coupon and all
covenants contained therein in any state or federal court in the United
States of America which may have jurisdiction.
<PAGE>
15.
ANNEX B
(Form of Subordinated Convertible Note)
No. ________________
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO,
OR FOR THE BENEFIT OF, ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION
S UNDER THE SECURITIES ACT) UNLESS THIS NOTE IS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
AVAILABLE.
INTELLICALL, INC.
(Incorporated in the State of Delaware)
USD 5'000.--
8% Subordinated Notes due November 22, 2001
Convertible into freely transferable and non-restricted shares
of Common Stock of the Company
INTELLICALL, INC. (the "Company"), for value received, hereby certifies that it
owes to the bearer, payable upon presentation and surrender hereof, the
principal amount of 5'000.-- US Dollars (USD five thousand) on November 22, 2001
or on such earlier date as such principal amount may become due in accordance
with the Terms of the Notes appearing on the reverse hereof, and interest from
November 22, 1996 on said principal amount at the rate of 8% (eight percent) per
annum, payable in cash, semi-annually in arrear on May 22 and November 22 of
each year and at maturity, beginning on May 22, 1997 for the period from
November 22, 1996 to May 22, 1997, until payment of said principal amount has
been made or duly provided for, but only, in the case of interest due on or
before maturity, upon presentation and surrender of the interest coupons
attached hereto as they shall severally become due, all in accordance with
<PAGE>
the Terms of the Notes.
This Note is one of a duly authorized issue of 8% Notes due November 22, 2001 of
the Company in the aggregate principal amount of 5'000'000.-- US Dollars (the
"Notes") issued pursuant to a Note and Warrant Purchase, Paying and
Conversion/Exercise Agency Agreement, dated as of November 15, 1996 (the
"Agreement"), between the Company of the first part and Banca del Gottardo of
the second part. The Notes are issued subject to and with the benefit of the
Agreement.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under
its corporate seal as of November 22, 1996.
INTELLICALL, INC.
By: _____________________________
<PAGE>
16.
ANNEX C
(Form of Coupon)
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO,
OR FOR THE BENEFIT OF, ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION
S UNDER THE SECURITIES ACT) UNLESS THIS NOTE IS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
AVAILABLE.
Coupon No. 1-10
INTELLICALL, INC.
Carrollton, TX, U.S.A.
US Dollars 5'000.--
8% Subordinated Notes due November 22, 2001
Note of US Dollars 5'000.-- (five thousand)
Semi-annual interest due on May 22 and November 22, 1997/2001 payable in cash on
the terms set forth in the Terms of the Notes:
US Dollars 200.--
INTELLICALL, INC.
By: _____________________________
(Reverse Coupon)
This coupon is payable at the head office in Lugano of Banca del Gottardo.
<PAGE>
17.
ANNEX D
(to be typed on security paper)
GLOBAL NOTE
ANY UNITED STATES PERSON WHO HOLDS THIS OBLIGATION WILL BE SUBJECT TO
LIMITATIONS UNDER THE UNITED STATES INCOME TAX LAWS, INCLUDING THE LIMITATIONS
PROVIDED IN SECTIONS 165(j) AND 1287(a) OF THE INTERNAL REVENUE CODE.
THIS NOTE HAS NOT BEEN AND WILL NOT BE REGISTERED UNDER THE UNITED STATES
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE
OFFERED, SOLD OR DELIVERED, DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO,
OR FOR THE BENEFIT OF, ANY U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION
S UNDER THE SECURITIES ACT) UNLESS THIS NOTE IS REGISTERED UNDER THE SECURITIES
ACT OR AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT IS
AVAILABLE.
INTELLICALL, INC.
USD 5'000'000.--
8% Subordinated Notes due November 22, 2001
Convertible into freely transferable and non-restricted shares
of Common Stock of the Company
This Global Note without interest coupons is a Global Note in respect of a duly
authorized issue of 8% Notes due November 22, 2001 (the "Notes") of Intellicall,
Inc. (the "Company"), a corporation duly organized and existing under the laws
of the State of Delaware, in the principal amount of five million US Dollars and
issued pursuant to a Note and Warrant Purchase, Paying and Conversion/Exercise
Agency Agreement (the "Agreement") dated as of November 15, 1996 between the
Company of the first part and Banca del Gottardo of the second part.
Subject to the provisions of the Agreement, Intellicall, Inc., for value
received, hereby promises to pay to the holder of this Global Note, payable upon
presentation and surrender hereof, the amount of US Dollar 5'000'000.-- (USD
five million) and interest thereon at 8% per annum, in accordance with the Terms
of the Notes set forth in Annex A of the Agreement.
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In accordance with Section 1 of the Terms, this Global Note may be exchanged, as
a whole or in part, for definitive Notes, in bearer form in the denominations of
USD 5'000.--, with interest coupons attached, not earlier than 40 days after the
later of the date on which the Notes are first offered or the Payment Date,
before which time no Notes represented by this Global Note or interest herein
may be transferred into the United States or to a U.S. person. Such exchange
shall be made upon certification, in the form set forth in Annex J of the
Agreement and appended to this Global Note, that the beneficial owners of the
Notes are not United States persons or U.S. persons or are financial
institutions (as defined in the United States Treasury Regulation Section
1.165-12(c)(1)(v)) located outside the United States that have purchased such
Notes for resale during the Restricted Period and that certify that they have
not acquired the Notes for purposes of resale directly or indirectly to a United
States Person or a U.S. person or to a person within the United States. A
beneficial owner of Notes must exchange its share of the Global Note for
definitive Notes before interest payments or other payments in respect of the
Notes will be made.
The Terms of the Notes set forth in Annex A of the Agreement are hereby
incorporated by reference herein mutatis mutandis and, except as otherwise
provided herein, shall be binding on the Company and the holder hereof as if
fully set forth herein. Except as otherwise provided herein, the Company shall
make all payments hereunder as and when provided in the Terms of the Notes and
shall be bound by all its covenants set forth therein.
This Global Note shall be governed by and construed in accordance with the laws
of Switzerland.
IN WITNESS WHEREOF, the Company has caused this Global Note to be duly executed
under its corporate seal as of November 22, 1996.
Dated: November 22, 1996
Swiss Security no.: 544'278
INTELLICALL, INC.
By: _____________________________
This Global Note shall not become valid for any purpose until this Global Note
has been authenticated by any two officers of Banca del Gottardo.
By: _____________________________ By: _____________________________
Authorized Officer Authorized Officer
<PAGE>
ANNEX E
TERMS OF THE "WARRANTS" OF THE COMPANY
1. General
The Warrants are issuable in bearer form and have the benefit of and are
subject to the provisions for the exercise thereof contained in the Warrant
Agency Agreement to be dated as of November 22, 1996 between the Company
and Banca del Gottardo (the "Warrant Agent" or the "Standing Agent" as the
case may be) which will be available for inspection at the office in Lugano
of the Warrant Agent or its successor as Warrant Agent. The holders of the
Warrants (the "Holders") are deemed to have knowledge of the provisions of
such Agreement, all of which will be binding on them, provided, however,
that the rights of such Holders hereunder shall be governed by the terms
hereof.
The Standing Agent or the Warrant Agent may resign in its duties and be
discharged from all further duties as Agent or Warrant Agent in accordance
with the terms of the Warrant Agency Agreement. In such event a successor
Standing Agent or Warrant Agent, which will have the same duties as its
predecessor and will agree to be bound by the terms of the Warrant Agency
Agreement, will be appointed by the Company, or if the Company shall fail
to appoint such successor Standing Agent or Warrant Agent, by a court of
competent jurisdiction.
The Global Warrant may be exchanged, as a whole or in part, for appropriate
definitive Warrants, in bearer form, not earlier than 40 days after the
later of the date on which the Warrants are first offered or the Payment
Date. Such exchange shall be made upon certification that the beneficial
owners of the Warrants are not United States persons or U.S. persons or are
financial institutions (as defined in United States Treasury Regulation
Section 1.165-12(c)(1)(v)) located outside the United States that are not
United States persons and that the beneficial owners have not purchased
such Warrants for resale during the Restricted Period and that the
beneficial owners certify that they have not acquired the Warrants for
purposes of resale directly or indirectly to a United States person or to a
person within the United States. A beneficial owner of Warrants must
exchange its share of the Global Warrant for definitive Warrants before
such Warrants may be transferred or shares may be delivered upon exercise
of the Warrants in respect of the Warrants will be made.
For purposes hereof, (i) the term "Restricted Period" means the period
beginning on the earlier of the first date that the Notes are offered or
the date on which the Notes are issued (the "Payment Date") and ending on
the date forty (40) days afer the later of the date upon which the Notes
and Warrants were first offered or the date of closing of this offering,
(ii) the term "United States" means the United States of America (including
the States and the District of Columbia), its possessions, its territories
and other areas subject to its jurisdiction, (iii) the term "United States
person" means a
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citizen or resident of the United States, a corporation, partnership or
other entity created or organized in or under the laws of the United States
or any political subdivision thereof, or an estate or trust the income of
which is subject to United States federal income taxation regardless of its
source and (iv) the term "U.S. person" has the meaning set forth in
Sections 230.901 through .904 of Title 17 of the United States Code of
Federal Regulations ("Regulation S").
2. Duration
The right to subscribe for and purchase shares of Warrant Stock represented
by the Warrants shall commence subject to Section 8 hereof on February 3,
1997 and shall expire November 22, 2001 at 5:00 P.M. US Eastern Time,
provided, however, that if, on such expiration date, the Company is then
required, pursuant to an effective request therefor, to effect, or is in
the process of effecting, a registration under the Securities Act for an
underwritten public offering in which shares of Warrant Stock are, pursuant
to this Warrant, entitled to be included, or if the Company is in default
of any obligations created by this Warrant, said right to subscribe for and
purchase shares of Warrant Sock shall expire at 5:00 P.M., US Eastern Time,
on the 30th day following the date on which such registration shall have
become effective (but in no event longer than 180 days beyond the date this
Warrant otherwise would have expired) or on the 30th day following the date
all of such defaults have been cured, as the case may be.
3. Warrant Price; Method of Exercise; Payment; Issuance of New Warrant;
Transfer and Exchange
The exercise price will be fixed on December 18, 1996 whereby such exercise
price shall be the equivalent of the average of the closing prices of
Common Stock during the period from November 4 to December 18, 1996, but
shall in any event not be higher than USD 5.-- (such price hereinafter
called the "Warrant Price").
The purchase right represented by this Warrant may be exercised at any time
and from time to time prior to expiration subject to Section 8 hereof.
In order to exercise the Warrants and receive certificates for Shares
legally issuable on such exercise, the Holder shall deposit 2'000 Warrants
or more with the Warrant Agent at its office in Lugano and accompanied by a
written notice (which notice must contain a certification of non-U.S.
beneficial ownership) signed by or on behalf of the Holder to the effect
that such Holder elects to exercise the Warrants and payment of the Warrant
Price (the "Warrant Consideration Amount"). As a further condition
precedent to the exercise of the Warrants, the Holder must pay all stamp,
issue, registration or other taxes and duties arising upon exercise in
Switzerland or payable in any jurisdiction upon the issue or delivery of
Shares, if any, to the exercising Holder or to the order of a person other
than the exercising Holder.
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The date on which these conditions precedent to exercise as stated above
have been verified and recognized by the Warrant Agent as being fulfilled
in hereafter called the "Deposit Date". The Common Stock Warrant shall be
treated as exercised at the close of business in New York on the Exercise
Date. The "Exercise Date" for the Warrant means the business days in New
York immediately following the Deposit Date. The "Exercise Date" for the
Common Stock Warrant shall not be later than the Termination Date.
The Company shall not be obligated to issue any fraction of a Share upon
the exercise of any Warrant or make any payment for a fraction of a Share.
If more than one Warrant shall be exercised at one time by the same Holder,
the number of full Shares which shall be issuable upon exercise thereof
shall be computed on the basis of the aggregate number of shares issuable
upon the exercise of all the Warrants exercised by such Holder. Any Shares
issued upon the exercise of the Common Stock Warrants shall be delivered in
accordance with the instructions of the Holder.
In the event of any exercise of the rights represented by this Warrant
certificates for the shares of Warrant Stock so purchased shall be dated
the date of such exercise and delivered to the Holder hereof within a
reasonable time, not exceeding five Business Days after such exercise, and
the Holder hereof shall be deemed for all purposes to be the Holder of the
shares of Warrant Stock so purchased as of the date of such exercise.
Neither this Warrant nor any Warrant Stock has been registered under the
Securities Act. Accordingly, neither this Warrant nor any Warrant Stock is
transferable except as permitted under various exemptions contained in the
Securities Act, or upon satisfaction of the registration and prospectus
delivery requirements of the Securities Act.
4. Stock Fully Paid; Reservation of Shares
The Company covenants and agrees that all shares of Warrant Stock which may
be issued upon the exercise of this Warrant will, upon issuance, be fully
paid and non-assessable and free from all taxes, liens and charges with
respect to issuance. The Company further covenants and agrees that during
the period within which this Warrant may be exercised, the Company will at
all times have authorized and reserved for the purpose of the issue upon
exercise of the subscription rights evidenced by this Warrant a sufficient
number of shares of Common Stock to provide for the exercise of this
Warrant. If the Warrant Price is at any time less than the par value of the
Warrant Stock or if the Warrant at any time is exercisable by its delivery
alone and without payment of any additional consideration, the Company also
covenants and agrees to cause to be taken such action (whether by
decreasing the par value of the Warrant Stock, the conversion of the
Warrant Stock from par value to no par value, or otherwise) as will permit
the exercise of this Warrant without any
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additional payment by the Holder hereof (other than payment of the Warrant
Price, if any, and applicable transfer taxes, if any), and the issuance of
the Warrant Stock, which Warrant Stock, upon such issuance, will be fully
paid and non-assessable.
The Company shall not by any action including, without limitation, amending
its certificate of incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking
if all such actions as may be necessary or appropriate to protect the
rights of the Holders hereof against impairment. Without limiting the
generality of the foregoing, the Company will (a) not increase the par
value of any shares of Common Stock receivable upon the exercise of this
Warrant above the amount payable therefor upon such exercise immediately
prior to such increase in par value, (b) take all such action as may be
necessary or appropriate in order that the Company may validly and legally
issue fully paid and non-assessable shares of Common Stock, free and clear
of any liens, claims, encumbrances and restrictions (other than as provided
herein) upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable
the Company to perform its obligations under this Warrant.
5. Adjustment of Purchase Price and Number of Shares
The number and kind of securities purchasable upon the exercise of this
Warrant and the payment of the Warrant Price shall be subject to adjustment
from time to time upon the happening of certain events as follows:
a) Recapitalization, Reorganization, Reclassification, Consolidation,
Merger or Sale
In case of any recapitalization or reorganization of the Company
or any reclassification or change of outstanding Securities
issuable upon exercise of this Warrant (other than a change in par
value, or from par value to no par value, or from no par value to
par value or as a result of a subdivision or combination), or in
case of any consolidation or merger of the Company with or into
another corporation (other than a merger with another corporation
in which the Company is the surviving corporation and which does
not result in any reclassification or change other than a change
in par value, or from par value to no par value, or from no par
value to par value, or as a result of a subdivision or combination
- of outstanding Securities issuable upon exercise of this
Warrant), or in case of any sale or transfer to another
corporation of the Property of the Company as an entirety or
substantially as an entirety in connection with a liquidation or
dissolution of the Company, the Company or such successor or
purchasing corporation therefor, issue a new Warrant, providing
that the
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Holder(s) of this Warrant shall have the right to exercise such
new Warrant and procure upon such exercise in lieu of each share
of Warrant Stock theretofore issuable upon exercise of this
Warrant the kind and the highest amount of shares of Stock, other
securities, money and property receivable upon such
recapitalization, reorganization, reclassification, change,
consolidation, merger, sale or transfer by a Holder of one share
of Common Stock issuable upon exercise of this Warrant had it
been exercised immediately prior to such recapitalization,
reorganization, reclassification, change, consolidation, merger
sale or transfer. Such new Warrant shall provide for adjustments
which shall be as nearly equivalent as may be practicable to the
adjustments provided for in this Section 5. The provisions of
this subsection (a) shall similarly apply to successive
recapitalizations, reorganizations, reclassifications, changes,
consolidations, mergers, sales and transfers.
b) Subdivision or Combination of Shares
If the Company, at any time while this Warrant is outstanding,
shall subdivide or combine any class or classes of its Common, (i)
in case of subdivision of shares, the Warrant Price shall be
proportionately reduced (as at the effective date of such
subdivision of, if the Company shall take a record of Holders of
its Common for the purpose of so subdividing, as at the applicable
record date, whichever is earlier) to reflect the increase in the
total number of shares of Common outstanding as a result of such
subdivision, or (ii) in the case of a combination of shares, the
Warrant Price shall be proportionately increased (as at the
effective date of such combination, or, if the Company shall take
a record of Holders of its Common for the purpose of so combining,
as at the applicable record date, whichever is earlier) to reflect
the reduction in the total number of shares of Common outstanding
as a result of such combination.
c) Certain Dividends and Distributions
If the Company, at any time while this Warrant is outstanding,
shall:
(i) Stock Dividends
Pay a dividend in, or make any other distribution of, shares
of any class or classes of Common, the Warrant Price shall
be adjusted, as at the date the Company shall take a record
of the holders of such class or classes of Common, for the
purpose of receiving such dividend or other distribution (or
if no such record is taken, as at the date of such payment
or other distribution), to that price determined by
multiplying the Warrant Price in effect immediately prior to
such record date (or if no such record is taken, then
immediately prior to such payment or other distribution), by
a fraction (1) the numerator of which shall be the total
number of shares of Common outstanding immediately prior to
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such dividend or distribution, and (2) the denominator of
which shall be the total number of shares of Common
outstanding immediately after such dividend or distribution
(plus in the event that the Company paid cash for fractional
shares, the number of additional shares which would have
been outstanding had the Corporation issued fractional
shares in connection with said dividends); or
(ii) Liquidating Dividends, etc.
Make a distribution of its Property to the holders of its
Common as a dividend in liquidation or partial liquidation
or by way of return of capital other than as a dividend
payable out of funds legally available for dividends under
the laws of the State of Delaware, the Holder of this
Warrant shall, upon exercise and payment of the Warrant
Price, be entitled to receive, in addition to the number of
shares of Warrant Stock receivable thereupon, and without
payment of any additional consideration therefor, a sum
equal to the amount of such Property as would have been
payable to such Holder as owner of that number of shares of
Warrant Stock of the receivable by exercise of this Warrant,
had such Holder been the holder of record of such Warrant
Stock on the record date for such distribution, and an
appropriate provision therefor shall be made a part of any
such distribution.
d) Issuance of Additional Shares of Common
If the Company, at any time while this Warrant is outstanding,
shall issue any Additional Shares of Common (otherwise than as
provided in the foregoing subsections (a) through (c) of this
Section 4), at a price per share less than the Warrant Price then
in effect or less than (i) the Current Market Price then in effect
is such issue is pursuant to a public offering, or (ii)
ninety-five percent (95%) of the Current Market Price then in
effect if such issue is pursuant to a private placement in excess
of USD 3'500'000.-- in the aggregate, or without consideration,
then the Warrant Price upon each such issuance shall be adjusted
to that price determined by multiplying the Warrant Price by a
fraction:
(A) If issued for a consideration per share less than (i) the
Current Market Price then in effect if such issue is
pursuant to a public offering, or (ii) ninety-five percent
(95%) of the Current Market Price then in effect if such
issue is pursuant to a private placement in excess of USD
3'500'000.-- in the aggregate, or for no consideration:
1) the numerator of which shall be the number of shares
of Common outstanding immediately prior to the
issuance of such Additional Shares of Common plus the
number of shares of Common which the aggregate
consideration for the total
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number of such Additional
Shares of Common so issued would purchase at (i) the
Current Market Price then in effect if such issue is
pursuant to a public offering, or (ii) ninety-five
percent (95%) of the Current Market Price then in
effect if such issue is pursuant to a private
placement in excess of USD 3'500'000.- - in the
aggregate, and
2) the denominator of which shall be the number of shares
of Common outstanding immediately after the issuance
of such Additional Shares of Common.
(B) If issued for a consideration per share of Common less
than the Warrant Price or for no consideration:
1) the numerator of which shall be the number of shares
of Common outstanding immediately prior to the
issuance of such Additional Shares of Common plus the
number of shares of Common which the aggregate
consideration for the total number of such Additional
Shares of Common so issued would purchase at the
Warrant Price, and
2) the denominator of which shall be the number of shares
of Common outstanding immediately after the issuance
of such Additional Shares of Common.
If such Additional Shares of Common shall be issued at a price
per share less than both the Warrant Price and the Current Market
Price, the Warrant Price shall be adjusted in the manner provided
in clauses (i) or (ii) of this subsection (d) which will result
in the greater reduction in the amount of the Warrant Price.
The provisions of this subsection (d) shall not apply under any
of the circumstances for which an adjustment is provided in
subsections (a), (b) or (c) of this Section 5. No adjustment of
the Warrant Price shall be made under this subsection (d) upon
the issuance of any Additional Shares of Common which are issued
pursuant to any Common Stock Equivalent if upon the issuance of
such Common Stock Equivalent (1) any adjustment shall have been
made pursuant to subsection (e) of this Section 5 or (2) no
adjustment was required pursuant to subsection (e) of this
Section 5.
e) Issuance of Common Stock Equivalents
In case the Company shall at any time while this Warrant is
outstanding, issue any Common Stock Equivalent and the price per
share of Common for which Additional Shares of Common may be
issuable thereafter pursuant to such Common Stock Equivalent shall
be less than the Warrant
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Price then in effect on the date of issuance of such Common Stock
Equivalent or less than (i) the Current Market Price then in
effect if such issue is pursuant to a public offering, or (ii)
ninety five percent (95%) of the Current Market Price then in
effect if such issue is pursuant to a private placement in excess
of USD 3'500'000.-- in the aggregate, or if, after any such
issuance of Common Stock Equivalents, the price per share for
which Additional Shares of Common may be issuable thereafter is
amended (other than as a result of the operation of anti-dilution
provisions of or relating to Common Stock Equivalents outstanding
as of the date hereof pursuant to events or circumstances which
would also result in an adjustment in the Warrant Price), and
such price as so amended shall be less than the Warrant Price or
the Current Market Price in effect at the time of such amendment,
then the Warrant Price upon each such issuance or amendment shall
be adjusted as provided in the first sentence of subsection (d)
of this Section 4 on the basis that (1) the maximum number of
Additional Shares of Common issuable pursuant to all such Common
Stock Equivalents shall be deemed to have been issued (whether or
not such Common Stock Equivalents are actually then exercisable,
convertible or exchangeable in whole or in part) as of the
earlier of (A) the date on which the Company shall enter into a
firm contract for the issuance of such Common Stock Equivalent,
or (B) the date of actual issuance of such Common Stock
Equivalent, and (2) the aggregate consideration for such maximum
number of Additional Shares of Common shall be deemed to be the
minimum consideration received and receivable by the Company for
the issuance of such Additional Shares of Common pursuant to such
Common Stock Equivalent. No adjustment of the Warrant Price shall
be made under this subsection (e) upon the issuance of any
Convertible Security which is issued pursuant to the exercise of
any warrants or other subscription or purchase rights therefor,
if any adjustment shall previously have been made in the Warrant
Price then in effect upon the issuance of such warrants or other
rights pursuant to this subsection (e).
f) Other Provisions Applicable to Adjustments Under this Section A
The following provisions shall be applicable to the making of
adjustments in the Warrant Price hereinbefore provided in this
Section 5:
(i) Computation of Consideration
The consideration received by the Company shall be deemed to
be the following: (a) to the extent that any Additional
Shares of Common or any Common Stock Equivalents shall be
issued for a cash consideration, the consideration received
by the Company therefor, or, (b) if such Additional Shares
of Common or Common Stock Equivalents are offered by the
Company for subscription, the subscription price, or, (c) if
such Additional Shares of Common or Common Stock Equivalents
are sold to underwriters or dealers for
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public offering without a subscription offering, the initial
public offering price, in any such case excluding any
amounts paid or receivable for accrued interest or accrued
dividends and without deduction of any compensation,
discounts, commissions, or expenses paid or incurred by the
Company for or in connection with the underwriting thereof
or otherwise in connection with the issue thereof; (d) to
the extent that such issuance shall be for a consideration
other than cash, then, except as herein otherwise expressly
provided, the fair market value of such consideration at the
time of such issuance as determined in good faith by the
Board. The consideration for any Additional Shares of Common
issuable pursuant to any Common Stock Equivalents shall be
the consideration received by the Corporation for issuing
such Common Stock Equivalents, plus the additional
consideration payable to the Corporation upon the exercise,
conversion or exchange of such Common Stock Equivalents. In
case of the issuance at any time of any Additional Shares of
Common or Common Stock Equivalents in payment or
satisfaction of any dividend upon any class of Stock other
than Common, the Corporation shall be deemed to have
received for such Additional Shares of Common or Common
Stock Equivalents a consideration equal to the mount of such
dividend so paid or satisfied. In any case in which the
consideration to be received or paid shall be other than
cash, the Board shall notify the Holder of this Warrant
through Banca del Gottardo of its determination of the fair
market value of such consideration prior to payment or
accepting receipt thereof. If, within thirty days after
receipt of said notice, the Holders of Warrants exercisable
for at least a majority of Warrant Stock then unissued shall
notify the Board in writing of their objection to such
determination, a determination of fair market value of such
consideration shall be made by arbitration in accordance
with the Rules of the American Arbitration Association, by
an arbitrator in the Borough of Manhattan, City of New York,
State of New York.
(ii) Readjustment of Warrant Price
Upon the expiration of the right to convert, exchange or
exercise any Common Stock Equivalent the issuance of which
effected an adjustment in the Warrant Price, if such Common
Stock Equivalent shall not have been converted, exercised or
exchanged, the number of shares of Common Stock deemed to be
issued and outstanding by reason of the fact that they were
issuable upon conversion, exchange or exercise of any such
Common Stock Equivalent shall no longer be computed as set
forth above, and the Warrant Price shall forthwith be
readjusted and thereafter be the price which it would have
been (but reflecting any other adjustments in the Warrant
Price made pursuant to the provisions of this Section 5
after the issuance of such Common Stock Equivalent) had the
adjustment of the Warrant Price been made in accordance with
the issuance or sale of the number of Additional Shares of
Common actually issued upon conversion, exchange
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or issuance of such Common Stock Equivalent and thereupon
only the number of Additional Shares of Common actually so
issued shall be deemed to have been issued and only the
consideration actually received by the Company (computed as
in clause (i) of this subsection (g)) shall be deemed to
have been received by the Company.
(iii) Treasury Shares
The number of shares of Common 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 or any of
its Subsidiaries.
g) Other Action Affecting Common
In case after the date hereof the Company shall take any action
affecting its common, other than an action described in any of the
foregoing subsections (a) through (f) of this Section 5,
inclusive, and the failure to make any adjustment would not
failure protect the purchase rights represented by this Warrant in
accordance with the essential intent and principle of this Section
5, then the Warrant Price shall be adjusted in such manner and at
such time as the Board may in good faith determine to be equitable
in the circumstances.
h) Adjustment of Number of Shares
Upon each adjustment in the Warrant Price pursuant to any
provision of this Section 5, the number of shares of Warrant Stock
purchasable hereunder shall be adjusted, to the nearest whole
share, to the product obtained by multiplying such number of
shares purchasable immediately prior to such adjustment in the
Warrant Price by a fraction, the numerator of which shall be the
Warrant Price immediately prior to such adjustment and the
denominator of which shall be the Warrant Price immediately
thereafter. If the Company shall be in default under any provision
contained in the last sentence of Section 5 of this Warrant so
that shares issued at the Warrant price adjusted in accordance
with this Section 5 would not be validly issued, the adjustment of
number of shares provided for in the foregoing sentence shall
nonetheless be made and the Holder of this Warrant shall be
entitled to purchase such greater number of shares at the lowest
price at which such shares may then be validly issued under
applicable law. Such exercise shall not constitute a waiver of any
claim arising against the Company by reason of its default under
Section 5 of this Warrant.
i) Notwithstanding anything in this Section 5 to the contrary,
neither the number of shares of Warrant Stock purchasable
hereunder nor the Warrant Price shall be adjusted with respect to
any Common Stock Equivalents issued and outstanding as of the date
of the issuance of this
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Warrant, or the issuance of any Securities upon exercise or
conversion of any such Common Stock Equivalent, including,
without limitation, any Securities issued from time to time
pursuant to (i) the exercise of options outstanding as of the
date of issuance of the Warrant and held by present or former
directors, officers or employees of the Company, (ii) the
exercise of the Stock Purchase Warrant, dated July 31, 1992 (the
"Prudential Warrant"), purchased by The Prudential Insurance
Company of America ("Prudential"), (iii) the conversion features
of that certain Amended and Restated 10% Convertible Subordinated
Note Due 1999 issued to T.J. Berthel Investment L.P. (the
"Berthel Securities"), (iv) the exercise of the Warrant dated
August 11, 1994 (the "Nomura Warrant") issued to Nomura Holding
Company, Inc. ("Nomura"), (v) the exercise of the Warrants, dated
December 29, 1995 ("Gottardo 1995") issued to Banca del Gottardo,
(vi) the effect of any antidilution provisions contained in the
Prudential Warrant, the Berthel Securities, the Nomura Warrant
and the Gottardo 1995 Warrants and (vii) the issuance of up to
150'000 stock options per calendar year pursuant to the Company's
stock option or stock purchase plan.
6. Notice of Adjustments
Whenever the Warrant Price or number of Warrant Shares purchasable upon
exercise of this Warrant shall be adjusted pursuant to Section 5 hereof,
the Company shall deliver to Banca del Gottardo for certification to the
Holder(s) of the Warrant a certificate (the "Adjustment Certificate")
setting forth, in reasonable detail, the event requiring the adjustment,
the amount of the adjustment, the method by which such adjustment was
calculated (including a description of the basis on which the Board made
any determination hereunder), and the Warrant Price and number of Warrant
Shares purchasable hereunder after giving effect to such adjustment, and
shall cause copies of such certificate to be mailed (by first class mail
postage prepaid) to the Holder(s) of this Warrant promptly after each
adjustment; provided, however, that in the event that any Holder disagrees
with the calculations, amounts or other information with respect to the
adjustments set forth in the Adjustment Certificate, such Holder shall
within 10 Business Days after receipt of such Adjustment Certificate
request that the Company cause the independent accounting firm then
regularly engaged by it to audit its financial statements to propose and
execute and promptly deliver to the Holder(s) a certificate with respect to
each of the items set forth in the Adjustment Certificate. Such
determination as to adjustments of the accounting firm shall be final and
binding in the absence of manifest error.
7. Fractional Shares
No fractional shares of Warrant Stock will be issued in connection with any
exercise hereof, but in lieu of such fractional shares, the Company shall
cause the payment therefor equal in amount to the product of the applicable
fraction multiplied by the Warrant Price then in effect.
<PAGE>
8. Definitions
For the purposes of this Warrant, the following terms have the following
meanings:
"Additional Shares of Common" shall mean all shares of Common issued by the
Corporation after the date hereof except Warrant Stock.
"Board" shall mean the Board of Directors of the Corporation.
"Business Day" shall mean any day except a Saturday, a Sunday or a legal
holiday in New York City.
"Closing Date" shall mean the date of the closing of the sale and delivery
of the Notes.
"Commission" shall mean the Securities and Exchange Commission or any other
Federal agency at the time administering the Securities Act.
"Common" shall mean the Common Stock and any capital stock of the Company
of any class which shall be authorized at any time after the date of this
Warrant and which shall have the right to participate in the distribution of
earnings and assets of the Company without limitation as to amount.
"Common Stock Equivalent" shall mean any Convertible Security or warrant,
option or other right to subscribe for or purchase any Additional Shares of
Common or any Convertible Security.
"Company" shall mean Intellicall, Inc., a Delaware corporation, and its
successors and assigns.
"Convertible Securities" shall mean evidences of Indebtedness, shares of
Stock or other Securities which are or may be at any time convertible into or
exchangeable for Additional Shares of Common. The term "Convertible Security"
shall mean one of the Convertible Securities.
"Current Market Price" means with respect to any Trading Day the last sale
price (regular way) of the Common on such day as reported on the New York Stock
Exchange Consolidated Tape (as published in the Wall Street Journal), or, if
such Common is not listed on the New York Stock Exchange, Inc. or reported on
such Consolidated Tape, then the last sale price on such day on the principal
domestic stock exchange on which such stock is then listed or admitted to
trading, or, if no sale takes place on such day on such exchange, the average of
the closing bid and asked prices on such day as officially quoted on such
exchange, or, if such Common is not then listed or admitted to trading on any
domestic stock exchange but is quoted in the National Market System
<PAGE>
("NMS/NASDAQ") of the National Association of Securities Dealers, Inc. Automated
Quotation System ("NASDAQ"), then the Current Market Price for each such Trading
Day shall be the last sale price on such day as quoted by NMS/NASDAQ, or, if no
sale takes place on such day or if such Common is neither listed or admitted to
trading on any domestic stock exchange nor quoted on such National Market
System, then the Current Market Price for each such Trading Day shall be the
average of the reported closing bid and asked price quotations on such day in
the over-the-counter market, as reported by NASDAQ, or, if not so reported, as
furnished by the National Quotation Bureau, Inc., or, if such firm at the time
is not engaged in the business of reporting such prices, as furnished by any
similar firm then engaged in such business as selected by the Company, or if
there is no such firm, as furnished by any member of the National Association of
Securities Dealers, Inc. selected by the Company with the written approval of
the Holders of Warrants execrable for a majority of the shares of Warrant Stock
usable under then outstanding Warrants. If at any time such Common is not listed
on any domestic exchange or quoted in the domestic over-the-counter market, the
Current Market Price shall be deemed to be an amount mutually agreed upon in
writing between the Corporation and the Holder of this Warrant within fifteen
days immediately following the date on which the Current Market Price is to be
determined. If no agreement as to Current Market Price is determined as stated
herein, (i) the Holder of this Warrant shall select an independent appraiser who
shall determine the fair market value per share of the Common which shall be the
Current Market Price, provided the Company shall agree to such Current Market
Price. If the Company shall not agree to the Current Market Price as determined
in the preceding sentence then (ii) the Company and Banca del Gottardo shall
each select an independent appraiser who shall, independently of the other
appraiser, determine the fair market value of the Common of the Company. If the
value determined by the appraiser whose determination is the higher of the two
appraisals does not exceed by more than ten percent (10%) the average of the
values determined by each appraiser, then the Current Market Price shall be the
average of the values determined by the two appraisers. If the value determined
by the appraiser whose determination is the higher of the two appraisals does
exceed by more than ten percent (10%) the average of the value determined by
each appraiser, then the two appraisers shall select a third independent
appraiser who shall, independently of the other appraisals, determine the fair
market value of the Common. The value determined by the appraiser whose
determination is the most discrepant from the average of the three appraisals
shall be discarded, and the Current Market Price shall equal the average of the
remaining two appraisals; except that in the event that the highest and lowest
appraisals are equally discrepant from the average of the three appraisals, the
Current Market Price shall be such average. The Company shall bear the expenses
of all appraisals.
"Governmental Body" shall mean any federal, state, county, city, town,
village, municipal or other governmental department, commission, board, bureau,
agency, authority or instrumentality, domestic or foreign.
<PAGE>
"Holders" shall mean the Persons who shall from time to time own of record
any Warrant. The term "Holder" shall mean one of the Holders.
"Material Adverse Effect" means any change or changes or effect or effects
that individually or in the aggregate are or are likely to be materially adverse
to (i) the assets, business, operations, income, prospects or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole,
(ii) the legality, validity or enforceability of the Warrants, and (iii) the
ability of the Corporation to fulfill its obligations under the Warrants.
"Note Purchase Agreement" shall mean the Note and Warrant Purchase, Paying
and Conversion/Exercise Agency Agreement, dated as of November 15, 1996, by and
between the Company and Banca del Gottardo as such Agreement may hereafter from
time to time be amended, modified or supplemented in accordance with the terms
thereof.
"Notes" shall mean collectively the Subordinated Convertible Notes (each as
defined in the Note Purchase Agreement).
"Person" shall mean and include an individual, a partnership, a joint
venture, a corporation, a trust, an unincorporated organization or a government
or any department or agency thereof.
"Property" with respect to any Person, shall mean any interest in any kind
of property or asset, whether real, personal or mixed, tangible or intangible,
of such Person.
"Registrable Securities" shall mean (a) any Warrant Stock or other
Securities issued or issuable upon exercise of any Warrants, and (b) any
Securities issued or issuable with respect to any such Warrant Stock or other
Securities by way of stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization or otherwise. As to any particular Registrable Securities, once
issued such shares or securities shall cease to be Registrable Securities when
(i) a registration statement with respect to the sale of such Securities shall
have become effective under the Securities Act and such Securities shall have
been disposed of in accordance with such registration statement, (ii) they shall
have been distributed to the public pursuant to Rule 144 (or any successor
provision) under the Securities Act, (iii) they shall have been otherwise
transferred, new certificates for them not bearing a legend restricting further
transfer shall have been delivered by the Company and subsequent disposition of
them shall not require registration or qualification of them under the
Securities act or any similar state law then in force, (iv) they shall have
cased to be outstanding or (v) the Company agrees to remove the legend
<PAGE>
restricting transferability in accordance with applicable law on the
certificates evidencing such Securities.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with Section 7, including, without limitation, all
registration, filing and National Association of Securities Dealers fees, all
fees and expenses of complying with securities or blue sky laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, including the expenses of any special audits or "cold
comfort" letters required by or incident to such performance and compliance, the
reasonable fees and disbursements of not more than one firm of attorneys
retained by the holders of the Registrable Securities being registered, premiums
and other costs of policies of insurance against liabilities arising out of the
public offering of the Registrable Securities being registered and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, but excluding underwriting discounts and commissions and transfer
taxes, if any, provided that, in any case where Registration Expenses are not to
be borne by the Company, such expenses shall not include salaries of Company
personnel or general overhead expenses of the Company, auditing fees, premiums
or other expenses relating to liability insurance required by underwriters of
the Company or other expenses for the preparation of financial statements or
other data normally prepared by the Corporation in the ordinary course of its
business or which the Company would have incurred in any event.
"Securities" shall mean any debt or equity securities of the Company
whether now or hereafter authorized, and any instrument convertible into or
exchangeable for Securities or a Security. "Security" shall mean one of the
Securities.
"Securities Act" shall mean as of any date the Securities Act of 1933, as
amended, or any similar Federal statute then in effect.
"Stock" shall include any and all shares, interests or other equivalents
(however designated) of, or participations in the capital stock of a corporation
of any class.
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity of which at least a majority of the outstanding Voting Stock is at
the time directly or indirectly owned or controlled by such Person or by one or
more of any entities directly or indirectly owned or controlled by such Person.
"Trading Day" shall mean any day on which equity securities are traded on
any national securities exchange or on NASDAQ.
<PAGE>
"Voting Stock", as applied to the Stock of any corporation, shall mean
Stock of any class or classes (however designated) having ordinary voting power
for the election of a majority of the members of the Board of Directors (or
other governing body) of such corporation, other than Stock having such power
only by reason of the happening of a contingency.
"Warrant Price" shall mean the price specified in the first paragraph of
this Warrant and such other prices as shall result form the adjustments
specified in Section 4 hereof.
"Warrant Stock" shall mean the Common Stock issuable upon exercise of any
Warrant or Warrants.
"Warrants" shall mean the Warrants issued and sold pursuant to the Note
Purchase Agreement, including, without limitation, this Warrant.
9. Amendment and Waiver: Assignees
Any term, covenant, agreement or condition in this Warrant may be
amended, or compliance therewith may be waived (either generally or in a
particular instance and either retroactively or prospectively), by a
written instrument or written instruments executed by the Company and Banca
del Gottardo; provided, however, that no such amendment or waiver shall
reduce the number of shares of Warrant Stock issuable under the Warrants,
increase the Warrant Price, shorten the period during which the Warrants
may be exercised or modify any provision of this Section 9 without the
consent of the Holders of all Warrants then outstanding.
10. Loss or Mutilation
Upon receipt by the Warrant Agent of evidence satisfactory to it of
the ownership of and the loss, theft, destruction or mutilation of any
Warrant and (in the case of loss, theft or destruction) of indemnity
satisfactory to it, and (in the case of mutilation) upon surrender and
cancellation thereof, the Warrant Agent shall execute and deliver in lieu
thereof a new Warrant entitling the Holder to acquire without further
consideration the same number of Shares upon the same terms as the Warrant
so lost, stolen or destroyed or so surrendered and canceled. Any such
substitute Warrant shall constitute an original contractual obligation of
the Company, whether or not the allegedly lost, stolen or destroyed Warrant
shall be at any time enforceable by anyone. Applicants for a substitute
Warrant shall also comply with such other reasonable regulations and pay
such other reasonable charges as the Warrant Agent may prescribe.
11. Notices and Publications
All notices to the Holders shall be deemed to have been duly given if
published in the Feuille
<PAGE>
Officielle Suisse du Commerce and in a daily newspaper in Lugano and
Zurich.
12. Governing Law
The terms, conditions and form of the Warrants and the Warrant Agency
Agreement shall be governed by and construed in accordance with Swiss law.
The issuance of the Common Stock upon exercise of the Warrants shall be
governed by and construed in accordance with the laws of the State of
Delaware.
Any action or proceedings against the Company relating to the Warrants
may be brought and enforced in the ordinary courts of the Canton of Ticino,
venue being in the City of Lugano, or if such courts fail to grant
jurisdiction in the ordinary courts of the Canton of Basle-City, venue
being in the city of Basle, and the Company hereby irrevocably submits to
the jurisdiction of such courts in respect of any such action or proceeding
in either case, with the right to appeal, as provided by law, to the Swiss
Federal Court in Lausanne, the judgment of which shall be final. Solely for
that purpose, the Company hereby elects legal and special domicile at the
principal office of Banca del Gottardo, Viale Stefano Franscini 8, 6901
Lugano, Switzerland. The Company covenants that so long as any Warrants are
outstanding it will maintain an agent for service of process in
Switzerland. The aforementioned jurisdiction shall also be valid for the
cancellation and replacement of lost, stolen, defaced, mutilated or
destroyed Warrants. Issuance of Common Stock to a Holder who has been
identified as the legitimate Holder by a final judgment of a Swiss Court
shall release the Company from its obligations under such Warrants.
<PAGE>
ANNEX F
FORM OF WARRANT
(FACE)
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR DELIVERED,
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO, OR FOR THE BENEFIT OF, ANY
U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE SECURITIES ACT)
EXCEPT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT.
WARRANT
No. Warrant to Purchase __________ Shares of Common Stock
(subject to adjustment)
INTELLICALL, INC.
Incorporated Under the Laws of the State of Delaware
This Warrant entitles the holder hereof (the "Holder") to subscribe for and
purchase, during the period specified in this Warrant, one share (subject to
adjustment as hereinafter provided) of duly authorized, validly issued, fully
paid and non-assessable Common Stock, par value USD 0.01 per share ("Common
Stock") of INTELLICALL, INC., a Delaware corporation (the "Company"), at an
initial exercise price per share as determined pursuant to Section 3 of the
terms of the Warrants, subject, however, to the provisions and upon the terms
and conditions hereinafter set forth (such exercise price, as form time to time
adjusted in accordance with the terms hereof, being hereinafter called the
"Warrant Price"). 2'000 Warrants or more are required for any exercise.
Reference is hereby made to the further provisions of this Warrant set forth on
the reverse hereof and such further provisions shall for all purposes have the
same effect as though fully set forth at this place.
<PAGE>
IN WITNESS WHEREOF, INTELLICALL, INC. has caused this Warrant to be signed
in its name by the facsimile signature of its Chief Executive Officer and
President or one of its Vice Presidents.
Dated: November 22, 1996
INTELLICALL, INC.
By: _____________________________
William O. Hunt
Chief Executive Officer
and President
<PAGE>
ANNEX G
(to be typed on security paper)
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND MAY NOT BE OFFERED, SOLD OR DELIVERED,
DIRECTLY OR INDIRECTLY, IN THE UNITED STATES OR TO, OR FOR THE BENEFIT OF, ANY
U.S. PERSON (AS SUCH TERMS ARE DEFINED IN REGULATION S UNDER THE SECURITIES ACT)
EXCEPT TO AN EFFECTIVE REGISTRATION STATEMENT, OR AN EXEMPTION FROM REGISTRATION
UNDER SAID ACT.
GLOBAL WARRANT
INTELLICALL, INC.
Incorporated Under the Laws of the State of Delaware
This Global Warrant is a Global Warrant in respect of a duly authorized issue of
200'000 Warrants, each entitling the holder to subscribe for and purchase,
during the period specified in this Warrant, 200'000 shares (subject to
adjustment as hereinafter provided) of duly authorized, validly issued, fully
paid and non-assessable Common Stock, par value USD 0.01 per share ("Common
Stock") of INTELLICALL, INC., a Delaware corporation (the "Company"), at an
initial exercise per share as determined pursuant to Section 3 of the terms of
the Warrants, subject, however, to the provisions and upon the terms and
conditions hereinafter set forth (such exercise price, as from time to time
adjusted in accordance with the terms hereof, being hereinafter called the
"Warrant Price"). 2'000 Warrants or more are required for any exercise.
The Warrants are issued pursuant to the Note and Warrant Purchase, Paying and
Conversion/Exercise Agency Agreement dated as of November 15, 1996 between, the
Company as issuer of the Warrants and Banca del Gottardo (the "Agreement").
The Global Warrant may be exchanged, as a whole or in part, for appropriate
definitive Warrants, in bearer form, not earlier than 40 days after the later of
the date on which the Warrants are first offered or the Payment Date. Such
exchange shall be made upon certification that the beneficial owners of the
Warrants are not United States persons or U.S. persons or are financial
institutions (as defined in United States Treasury Regulation Section
1.165-12(c)(1)(v)) located outside the United States that are not United States
persons and that the beneficial owners have not purchased such Warrants for
resale during the Restricted Period and that the beneficial owners certify that
they have not acquired the Warrants for purposes of resale directly or
indirectly to a United States person or to a person within the United States. A
beneficial owner of Warrants must exchange its share of the Global Warrant for
definitive Warrants before such Warrants may be transferred or shares may be
delivered upon exercise of the Warrants in respect of
<PAGE>
the Warrants will be made.
For purposes hereof, (i) the term "Restricted Period" means the period beginning
on the earlier of the first date that the Notes with Warrants are offered or the
date on which the Notes are issued (the "Payment Date") and ending on the date
forty (40) days after the later of the date upon which the Notes and Warrants
were first offered or the date of closing of this offering, (ii) the term
"United States" means the United States of America (including the States and the
District of Columbia), its possessions, its territories and other areas subject
to its jurisdiction, (iii) the term "United States person" means a citizen or
resident of the United States, a corporation, partnership or other entity
created or organized in or under the laws of the United States or any political
subdivision thereof, or an estate or trust the income of which is subject to
United States federal income taxation regardless of its source and (iv) the term
"U.S. person" has the meaning set forth in Sections 230.901 through .904 of
Title 17 of the United States Code of Federal Regulations ("Regulation S").
Until so exchanged, this Global Warrant shall have the same rights and benefits
as the definitive Warrants.
The Terms of the Warrants set forth in Annex E of the Agreement are hereby
incorporated by reference herein mutatis mutandis and, except as otherwise
provided herein, shall be binding on the Company and the holder hereof as if
fully set forth herein. Except as otherwise provided herein, the Company shall
meet all its obligations hereunder as and when provided in the Terms of the
Warrants and shall be bound by all its covenants set forth herein.
This Global Warrant shall be governed by and construed in accordance with the
laws of Switzerland.
IN WITNESS WHEREOF, the Company has caused this Global Warrant to be duly
executed under its corporate seal as of November 22, 1996.
Dated: November 22, 1996
Swiss Securty no.: 544'280
INTELLICALL, INC.
By: _____________________________
William O. Hunt
Chief Executive Officer
and President
This Global Warrant shall not become valid for any purpose until this Global
Warrant has been authenticated by any two officers of Banca del Gottardo.
By: _____________________________ By: _____________________________
Authorized Officer Authorized Officer
<PAGE>
ANNEX H
CONVERSION AGENCY AGREEMENT
This agreement is entered into effective as of November 22, 1996, between
INTELLICALL, INC., a Delaware corporation with principal offices at 2155
Chenault, Suite 410, Carrollton, Texas 75006-5023, United States of America (the
"Company") of the first part and BANCA DEL GOTTARDO, a Swiss cor poration with
principal offices at Viale Stefano Franscini 8, 6901 Lugano, Switzerland ("Banca
del Gottardo") of the second part.
As authorized by its Board of Directors on October 31, 1996 and pursuant to a
Note and Warrant Purchase, Paying and Conversion/Exercise Agency Agreement dated
November 15, 1996 (the "Agreement"), the Company proposes to make an offer on
the Swiss capital market for the sale of its convertible notes (the "Convertible
Notes") and Warrants. The Convertible Notes will be convertible into freely
transferable and non-restricted shares (the "Shares") of the Common Stock of the
Company (the "Common Stock"), on the terms and conditions provided hereafter.
The Board of Directors of the Company has approved this agreement as regards the
conversion of the Notes and has authorized the conversion of the Convertible
Notes into the Common Stock of the Company on the terms and conditions hereof.
Article 1 Conversion Agent
1.1. The Company hereby appoints Banca del Gottardo, acting through its
specified office in Switzerland, as sole Conversion Agent (the "Conversion
Agent") for the conversion of Notes or coupons into Shares in accordance with
the provisions for conversion set forth in Exhibit 1 hereto (the "Conversion
Provisions") which constitutes an integral part of this agreement.
1.2. So long as any Notes are outstanding, the Company shall maintain a
stock transfer agent (the "Stock Transfer Agent") or shall itself perform the
functions required of such agent under this agreement.
1.3. The appointment of the Conversion Agent hereunder shall continue in
effect until the conversion right in respect of the Convertible Notes shall have
terminated. So long as Banca del Gottardo satisfactorily performs its
obligations hereunder the Company shall not without the consent of Banca del
Gottardo appoint any other Conversion Agent or pay any other bank any commission
or remuneration for the conversion of the Convertible Notes or coupons.
<PAGE>
Article 2 Commissions
2.1. In consideration for the services rendered by the Conversion Agent in
connection with the conversion of the Convertible Notes and coupons, the Company
undertakes to pay upon demand to the Conversion Agent in US Dollars a commission
of 0.25 per cent of the principal amount of each Note converted, however at
least USD 50.-- per conversion of a Convertible Note in a principal amount of
USD 5'000.-- together with reasonable out-of-pocket expenses (e.g., telex,
cable, postage, telephone, legal and insurance expenses, if any) incurred by the
Conversion Agent in connection with its services hereunder.
2.2. Neither Banca del Gottardo nor the Noteholders shall have any
obligation to pay to the Stock Transfer Agent any commission, fees, costs or
charges in connection with the conversion of Convertible Notes or coupons and
the making available of the respective Shares as provided hereafter.
Article 3 Indemnification
The Company will indemnify and hold harmless the Conversion Agent against
any losses, liabilities, costs, claims, actions or demands which it may incur or
which may be made against it as a result of or in connection with its
appointment or the exercise of its powers and duties under this Agreement other
than those based upon or arising out of the negligence of willful misconduct on
the part of the Conversion Agent or any of its employees.
Article 4 Conversion of Convertible Notes and Coupons
Each Convertible Note and all unmatured coupons attached thereto, submitted
for conversion to the Conversion Agent (a "Converted Note") shall be imprinted
or stamped by the Conversion Agent with a legend to the effect that such
Convertible Note or coupon has been converted. All Converted Notes and coupons
shall be held by Banca del Gottardo for the account of the Company. Banca del
Gottardo shall maintain a record of Convertible Notes and coupons converted.
Article 5 Notices
All notices required under this Agreement shall be deemed to have been duly
given if sent by cable, telex or facsimile transmission (confirmed in writing,
sent by registered airmail) to the following addresses:
<PAGE>
If to the Company:
INTELLICALL, INC.
2155 Chenault, Suite 410
Carrollton
Texas 75006-5023
Attention: Chief Financial Officer
Facsimile: (972) 416-9454
If to the Conversion Agent:
BANCA DEL GOTTARDO
Viale Stefano Franscini 8
6901 Lugano, Switzerland
Attention: New Issue Department
Telex: 841 052
Facsimile: 0114191 808 18 43
or to such other address as at the party receiving the notice shall have
notified to the other party in writing. Such cable, telex or facsimile
transmission notice shall be deemed to have been duly given at the time of
dispatch. Any party receiving a notice by cable, telex or facsimile transmission
will be protected by relying upon the cabled, telexed or transmitted notice even
though such notice is not subsequently confirmed in writing.
Article 6 Governing Law
6.1. This agreement shall be governed by and construed in accordance with
Swiss law, except as to matters regarding conversion of the Notes into Common
Stock of the Company, which shall be governed by and construed in accordance
with the laws of Delaware. Any action or proceedings against the Company
relating to this agreement or the Convertible Notes or coupons may be brought
and enforced in the ordinary courts of the Canton of Ticino, venue being in the
City of Lugano, and the Company hereby irrevocably submits to such courts in
respect of any such action or proceeding with the right to appeal, as provided
by law, to the Swiss Federal Court in Lausanne, the judgment of which shall be
final. Solely for that purpose and for the purpose of execution in Switzerland,
the Company hereby elects legal and special domicile at the office of Banca del
Gottardo, Viale Stefano Franscini 8, 6901 Lugano, Switzerland. Banca del
Gottardo shall notify the Company promptly upon receipt of any notice by it in
its capacity as the Company's agent for service of process.
<PAGE>
6.2. The Conversion Agent shall also have the right to bring any legal
action or proceeding hereunder against the Company in any state or federal court
in the United States of America which may have jurisdiction.
Article 7 Counterparts
This agreement may be executed in any number of counterparts, each of which
shall be an original; but such counterparts shall together constitute but one
and the same instrument.
IN WITNESS WHEREOF, the Company and Banca del Gottardo have caused this
agreement to be signed and acknowledged by their officers authorized to do so,
as of November 22, 1996.
INTELLICALL, INC.
By: _______________________________
BANCA DEL GOTTARDO
By: _______________________________
<PAGE>
Exhibit 1 to ANNEX H
CONVERSION PROVISIONS
The following are the provisions for the conversion (the "Conversion
Provisions") of the USD 5'000'000.-- 8% Convertible Notes due November 22, 2001
of Intellicall, Inc., Carrollton, Texas (the "Company") into freely transferable
and non-restricted shares of the common stock of the Company. Unless otherwise
defined herein, the terms used herein have the meanings ascribed to them in the
Note and Warrant Purchase, Paying and Conversion/Exercise Agency Agreement and
the Conversion Agency Agreement (the "Agency Agreement") dated as of November
15, 1996 and November 22, 1996 respectively, between the Company and Banca del
Gottardo.
Article 1
Conversion Right
1.1. Subject to and upon compliance with these Conversion Provisions, the
holder of any Note (a "Noteholder") will have the right at any time on
and after February 3, 1997 up to the close of business of banks in Lugano
on November 22, 2001, or, in case the Notes are called for redemption in
accordance with Section 4 of the Terms of the Notes, then prior to the
close of business of banks in Lugano on the earlier of November 22, 2001
and the fifth business day preceding the date fixed for redemption, but
in no event thereafter, to convert ten Notes or more Notes into freely
transferable and non-restricted (such non-restriction being subject to
the effectiveness of a registration statement under the U.S. securities
laws covering such common stock) shares of common stock which are duly
registered under the 1933 Securities Act, with par value USD 0.01 per
share (such presently authorized capital stock and any other stock into
which such presently authorized common stock may hereafter be changed,
the "Common Stock"), of the Company, calculated as to each conversion to
the greatest number of full Shares, disregarding fractions, at the price
of initially as determined pursuant to Section 3 of the terms of the
Notes for each Share, such price being subject to adjustment in certain
instances as provided in Article 2 hereafter (as so adjusted from time to
time, the "Conversion Price"). Fractions of a share will not be issued on
conversion; provided, however, that if a Noteholder at any one time
delivers more than one Note for conversion, the number of Shares issued
shall be calculated on the basis of the aggregate principal amount of the
Notes so delivered. A cash adjustment shall be paid in respect of any
frac tional Share which would otherwise be issuable upon conversion of
any Note in an amount in U.S. Dollars based upon the market price of the
Common Stock on the last trading day prior to the date of conversion.
Cash adjustments for fractional shares will not be made for amounts less
than one U.S. Dollar.
<PAGE>
1.2. In order to exercise the right of conversion, a Noteholder shall (a)
deliver the Note or Notes to be converted during normal business hours,
accompanied by the conversion notice in the form obtainable from the
Conversion Agent (the "Conversion Notice") to any Conversion Agent and
(b) pay to the Conversion Agent any stamp or other taxes that may be
payable in Switzerland on such conversion. Each Note delivered for
conversion must be delivered with all unmatured coupons attached and/or
with an amount equal to the face value of any missing, unmatured coupons.
Such missing, un matured coupons shall be paid by Banca del Gottardo upon
subsequent presentation thereof, provided they shall not have become
barred pursuant to Section 11 of the Terms of the Notes.
1.3. The Conversion Agent undertakes to:
(a) make available to Noteholders the Conversion Notice in such form
as may from time to time be agreed by the Company and the
Conversion Agent;
(b) upon receipt of a Conversion Notice from a Noteholder:
(i) verify that (A) the Conversion Notice has been duly
completed and signed by or on behalf of the Note-
holder named therein, (B) the Conversion Notice is
accompanied by all Notes to which it relates and all
unmatured coupons appertaining to such Notes and/or
an amount equal to the face value of any missing
unmatured coupons and (C) the amount of any stamp
or other taxes payable by the Noteholder has been
paid; and
(ii) endorse the Conversion Notice;
(c) imprint or stamp all Notes submitted to it for conversion, and all
unmatured coupons attached thereto, in accordance with Article 4
of the Agency Agreement promptly upon satisfaction by the
Noteholder of all conditions precedent to the conversion; and
(d) dispatch within two business days after satisfaction by the
Noteholder of all conditions precedent to the conversion to the
relevant tax authorities, payment in respect of any stamp or other
taxes payable on the conversion, in accordance with the laws of
Switzerland.
1.4. The Conversion Agent shall promptly, upon the later of the date of
receipt of the Conversion Notice and the satisfaction of all other
conditions precedent to the conversion stated above, endorse the
Conversion Notice and notify the Company and the Stock Transfer Agent of
the Company (at present Chase Mellon Shareholder Services, LLC, 2323
Bryan St., Suite 2300, Dallas TX 75201-2656), by facsimile, telex or
cable of (a) the principal amount and serial numbers of the Notes
deposited for conversion, (b) the number of Shares issuable upon
conversion of such Notes and (c)
<PAGE>
the name and address of each person (the "Shareholder") to whom such Shares
are to be issued. Such conversion shall become effective at the close of
business on the date (the "Conversion Date") on which the Company shall
have received at its principal executive offices, during normal business
hours, from the Conversion Agent a telex or cable notification. If such
facsimile, telex or cable notification is received after the close of
business on such date, the Conversion Date will be the immediately
following business day. At such Conversion Date the rights of the holder
(other than the Company) of a Note shall cease and the Shareholder shall be
deemed to have become the holder of such Shares.
1.5. As soon as practicable on or after the Conversion Date, but in no event
later than seven business days thereafter, the Company shall (a) cause
the Shareholder to be registered as the owner of the Shares issued upon
conversion of such Shareholder's Notes in the register of Shareholders of
the Company, (b) make available, or cause the Stock Transfer Agent to
issue, a certificate or certificates for such Shares registered in the
name of the Shareholder (together with any other securities, properties
or cash deliverable at the Conversion Date) and (c) at the request of the
Shareholder, cause the Stock Transfer Agent to forward, at the risk and
expense and for account of such Shareholder, such certificate or
certificates (together with any other securities, properties or cash
deliverable upon conversion) to such person or persons at the address
specified in the Conversion Notice, together with such assignments and
other documents, if any, as may be required by law to effect the transfer
thereof with full benefits under the laws of the applicable jurisdiction
of the United States of America.
1.6. The Company covenants that:
(a) so long as any Notes are outstanding, it shall keep available
authorized shares of Common Stock sufficient to permit all Notes
outstanding and unconverted to be converted in accordance with
these Conversion Provisions;
(b) all shares of Common Stock delivered upon conversion of Notes
as provided herein will be validly issued, fully-paid and non-
assessable;
(c) it shall file, on or before February 3, 1997, if required, any
registration under the United States securities laws that may be
required before the Shares can be delivered upon conversion of the
Notes and freely marketed in the United States.
1.7. Shares issued upon conversion and registered in the name of the
Shareholder shall be freely transferable and non-restricted and shall be
entitled to receive all dividends paid on such Common Stock on or after
the Conversion Date, except for dividends payable to Shareholders
registered as such as of a record date occurring prior to the Conversion
Date. No payments shall be made upon
<PAGE>
conversion for interest accrued since the Coupon Due Date next
preceding the Conversion Date.
1.8 Notes may be presented for conversion only to an office of the
Conversion Agent outside the United States. The Company and the
Conversion Agent will deliver Common Stock or other consideration
received upon conversion only to an account or address outside the
United States.
Article 2
The Conversion Price shall be subject to adjustments in the following
circumstances occurring after November 22, 1996:
2.1. In case the Company shall hereafter (i) pay a dividend on its Common
Stock in shares of its Common Stock or make a distribution in shares of
its Common Stock with respect to its outstanding Common Stock, (ii)
subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock or (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock, the Conversion
Price in effect at the time of the record date for such dividend or of
the effective date of such subdivision or combination shall be determined
by multiplying the Conversion Price in effect immediately prior to such
record date or effective date by a fraction, the numerator of which shall
be the total number of outstanding shares of Common Stock immediately
prior to such record date or effective date, and the denominator of which
shall be the total number of outstanding Common Stock immediately
following such record date or effective date. Such adjustments made
pursuant to this Section 2.1 shall be made successively whenever any
event listed above shall occur.
2.2. In case the Company shall fix a record date for the issuance of rights,
options or warrants to all (but not less than all) holders of its
outstanding Common Stock entitling them to subscribe for or purchase
shares of Common Stock (or securities convertible into shares of Common
Stock) at a price per share (or having a Conversion Price per share, if a
security convertible into Common Stock) less than the Current Market
Price per share of Common Stock (as defined in Section 2.4) on such
record date, the Conversion Price to be in effect after such record date
shall be determined by multiplying the Conversion Price in effect
immediately prior to such record date by a fraction, of which the
numerator shall be the number of shares of Common Stock outstanding on
such record date plus the number of shares of Common Stock which the
aggregate offering price of the total number of shares of Common Stock so
to be offered (or the aggregate initial Conversion Price of the
convertible securities so to be offered) would purchase at such Current
Market Price and of which the denominator shall be the number of shares
of Common Stock outstanding on such record date plus the number of
additional shares of Common Stock to be offered for subscription or
purchase (or into which the convertible security so to be offered are
initially convertible). In case such subscription or exercise price may
be paid in a consideration part or all of which shall be in a form
<PAGE>
other than cash, the value of such consideration shall be as
determined by the Board of Directors of the Company. Shares of Common
Stock owned by or held for the account of the Company or any
majority-owned subsidiary shall not be deemed outstanding for the
purpose of any such computation. Such adjustment shall be made
successively whenever such a record date is fixed; and in the event
that such rights or warrants are not so issued, the Conversion Price
shall again be adjusted to be the Conversion Price which would then be
in effect if such record date had not been fixed.
2.3. In case the Company shall fix a record date for the making of a
distribution to all (but not less than all) holders of shares of Common
Stock of evidences of its indebtedness or assets (other than cash
dividends or cash distributions payable out of surplus legally available
for dividends under the laws of the jurisdiction of incorporation of the
Company, dividends or distributions payable in shares of Common Stock as
described in Section 2.1, or rights, options or warrants or convertible
securities containing the right to subscribe for or purchase shares of
Common Stock (ex cluding those referred to in Section 2.2)), the
Conversion Price to be in effect after such record date shall be
determined by multiplying the Conversion Price in effect immediately
prior to such record date by a fraction, of which the numerator shall be
the Current Market Price per share of Common Stock (as defined in Section
2.4) on such record date, less the fair market value per share (as
determined by the Board of Directors of the Company, whose determination
shall be conclusive, and described in a statement filed with Banca del
Gottardo) of the portion of the assets or evidences of indebtedness so to
be distributed, or of such rights, options, or warrants or convertible
securities, applicable to one share of Common Stock, and of which the
denominator shall be such Current Market Price per share of Common Stock.
Such adjustment shall be made successively whenever such a record date is
fixed; and in the event that such distribution is not so made, the
Conversion Price shall again be adjusted to be the Conversion Price which
would then be in effect if such record date had not been fixed. If any
such rights, options, or warrants or convertible securities shall by
their terms provide for an increase or increases, with the passage of
time, in the amount of additional consideration per share of Common Stock
payable to the Company upon the exercise or conversion thereof, the
Conversion Price then in effect shall, forthwith upon any such increase
becoming effective, be readjusted to reflect such increase.
2.4. For the purpose of any computation under Sections 2.2 and 2.3, the
"Current Market Price" means with respect to any Trading Day the last
sale price (regular way) of the Common on such day as reported on the New
York Stock Exchange Consolidated Tape (as published in the Wall Street
Journal), or, if such Common Stock is not listed on the New York Stock
Exchange, Inc. or reported on such Consolidated Tape, then the last sale
price on such day on the principal domestic stock exchange on which such
stock is then listed or admitted to trading, or, if no sale takes place
on such day on such exchange, the average of the closing bid and asked
prices on such day as officially quoted on such exchange, or, if such
Common Stock is not then listed or admitted to trading on any domestic
stock exchange but is quoted in the National Market System ("NMS/NASDAQ")
of the
<PAGE>
National Association of Securities Dealers, Inc. Automated Quotation
System ("NASDAQ"), then the Current Market Price for each such Trading
Day shall be the last sale price on such day as quoted by NMS/NASDAQ,
or, if no sale takes place on such day or if such Common Stock is
neither listed or admitted to trading on any domestic stock exchange
nor quoted on such National Market System, then the Current Market
Price for each such Trading Day shall be the average of the reported
closing bid and asked price quotations on such day in the
over-the-counter market, as reported by NASDAQ, or, if not so
reported, as furnished by the National Quotation Bureau, Inc., or, if
such firm at the time is not engaged in the business of reporting such
prices, as furnished by any similar firm then engaged in such business
as selected by the Company, or if there is no such firm, as furnished
by any member of the National Association of Securities Dealers, Inc.
selected by the Company with the written approval of the Holders of
Warrants exercisable for a majority of the shares of Warrant Stock
issuable under then outstanding Warrants. If at any time such Common
Stock is not listed on any domestic exchange or quoted in the domestic
over-the-counter market, the Current Market Price shall be deemed to
be an amount mutually agreed upon in writing between the Company and
the Holder of this Warrant within fifteen days immediately following
the date on which the Current Market Price is to be determined. If no
agreement as to Current Market Price is determined as stated herein,
(i) the Holder of this Warrant shall select an independent appraiser
who shall determine the fair market value per share of the Common
Stock which shall be the Current Market Price, provided the Company
shall agree to such Current Market Price. If the Company shall not
agree to the Current Market Price as determined in the preceding
sentence then (ii) the Company and Banca del Gottardo shall each
select an independent appraiser who shall, independently of the other
appraiser, determine the fair market value of the Common Stock of the
Company. If the value determined by the appraiser whose determination
is the higher of the two appraisals does not exceed by more than ten
percent (10%) the average of the values determined by each appraiser,
then the Current Market Price shall be the average of the values
determined by the two appraisers. If the value determined by the
appraiser whose determination is the higher of the two appraisals does
exceed by more than ten percent (10%) the average of the value
determined by each appraiser, then the two appraisers shall select a
third independent appraiser who shall, independently of the other
appraisals, determine the fair market value of the Common Stock. The
value determined by the appraiser whose determination is the most
discrepant from the average of the three appraisals shall be
discarded, and the Current Market Price shall equal the average of the
remaining two appraisals; except that in the event that the highest
and lowest appraisals are equally discrepant from the average of the
three appraisals, the Current Market Price shall be such average. The
Company shall bear the expenses of all appraisals.
For the purpose of this Section 2.4, "trading day" shall mean a day on
which the securities exchange or on NASDAQ specified for purposes of
this Section 2.4 shall be open for business or, if the shares of
Common Stock shall not be listed on such exchange for such period, a
day with respect to which quotations of the character referred to in
the next preceding sentence shall be reported.
<PAGE>
2.5. In computing an adjustment in the Conversion Price pursuant to Sections
2.1 to 2.3 above, shares of Common Stock not outstanding at the time of
such computation shall be deemed outstanding to the extent that the
Conversion Price has been previously adjusted to reflect the issuance of
such shares of Common Stock or rights, options or warrants to subscribe
for or purchase such shares of Common Stock.
2.6. Except as stated in Sections 2.1, 2.2 and 2.3 above, the Conversion Price
(except at the Company's option) shall not be adjusted for the issuance
of shares of Common Stock of the Company whether or not at less than the
Current Market Price or the current Conversion Price, whether for cash or
property.
2.7. No adjustment shall be made to the Conversion Price unless such
adjustment would result in any increase or decrease of at least USD 0.05
in the Conversion Price then in effect; provided, however, that any
adjustments which by reason of this Section 2.7 are not required to be
made will by carried forward and taken into account in any subsequent
adjustment.
2.8. All calculations under these Conversion Provisions shall be made to the
nearest one U.S. cent, with 0.5 U.S. cent or more to be considered a full
U.S. cent,or to the nearest one-hundredth of a share, as the case may be.
2.9. Whenever the Conversion Price is adjusted as herein provided, the Company
shall promptly send to Banca del Gottardo a certificate of the Company
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment and the
date on which it becomes effective. The contents of any certificate
required by this Section 2.9 may be transmitted by telex or cable, but
shall be confirmed in writing as hereinbefore provided. Banca del
Gottardo may rely upon such certificate (or such transmission by cable or
telex, whether or not so confirmed) as conclusive evidence of the
correctness of the adjustment referred to therein.
2.10. Notwithstanding the foregoing, no adjustment shall be made to the extent
that it would reduce the Conversion Price to less than the par value
of the shares of Common Stock (USD .01 at the date hereof).
2.11. Anything in this Article 2 to the contrary notwithstanding, the Company
shall be entitled, but shall not be required, to make such reductions
in the Conversion Price in addition to those required by this Article
as it, in its discretion, shall determine to be advisable.
2.12. In any case in which this Article shall require that an adjustment be
made retroactively immediately following a record date, the Company shall
as promptly as practicable issue to the holder of any
<PAGE>
Note converted
after such record date the shares of Common Stock and other common stock
of the Company issuable on such conversion in excess of the shares of
Common Stock and other common stock of the Company issuable on such
conversion on the basis of the Conversion Price prior to such adjustment.
Article 3
3.1. In the event that:
(a) the Company shall authorize the issuance to all holders of shares
of Common Stock of rights, options or warrants to subscribe for or
purchase any shares of Common Stock or any securities convertible
into shares of Common Stock, or of any other subscription rights
or warrants;
(b) the Company shall authorize the distribution to all holders of
shares of Common Stock of evidences of its indebtedness or assets
(other than cash dividends or cash distributions payable out of
consolidated earnings or earned surplus or dividends payable in
Common Stock);
(c) there shall be any consolidation or merger to which the Company is
a party and for which approval of any shareholders of the Company
is required, or there shall be the conveyance or transfer of all
or substantially all of the properties and assets of the Company,
or there shall be any reorganization or reclassification or change
of outstanding Common Stock issuable upon the exercise of
conversion rights hereunder (other than a change in par value, or
from par value to no par value, or from no par value to par value,
or as a result of a subdivision or combination);
(d) there shall be voluntary or involuntary dissolution, liquidation
or winding-up of the Company; or
(e) the Company proposes to take any action (other than the actions
of the type described in Section 2.1) which would require and
adjustment of the Conversion Price pursuant to Article 2;
then the Company shall, at least 10 days prior to the applicable
record date, provide written notice of such event to Banca del
Gottardo stating (x) the record date in the United States of
America as of which the holders of
<PAGE>
record of shares of Common Stock to be entitled to receive any
such rights, warrants, or distributions are to be determined, or
(y) the date in the United States of America on which such
reorganization, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding-up is expected to become
effective, and the date as of which it is expected that holders
of record of the shares of Common Stock shall be entitled to vote
upon, and, if approved, to exchange their shares of Common Stock
for securities or other property, if any, deliverable upon such
reorganization, reclassification, consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding-up.
3.2 If the event described in the notice given pursuant to Section
3.1. will result in an adjustment of the Conversion Price
pursuant to Article 2, such notice shall also state the new
Conversion Price unless the Conversion Price cannot be calculated
at the time such notice is given.
3.3 The failure to give or publish the notice required by this
Article 3 or any defect therein shall not affect the legality or
validity of the proceedings referred to in Section 3.1.
Article 4
So long as any of the Convertible Notes remain convertible, the Company shall
not take any action which would result in an adjustment of the Conversion Price
pursuant to Article 2 if, after giving effect thereto, the Conversion Price
would be decreased to such an extent that the Shares could not be legally
issued, under applicable law of the jurisdiction of incorporation of the Company
then in effect, at such decreased Conversion Price as fully-paid and
non-assessable Shares.
Article 5
The Conversion Agent shall not at any time be responsible to any Noteholder for
determining whether any facts exist (a) which may require any adjustment of the
Conversion Price, (b) with respect to the nature or extent of any such
adjustment when made, (c) with respect to the method employed, or herein or in
any supplemental agreement (if any) provided to be employed in making any such
adjustment. The Conversion Agent makes no representation as to the validity or
value (or the kind or amount) of any shares of Common Stock, or of any
securities, property or cash, which may at any time be issued or delivered upon
the conversion of any Convertible Note. The Conversion Agent shall not be
responsible for any failure of the Company to make any cash payment or to issue,
transfer or deliver any shares of stock or stock certificates or other
securities or property upon the surrender of any Note for the purpose of
conversion or to comply with any of the covenants of the Company contained in
these Conversion Provisions.
Article 6
6.1. In case of any consolidation of the Company with, or merger of the
Company into, any other corporation (other than a consolidation or merger
in which the Company is the continuing corporation), or in the case of
any sale or transfer of all of the assets of the Company as an entirety
or substantially as an entirety, the corporation formed by such
consolidation or the corporation into
<PAGE>
which the Company shall have been merged or the corporation which
shall have acquired such assets, as the case may be, shall execute
with Banca del Gottardo a supplemental agreement which shall (a)
provide that the holder of each Convertible Note then outstanding
shall have the right to receive thereafter, during the period such
Convertible Note shall be convertible as specified in Article 2, upon
conversion of such Convertible Note, in lieu of each share of Common
Stock deliverable on such conversion immediately prior to such event,
only the kind and amount of shares and/or other securities and/or
property and/or cash which are receivable, or which, but for the
failure to distribute to holders of Common Stock all or substantially
all of the consideration receivable on such sale or transfer of
assets, would be receivable upon such consolidation, merger, sale or
transfer by a holder of one share of Common Stock of the Company and
(b) set forth the Conversion Price for the shares and/or other
securities and/or property and/or cash so issuable, which shall be an
amount equal to the Conversion Price per share of Common Stock of the
Company immediately prior to such event.
6.2. In case of any reclassification or change of the shares of Common Stock
issuable upon conversion of the Notes (other than a change in par value,
or from par value to no par value, or as a result of a subdivision or
combination) or in case of any consolidation or merger of another
corporation into the Company in which the Company is the continuing
corporation and in which the holders of the shares of Common Stock
thereafter receive shares, other securities, property, cash or any
combination thereof for such shares of Common Stock (including for this
purpose shares reflecting a change in par value or from par value to no
par value or as a result of a subdivision or combination of the shares of
Common Stock), the Company shall execute with Banca del Gottardo a
supplemental agreement which shall (a) provide that the holder of each
Convertible Note then outstanding shall receive, upon conversion thereof,
in lieu of each share of Common Stock of the Company deliverable upon
such conversion immediately prior to such event, the kind and amount of
shares and/or other securities and/or property and/or cash receivable
upon such reclassification, change, consolidation or merger by a holder
of one share of Common Stock, and (b) set forth the Conversion Price for
the shares and/or other securities and/or property and/or cash so
issuable, which shall be an amount equal to the Conversion Price per
share of Common Stock immediately prior to such event.
6.3. If, as a result of Section 6.1 or Section 6.2, the holder of any
Convertible Note thereafter surrendered for conversion shall become
entitled to receive shares of two or more classes of common stock of the
Company, the Board of Directors (whose determination shall be conclusive)
shall determine the allocation of the Conversion Price between or among
shares of such classes of capital stock. Any supplemental agreement
executed pursuant to Sections 6.1 and 6.2 shall provide for adjustments
which shall be as nearly equivalent as practicable to the adjustments
provided for herein, and, where appropriate, state the Conversion Price
in terms of one full share of Common Stock or one full share of common
stock of any successor or purchasing corporation. The terms of this
Article 6 also shall apply to successive consolidations, merger, sales or
transfers. In the event that at any time as a result of an adjustment
made pursuant to this Article 6 the holder of any Note thereafter
surrendered for
<PAGE>
conversion shall become entitled to receive any shares or securities
other than shares of Common Stock, thereafter the prices or price of
such other shares or other securities so receivable on conversion of
any Convertible Note shall be subject to adjustment from time to time
in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to Common Stock contained in Article 2, and
the provisions of Article 2 with respect to the Common Stock shall
apply on like terms to any such other shares.
6.4. The Conversion Agent shall have no responsibility for any consolidation,
merger, sale or transfer, the form or substance or any plan relating
thereto or the consequences thereof to any Noteholder.
The Conversion Agent shall have no responsibility to determine the
correctness of any provision contained in any supplemental agreement
relating either to the kind or amount of shares of stock or securities or
property receivable by Noteholders upon the conversion of their
Convertible Notes after any such consolidation, merger, sale or transfer,
or to any adjustment made with respect thereto. The Conversion Agent may,
at its option, receive an opinion of counsel for the Company as
conclusive evidence that any such supplemental agreement complies with
the provisions of this Article.
Article 7
Conversion Agent:
BANCA DEL GOTTARDO
Viale Stefano Franscini 8, 6901 Lugano
<PAGE>
ANNEX I
WARRANT AGENCY AGREEMENT
Dated as of November 22, 1996
INTELLICALL, INC.
AND
BANCA DEL GOTTARDO
as Standing Agent
WARRANT AGENCY AGREEMENT dated as of November 22, 1996 between INTELLICALL,
INC., a Delaware corporation (the "Company"), and Banca del Gottardo of Lugano,
Switzerland, as Warrant Agent (the "Warrant Agent") and as Standing Agent (the
"Standing Agent").
WITNESSETH:
WHEREAS, the Company proposed to issue Warrants, as hereinafter described (the
"Warrants") (the certificate representing the Warrants being referred to herein
as the "Warrant Certificate"), in connection with the sale by the Company to
issue USD 5'000'000.-- principal amount of 8% subordinated Convertible Notes due
November 22, 2001 (the "Notes"), one warrant entitling to acquire against
consideration initially one share of Common Stock par value of USD 0.01 per
Share of the Company (the "Common Stock").
WHEREAS, the Board of Directors of the Company has duly authorized the issuance
of the Warrants and the shares issuable upon exercise thereof;
WHEREAS, the Company desires to provide for the issuance of the Warrants and to
provide herein for certain terms and provisions of the Warrants more fully then
is set forth in the Warrants Certificate; and
WHEREAS, the Company desires the Standing Agent and the Warrants Agent to act on
behalf of the Company, and the Standing Agent and the Warrant Agent are willing
so to act, in connection with the issuance of Warrants and other matters as
provided herein;
NOW, THEREFORE, in consideration of the premises and the mutual agreements
hereinafter set forth and
<PAGE>
for the purpose of defining the terms and provisions of the Warrants and
the Warrant Certificate and the respective rights and obligations thereunder of
the Company, the holders of the Warrants and the Standing Agent and Warrant
Agent, the parties hereto agree as follows:
SECTION 1
Definitions
In addition to the definitions set forth elsewhere herein, as used herein:
"Deposit Date" shall have the meaning assigned to it in the Terms of Warrants,
as appropriate.
"Holder" shall mean the person depositing the Warrant Certificate with the
Warrant Certificate with the Warrant Agent or Sub-Warrant Agent pursuant to
Section 4.
"Termination Date" shall mean 12.00 Noon, Lugano Time, November 22, 2001.
"Terms of Warrants" shall refer to Annex E of the Note and Warrant Purchase,
Paying and Conversion/Exercise Agency Agreement dated November 15, 1996 made by
and between the Company and Banca del Gottardo.
SECTION 2
Appointment of Standing Agent and Warrant Agent
The Company hereby appoints the Standing Agent and the Warrant Agent to act as
agents for the Company in accordance with the instructions set forth hereinafter
in this Agreement, and the Standing Agent and Warrants Agent hereby accept such
appointments, upon the terms and conditions hereinafter set forth.
SECTION 3
Number, Form and Execution of Warrant Certificates
The number of Warrant Certificates is limited in each case to 200'000. The
Warrant Certificate shall be in bearer form substantially in the forms annexed
hereto as Exhibit 1 (the provisions of which are hereby incorporated herein) and
may have such letters, numbers or other marks of identification or designation,
and such legends, summaries or endorsements, printed, lithographed or engraved
thereon as the Company may deem appropriate and as are not inconsistent with the
provisions of this Agreement, or as may be
<PAGE>
required to comply with any law or with any rule or regulation made pursuant
thereto.
The Warrant Certificate shall be signed on behalf of the Company by its
President or a Vice President and by its Secretary or an Assistant Secretary.
Each such signature upon the Warrant Certificate may be in the form of a
facsimile signature of the President, Vice President, Secretary or Assistant
Secretary and may be imprinted or otherwise reproduced on the Warrant
Certificate. The Company, the Standing Agent and the Warrant Agent may deem and
treat the Holder(s) of the Warrants as the absolute owner(s) thereof
(notwithstanding any notation of ownership or other writing thereon made by
anyone), for the purpose of any exercise thereof, any distribution to the
Holder(s) thereof, and for all other purpose, and neither the Company, the
Standing Agent nor the Warrant Agent shall be affected by any notice to the
contrary.
SECTION 4
Exercise; No Fractional Shares
(a) The provisions of Sections 5 and 7 of the Terms of the Warrants are
incorporated herein.
(b) On the Deposit Date, the Warrant Agent shall give notice of the individual
exercise of the Warrants (the "Exercise Notice") to the Standing Agent.
(c) Upon surrender of a Warrant Certificate, and payment of the Exercise
Price, the Standing Agent shall thereupon (i) promptly requisition, from
the transfer agent of the Common Stock of the Company, one or more
certificates for the number of shares to be purchased, and (ii) promptly
after receipt of such certificate or certificates for shares, cause the
same to be delivered in accordance with the instructions of the Holder of
such Warrant Certificate together with a check in payment for any
fraction of a share. The Company irrevocably authorizes the Standing
Agent to make all such requests for shares and the transfer agent or
transfer agents for the Common Stock of the Company to comply with all
such requests.
SECTION 5
Authorization; Reservation of Shares; Listing; Reports to Warrantholders, etc.
The provisions of Section 4 of the Terms of Warrants are incorporated herein.
<PAGE>
SECTION 6
Loss or Mutilation
The provisions of Section 11 of the Terms of Warrants are incorporated herein.
SECTION 7
Adjustment of Exercise Price and Number of Share Deliverable
The provisions of Section 5 of the Terms of Warrants are incorporated herein.
SECTION 8
Concerning the Standing Agent and the Warrant Agent
1. The Standing Agent and the Warrant Agent act hereunder solely as agents
for the Company and each of its shall be determined solely by the
provisions hereof. The Standing Agent and the Warrant Agent shall not, by
delivering the Warrant Certificate or by any other act hereunder, be
deemed to make any representations as to the validity of this Warrant
Agency Agreement (except its valid execution) or the validity or value or
authorization of the Warrant Certificate or Warrants represented thereby
or of any shares or other property delivered upon exercise of any
Warrants or whether any such shares or other shares are fully paid and
non-assessable. The Standing Agent and the Warrant Agent shall not at any
time be under any duty or responsibility to any Holder of the Warrants to
make or cause to be made any adjustment of the Exercise Price or any
adjustment to the number of shares of Common Stock issuable upon exercise
of the Warrants provided in this Agreement, or to determine whether any
fact exists which may require any such adjustment, or with respect to the
nature or extent of any such adjustment, when made, or with respect to
the method employed in making the same. Each shall not (i) be liable for
the correctness of any recital or statement of fact contained herein or
in the Warrant Certificate or for any action taken, suffered, or omitted
by them in reliance on any Warrant Certificate or other document or
instrument believed by them in good faith to be genuine and to have been
signed, sent or presented by the proper party or parties, (ii) be
responsible for any failure on the part of the Company to comply with any
of its covenants and obligations contained in this Agreement or in the
Warrant Certificate, or (iii) be liable for any act or omission in
connection with this Agreement except for their own negligence or willful
misconduct.
2. The Standing Agent or the Warrant Agent may at any time consult with
counsel satisfactory to them (who may be counsel to the Company) and
shall incur no liability or responsibility to the Company
<PAGE>
or to any Holder of any Warrant or any other person or corporation for
any action taken, suffered or omitted by them in good faith in
accordance with the opinion or advice of such counsel.
3. Any notice, statement, instruction, request, direction, order, election
or demand of the Company shall be sufficiently evidenced by an instrument
signed by its President, any of its Vice Presidents, its Secretary, any
of its Assistant Secretaries or its Treasurer (unless other evidence in
respect thereof is herein specifically prescribed). The Standing Agent or
the Warrant Agent shall not be liable for any action taken, suffered or
omitted by them in accordance with such notice, statement, instruction,
request, direction, order or demand believed b the Standing Agent or
Warrant Agent to be genuine and to have been signed, sent or presented by
the proper party or parties.
4. The Company agrees to pay the Standing Agent and the Warrant Agent
reasonable compensation for each of its services hereunder and to
reimburse it for all expenses (e.g. telex, cable, postage, telephone,
etc.), including counsel fees, taxes and governmental charges and other
charges of any kind and nature, incurred by the Standing Agent and the
Warrant Agent. In consideration for the services rendered by the Warrant
Agent, the Company undertakes to pay upon demand to the Warrant Agent in
USD a commission which is USD -.10 for each Common Stock Warrant
exercised.
5. The Company further agrees to indemnify the Standing Agent or the Warrant
Agent and save each of them harmless against any and all losses, expenses
and liabilities, including judgments, costs and counsel fees, for any
thing done or omitted by the Standing Agent or Warrant Agent in the
execution of their duties and powers hereunder, except losses, expenses
and liabilities arising as a result of the Standing Agent's or the
Warrant Agent's negligence or willful misconduct. The Company will not be
liable for any Swiss taxes that may be payable for or in respect of the
deposit or surrender of the Warrants, or the issue and delivery of shares
or the surrender of the Warrants.
6. Neither Banca del Gottardo nor the Warrantholders shall have any
obligation to pay to the Standing Agent and Stock Transfer Agent any
commission, fees, costs or charges in connection with the exercise of
Warrants and the making available of the respective Shares as provided
hereafter.
7. The Standing Agent or the Warrant Agent may resign its duties and be
discharged from all further duties and liabilities hereunder (except
liabilities arising as a result of the Standing Agent's own negligence or
willful misconduct), after giving thirty days' prior written notice to
the Company. At least fifteen days prior to the date such resignation is
to become effective, the Standing Agent or the Warrant Agent shall cause
a copy of such notice of resignation to be published in the manner set
forth in Section 10. Upon such resignation, the Company shall appoint in
writing a new Standing Agent or Warrant Agent and if the Company shall
fail to make such appointment within a period of thirty days after it has
notified in writing of such resignation by the resigning Standing Agent
or Warrant Agent, then the Holders of any Warrant may apply to any court
of competent jurisdiction
<PAGE>
for the appointment of such successor Standing Agent or Warrant Agent and
if such successor Standing Agent or the Warrant Agent shall be carried out
by the Company pending such appointment.
After acceptance in writing of such appointment by the successor Standing
Agent or Warrant Agent is received by the Company, such successor Standing
Agent or Warrant Agent shall be vested with the same powers, rights, duties
and responsibilities as if it had been originally named herein as the
Standing Agent or the Warrant Agent, without any further assurance,
conveyance, act or deed. Not later than the effective date of any such
appointment the Company shall file notice thereof with the resigning
Standing Agent or Warrant Agent and shall cause a copy of such notice to be
published in the manner set forth in Section 10. Any corporation into which
the Standing Agent or the Warrant Agent or any successor Standing Agent or
Warrant Agent may be converted or merged or any corporation resulting from
any consolidation succeeding to the corporate trust business of the
Standing Agent or the Warrant Agent, shall be a successor Standing Agent or
Warrant Agent under this Agreement without any further act. Any such
successor Standing Agent or Warrant Agent shall promptly cause notice of
its succession as Standing Agent or Warrant Agent to be mailed to the
Company and notice published in the manner set forth in Section 10.
The Warrant Agent, its subsidiaries and affiliates, and any of its
officers, directors, stockholders, or employees may buy and hold or sell
Warrants or other securities of the Company and otherwise deal with the
Company in the same manner and to the same extent and with like effect as
though it were not Warrant Agent. Nothing herein shall preclude the
Standing Agent or the Warrant Agent from acting in any other capacity for
the Company or for any other legal entity.
SECTION 9
Modification of Agreement
The Standing Agent, the Warrant Agent and the Company may, by supplemental
agreement, make any changes or corrections in this Agreement that they shall
deem appropriate to cure any ambiguity or to correct any defective or
inconsistent provisions or manifest mistake or error herein contained.
SECTION 10
Notices
The provisions of Section 12 of the Terms of Warrants are incorporated herein.
<PAGE>
SECTION 11
Governing Law
The provisions of Section 13 of the Terms of Warrants are incorporated herein.
SECTION 12
Persons Benefiting
This Agreement shall be binding upon and inure to the benefit of the Company,
the Standing Agent, the Warrant Agent and their respective successor and
assigns, and, to the extent that the provisions hereof are incorporated in the
Warrants by the terms thereof, shall be binding upon and shall inure to the
benefit of the Holders form time to time of the Warrants, and their respective
successor and assigns. Nothing in this Agreement is intended or shall be
construed to confer upon any other person or corporation any legal or equitable,
remedy, or claim or to impose upon any other persons any duty, liability or
obligation.
SECTION 13
Notices
All notices required under this Agreement shall be deemed to have been duly
given if sent by cable, telex or facsimile transmission (confirmed in writing,
sent by registered airmail) to the following addresses:
If to the Company:
INTELLICALL, INC.
2155 Chenault, Suite 410
Carrollton, Texas 75006-5023, U.S.A.
Attention: Chief Financial Officer
Facsimile: (972) 416 9454
If to the Warrant Agent and to the Standing Agent:
BANCA DEL GOTTARDO
Viale Stefano Franscini 8
6901 Lugano, Switzerland
Attention: New Issue Department
Telex: 841 052
Facsimile: 0114191 808 18 43
<PAGE>
or to such other address as at the party receiving the notice shall nave
notified to the other party in writing. Such cable, telex or facsimile
transmission notice shall be deemed to have been duly given at the time of
dispatch. Any party receiving a notice by cable, telex or facsimile transmission
will be protected by relying upon the cabled, telexed or transmitted notice even
though such notice is not subsequently confirmed in writing.
SECTION 14
Descriptive Headings
The descriptive headings of the several Sections of this Agreement are inserted
for convenience only and shall not control or affect the meaning or construction
of any of the provisions hereof.
SECTION 15
Termination
This Agreement shall terminate on the Termination Date of Warrants, subject to
completion of actions taken on or prior thereto pursuant to this Agreement, or
on any earlier date if all the Warrants have been exercised.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
INTELLICALL, INC.
By: _____________________________
Its: _____________________________
BANCA DEL GOTTARDO
As Warrant Agent and Standing Agent
By: _____________________________
Its: _____________________________
<PAGE>
Exhibit 1 to ANNEX I
COMMON STOCK WARRANT EXERCISE FORM FOR THE
EXERCISE OF WARRANTS ISSUED BY INTELLICALL, INC.
EXPIRING NOVEMBER 22, 2001
To: _____________
(Warrant Agent)
The undersigned, the holder of Warrants
(please list serial numbers):
(A) hereby irrevocably elects to exercise the above-mentioned Warrant(s) in
accordance with the terms thereof and agrees to accept shares of common
stock of the Company on the terms of the Warrant Agency Agreement dated as
of November 22, 1996 (the "Warrant Agreement") duly executed and delivered
by the Company, and Banca del Gottardo, as Warrant Agent (the "Warrant
Agent") and as Standing Agent (the "Standing Agent");
(B) requests that a certificate or certificates for shares be issued in the
name(s) of _______________________ and sent to the following address:
Address _____________________________________________
________________, 19___
----------------------------------
Name:
Title:
<PAGE>
Exhibit 2 to ANNEX I
BANCA DEL GOTTARDO
Facsimile Transmission
To: [ ]
Attn:
Exercise of INTELLICALL, INC. Common Stock Warrants
Ladies and Gentlemen:
We kindly ask you to take note and to execute the following exercise of Common
Stock Warrants:
Exercise number
a) number of Common Stock Warrants:
b) equal number of shares:
c) shares to be registered in the name of:
d) shares to be sent to:
e) amounts, if any, to be sent to:
The transfer of USD [ ] will be effected according to your standing
instructions. Please confirm receipt of this fax by return fax.
Thanks and regards,
BANCA DEL GOTTARDO
<PAGE>
ANNEX J-1
CERTIFICATION OF NON-U.S. BENEFICIAL OWNERSHIP
INTELLICALL, INC.
8% CONVERTIBLE NOTES DUE NOVEMBER 22, 2001
The undersigned certifies that as to the portion of the Global Note (i) hereby
presented for exchange into definitive Notes, or (ii) hereby presented for
conversion into Common Stock the beneficial owners of the Notes (a) are not
either United States persons or U.S. persons or (b) are financial institutions
(within the meaning of United States Treasury Regulation Section
1.165-12(c)(1)(v)) located outside the United States that are not United States
persons and that have purchased such Notes for purposes of resale during the
Restricted Period. Financial institutions that have purchased the Notes for
purposes of resale during the Restricted Period also hereby certify that they
have not acquired the Notes for purposes of resale directly or indirectly to a
United States person or U.S. person or to a person within the United States. The
undersigned certifies further that it is (i) the beneficial owner of the portion
of the Global Note tendered for exchange or (ii) a financial institution (within
the meaning of United States Treasury Regulation Section 1.165-12(c)(1)(v))
through which the beneficial owner directly or indirectly holds the portion of
the Global Note tendered.
For purposes of this certification, (i) the term "Restricted Period" means the
period beginning on the earlier of the first date that the Notes are offered or
the date on which the Notes are issued (the "Payment Date") and ending forty
(40) days after the later of the date upon which the Notes were first offered or
the date of closing of the offering, (ii) the term "United States" means the
United States of America (including the States and the District of Columbia),
its possessions, its territories and other areas subject to its jurisdiction,
(iii) the term "United States person" means a citizen or resident of the United
States, a corporation, partnership or other entity created or organized in or
under the laws of the United States or any political subdivision thereof, or an
estate or trust the income of which is subject to United States federal income
taxation regardless of its source and (iv) the term "U.S. person" has the
meaning set forth in Sections 230.901 through .904 of Title 17 of the United
States Code of Federal Regulations ("Regulation S").
-----------------------------
Beneficial Owner or
Financial Institution
Name:
Address:
<PAGE>
ANNEX J-2
CERTIFICATION OF NON-U.S. BENEFICIAL OWNERSHIP
INTELLICALL, INC.
WARRANTS EXPIRING NOVEMBER 22, 2001
The undersigned certifies that as to the portion of the Global Warrant (i)
hereby presented for exchange into definitive Warrants, or (ii) presented for
exercise into Common Stock the beneficial owners of the Warrants (a) are not
either United States persons or U.S. persons or (b) are financial institutions
(within the meaning of United States Treasury Regulation Section
1.165-12(c)(1)(v)) located outside the United States that are not United States
persons and that have purchased such Warrants for purposes of resale during the
Restricted Period. Financial institutions that have purchased the Warrants for
purposes of resale during the Restricted Period also hereby certify that they
have not acquired the Warrants for purposes of resale directly or indirectly to
a United States person or U.S. person or to a person within the United States.
The undersigned certifies further that it is (i) the beneficial owner of the
portion of the Global Warrant tendered for exchange or (ii) a financial
institution (within the meaning of United States Treasury Regulation Section
1.165-12(c)(1)(v)) through which the beneficial owner directly or indirectly
holds the portion of the Global Warrant tendered.
For purposes of this certification, (i) the term "Restricted Period" means the
period beginning on the earlier of the first date that the Warrants are offered
or the date on which the Warrants are issued (the "Payment Date") and ending
forty (40) days after the later of the date upon which the Notes were first
offered or the date of closing of the offering, (ii) the term "United States"
means the United States of America (including the States and the District of
Columbia), its possessions, its territories and other areas subject to its
jurisdiction, (iii) the term "United States person" means a citizen or resident
of the United States, a corporation, partnership or other entity created or
organized in or under the laws of the United States or any political subdivision
thereof, or an estate or trust the income of which is subject to United States
federal income taxation regardless of its source and (iv) the term "U.S. person"
has the meaning set forth in Sections 230.901 through .904 of Title 17 of the
United States Code of Federal Regulations ("Regulation S").
-----------------------------
Beneficial Owner or
Financial Institution
Name:
Address:
<PAGE>
ANNEX K
Dated: November 22, 1996
To: Banca del Gottardo
Viale Stefano Franscini 8
CH-6901 Lugano/Switzerland
Re: Intellicall, Inc. (the "Company")
USD 5'000'000.-- 8% Convertible Notes of 1996
Due November 22, 2001 (the "Notes")
and Warrants of 1996 expiring November 22, 2001
(the "Warrants")
"Certificate of No Material Adverse Change"
Pursuant to the Note and Warrant Purchase, Paying and Conversion/Exercise Agency
Agreement dated November 15, 1996 (the "Agreement") between the Company and
Banca del Gottardo covering the issue of the Notes and Warrants by the Company.
I, William O. Hunt, being President of the Company HEREBY CERTIFY on behalf of
the Company that except as set forth in the Information Memorandum as to the
date hereof:
a) there has been no material adverse change in the financial condition of
the Company and its consolidated affiliates taken as a whole since
September 30, 1996, and
b) no event has occurred rendering untrue or incorrect any of the
warranties set forth in Article V of the Agreement to a material extent,
and
c) no event has occurred which constitutes or which with the giving of
notice or lapse of time would constitute one of the events referred to
in Section 10 of the Terms of the Notes.
Yours truly,
Intellicall, Inc.
----------------------------------
William O. Hunt
President
<PAGE>
ANNEX L
(Specimen Signature Form)
INTELLICALL, INC.
Carrollton, Texas, U.S.A.
US Dollars 5'000'000.-- 8 per cent US Dollars
Convertible Notes
Due November 22, 2001
and
Warrants
expiring November 22, 2001
The specimen signature of Mr. William O. Hunt, the President to be used for the
printing of the above-captioned Notes and coupons and Warrants is as follows:
----------------------------------
----------------------------------
----------------------------------
November 22, 1996
<PAGE>
ANNEX M
CERTIFICATE OF COMPLETION OF DISTRIBUTION
The undersigned, being the duly authorized officer of Banca del Gottardo, a
corporation duly organized with limited liability and existing under the laws of
Switzerland ("Gottardo"), does hereby certify for and on behalf of Gottardo that
the offering of those certain 8% Subordinated Convertible Notes due 2001 of
Intellicall, Inc., a Delaware corporation ("Intellicall"), and those certain
Warrants to Purchase Common Stock of Intellicall, each as described in that
certain Note and Warrant Purchase, Paying and Conversion/Exercise Agency
Agreement, effective November 15, 1996 (the "Note and Warrant Purchase
Agreement"), between the Gottardo and Intellicall, has closed and the 40-day
restricted period described in the Note and Warrant Purchase Agreement has
commenced.
IN WITNESS WHEREOF, the undersigned has executed this document as of the date
set forth below.
BANCA DEL GOTTARDO
By: _______________________________
Its: _______________________________
