- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
( ) TRANSITION REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 1-10588
INTELLICALL, INC.
(Exact name of registrant as specified in its charter)
Delaware 75-1993841
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification number)
2155 Chenault, Suite 410
Carrollton, TX 75006
(Address of Principal Executive Offices)
(972) 416-0022
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports to be
filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days.
Yes X No ____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Outstanding at
Class August 13,1999
- ------------------------------------- --------------
Common Stock $.01 par value 12,074,385
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<PAGE>
INDEX
INTELLICALL, INC.
Part I. Financial Information
Item 1. Financial Statements
Balance Sheets at June 30, 1999
(Unaudited) and December 31, 1998................................1
Statements of Operations for each of the
three month periods ended June 30, 1999 and 1998
(Unaudited) ...............................................3
Statements of Operations for each of the
six month periods ended June 30, 1999 and 1998
(Unaudited) ................................................4
Statements of Cash Flows for each of the
six month periods ended June 30, 1999 and 1998
(Unaudited) ...............................................5
Notes to Financial Statements....................................6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...........................................17
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.............24
Item 5. Other Information...............................................24
Item 6. Exhibits and Reports on Form 8-K................................25
Signatures....................................................................26
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
INTELLICALL, INC.
BALANCE SHEETS
ASSETS
(in thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
------------- -----------------
(unaudited)
<S> <C> <C>
Current assets
Cash and cash equivalents ................................. $ 10 $ 16
Receivables................................................ 5,481 11,267
Less allowance for doubtful accounts.................. 2,594 3,417
-------- --------
2,887 7,850
Inventories, net........................................... 5,071 5,177
Related party, net......................................... 320 658
Other current assets....................................... 169 197
-------- --------
Total current assets.................................. 8,457 13,898
Fixed assets, net............................................... 1,224 1,425
Capitalized software costs, net................................. 2,638 2,481
Notes receivable, net........................................... 897 1,074
Intangible assets, net.......................................... 704 749
Investment in unconsolidated investee........................... 848 1,491
Other assets, net............................................... 1,117 1,286
-------- --------
$ 15,885 $ 22,404
======== ========
See notes to financial statements.
</TABLE>
<PAGE>
INTELLICALL, INC.
BALANCE SHEETS (CONTINUED)
LIABILITIES AND STOCKHOLDERS' EQUITY
(in thousands, except share information)
<TABLE>
<CAPTION>
June 30,1999 December 31, 1998
------------ -----------------
(Unaudited)
<S> <C> <C>
Current liabilities
Accounts payable.......................................... $ 3,198 $ 2,085
Accrued transmission, customer commissions and billing
charges............................................... 581 880
Deferred revenue.......................................... -- 84
Accrued liabilities....................................... 755 968
Current portion of long-term debt ........................ --- 3,811
--------- --------
Total current liabilities................................. 4,534 7,828
Long-term debt ................................................ 9,213 7,312
Deferred gain on sale of assets................................ 967 968
Other liabilities.............................................. 250 250
Commitments and contingent liabilities......................... -- --
--------- --------
Total liabilities 14,964 16,358
Stockholders' equity
Preferred stock, $.01 par value; 1,000,000 shares
authorized; zero and 510 shares issued
and outstanding, respectively......................... -- 1
Common stock, $.01 par value; 20,000,000 shares
authorized; 12,074,385 and 11,738,001 shares issued,
respectively......................................... 121 117
Additional paid-in capital................................ 58,054 57,895
Less common stock in treasury, at cost;
24,908 shares........................................ (258) (258)
Accumulated deficit....................................... (56,996) (51,709)
--------- --------
Total stockholders' equity........................... 921 6,046
--------- --------
$ 15,885 $ 22,404
========= ========
See notes to financial statements.
</TABLE>
-2-
<PAGE>
INTELLICALL, INC.
STATEMENTS OF OPERATIONS(UNAUDITED)
(in thousands, except share information)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
1999 1998
---- ------
<S> <C> <C>
Revenues and sales:
Service revenues $ 2,951 $ 7,528
Equipment sales 1,549 3,321
--------- --------
4,500 10,849
--------- --------
Cost of revenues and sales:
Service revenues 2,896 7,012
Equipment sales 1,653 2,557
--------- --------
4,549 9,569
--------- --------
Gross profit(loss):
Service revenues 55 516
Equipment sales (104) 764
--------- --------
(49) 1,280
Selling, general and administrative expenses 1,818 2,198
Provision for doubtful accounts 332 59
Research and development expenses 275 262
--------- --------
Operating loss (2,474) (1,239)
Interest income 59 79
Interest expense (537) (390)
Gain on sale of assets -- 493
Loss in equity investee (263) (111)
Other income 156 --
--------- --------
Net loss $ (3,059) $ (1,168)
========= ========
Basic net loss per share $ (0.25) $ (0.12)
========= ========
Weighted average number of shares outstanding 12,049 9,762
========= ========
Fully diluted net loss per share $ (0.25) $ (0.12)
========= ========
Shares used in fully diluted net loss per share calculation 12,049 9,762
========= ========
See notes to financial statements.
</TABLE>
- 3 -
<PAGE>
INTELLICALL, INC.
STATEMENTS OF OPERATIONS(UNAUDITED)
(in thousands, except share information)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Revenues and sales:
Service revenues $ 6,109 $ 13,147
Equipment sales 6,380 7,583
-------- --------
12,489 20,730
-------- --------
Cost of revenues and sales:
Service revenues 6,164 12,282
Equipment sales 5,922 6,069
-------- --------
12,086 18,351
-------- --------
Gross profit(loss):
Service revenues (55) 865
Equipment sales 458 1,514
-------- --------
403 2,379
Selling, general and administrative expenses 3,764 4,266
Provision for doubtful accounts 86 144
Research and development expenses 499 557
-------- -------
Operating loss (3,946) (2,588)
Interest income 120 158
Interest expense (1,006) (782)
Gain on sale of assets -- 6,892
Loss in equity investee (621) (330)
Other income 165 --
-------- -------
Net income (loss) $ (5,288) $ 3,350
======== =======
Basic net income (loss) per share $ (0.44) $ 0.35
======== =======
Weighted average number of shares outstanding 12,039 9,616
======== =======
Fully diluted net income (loss) per share $ (0.44) $ 0.30
======== =======
Shares used in fully diluted net income (loss) per share calculation 12,039 12,499
======== =======
See notes to financial statements.
</TABLE>
- 4 -
<PAGE>
INTELLICALL, INC.
STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30,
1999 1998
---- ----
<S> <C> <C>
Operating activities:
Net income (loss) $ (5,288) $ 3,350
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating activities:
Gain on sale of investments -- (6,892)
Depreciation and amortization 1,110 995
Provision for doubtful accounts 86 144
Provision for inventory (152) 150
Loss of equity investee 621 330
Changes in operating assets and liabilities (See Note 1):
Restricted cash -- (5)
Receivables 4,892 2,173
Inventories 258 (1,066)
Related party 338 260
Other current assets 28 64
Notes receivable 163 20
Accounts payable 1,114 (3,511)
Accrued transmissions, customer commissions
and billing charges (299) (573)
Accrued liabilities (297) (247)
Deferred gain on sale of assets (1) 968
Other (107) (275)
-------- --------
Net cash provided by (used in) operating activities 2,466 (4,115)
Investing activities:
Purchase of equipment (96) (296)
Capitalized software (565) (500)
Cash received on sale of assets -- 8,463
-------- --------
Net cash provided by (used in) investing activities (661) 7,667
Financing activities:
Borrowings on notes payable 2,000 --
Payments on notes payable (1,000) (28)
Net repayments on line of credit (2,811) (1,918)
Proceeds from issuance of stock under stock option plans -- 394
-------- --------
Net cash used in financing activities (1,811) (1,552)
Net increase(decrease) in cash and cash equivalents (6) 2,000
Cash and cash equivalents at beginning of period 16 --
-------- --------
Cash and cash equivalents at end of period $ 10 $ 2,000
======== ========
Supplemental cash flow information:
Interest paid $ 491 $ 573
======== ========
Supplemental non cash information:
Conversion of debt to equity $ -- $ 210
======== =======
See notes to financial statements.
</TABLE>
- 5 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 1 - CERTAIN ACCOUNTING POLICIES
Basis of Presentation. The accompanying financial statements of
Intellicall, Inc. (the "Company") have been prepared in accordance with the
requirements of Form 10-Q and do not include all disclosures normally required
by generally accepted accounting principles or those normally made in annual
reports on Form 10-K. In management's opinion, all adjustments necessary for a
fair presentation of the results of operations for the periods shown have been
made and are of a normal and recurring nature.
The results of operations for the three and six months ended June 30, 1999, are
not necessarily indicative of the results of operations expected for the full
year 1999. The financial statements herein should be read in conjunction with
the financial statements and notes thereto included in the Company's Annual
Report on Form 10-K for the year ended December 31, 1998.
Software Development Costs. The Company capitalizes costs related to
the development of certain software products. In accordance with Statement of
Financial Accounting Standards No. 86, capitalization of costs begins when
technological feasibility has been established and ends when the product is
available for general release to customers. Amortization is computed on an
individual product basis based on the products' estimated economic life using
the straight line method, not to exceed five years.
The amounts of software development costs capitalized in the second quarter of
1999 and 1998 were $250,000 and $250,000, respectively. The Company recorded
$219,000 and $135,000 of software amortization expense for the three months
ended June 30, 1999 and 1998.
For the six months ended June 30, 1999 and 1998, the Company capitalized
$565,000 and $500,000, respectively. The software amortization expense recorded
was $408,000 and $254,000 for the six months ended June 30, 1999 and 1998.
Cash and Cash Equivalents. For purposes of the balance sheets and
statements of cash flows, cash and cash equivalents include short-term liquid
investments purchased with remaining maturities of three months or less.
- 6 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 2 - EARNINGS(LOSS) PER SHARE
The following table sets forth a reconciliation of the numerator and
denominator used in the basic and diluted EPS computation for the three and six
month periods ended June 30, 1999 and 1998, respectively:
<TABLE>
<CAPTION>
Three months Three months Six months Six months
ended ended ended ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net income (loss) $ (3,059) $ (1,168) $ (5,288) $ 3,350
Basic:
Weighted average number of shares outstanding 12,049 9,762 12,039 9,616
====== ===== ====== =====
Diluted:
Weighted average number of shares outstanding used
in the basic net income (loss) per share calculation 12,049 9,762 12,039 9,616
Weighted average shares from assumed exercise of
dilutive stock options and warrants, net of shares
assumed to be repurchased with exercise proceeds -- -- -- 310
Assumed conversion of Series A Preferred Stock
at beginning of period -- -- -- 787
Assumed conversion of convertible debt -- -- -- 1,786
------ ----- ------ ------
Weighted average number of shares outstanding used
in the fully diluted net income (loss) per share
calculation 12,049 9,762 12,039 12,499
====== ===== ====== ======
</TABLE>
In accordance with FAS 128, options and warrants to purchase 3,152,878
and 2,945,205 shares of Common Stock were excluded in the diluted EPS
calculation because they were antidilutive, for the three months ended June 30,
1999 and 1998, respectively. Conversion of debt and preferred stock were
antidilutive and therefore were excluded for both of the three month periods
calculations. For the six month periods ended June 30, 1999 and 1998, options
and warrants to purchase 3,152,878 and 1,262,180 shares respectively, of Common
Stock were excluded in the diluted EPS calculation because they were
antidilutive. The June 30, 1999 calculation excluded 2,916,513 shares issuable
upon conversion of debt because they were antidilutive.
- 7 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 3 - LONG-TERM DEBT AND LINE OF CREDIT
The Company's debt consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------ -----------
<S> <C> <C> <C>
8% Convertible subordinated notes, due 2000 $ 2,630 $ 2,630
8% Convertible subordinated notes, due 2001 5,000 5,000
Convertible subordinated note, due 1999 -- 1,000
Asset-based note collateralized by certain assets, due 1999 -- 2,811
7% Convertible subordinated notes, due 2004 2,000 --
----------- ------------
9,630 11,441
Less unamortized debt discount (417) (318)
----------- ------------
Total debt 9,213 11,123
----------- ------------
Less: Current portion of long-term debt -- (3,811)
----------- ------------
Total long-term debt $ 9,213 $ 7,312
=========== ============
</TABLE>
On February 15, 1994 the Company issued a $1.0 million, 10.0%,
convertible, subordinated note to T.J. Berthel Investments, L.P., whose
ownership also controls 4.2% of the Company's outstanding common stock. Interest
is payable quarterly and commenced March 31, 1994. The Company paid the entire
principal amount, including any accrued interest, on April 8, 1999.
On December 29, 1995 the Company completed the sale of $7.5 million of
8.0% convertible subordinated notes, due December 31, 2000, to Banca Del
Gottardo in Lugano, Switzerland with the proceeds used to repay the previous
lender and for working capital purposes. The notes were issued with warrants to
purchase 300,000 shares of the Company's Common Stock at $4.20 per share. As a
result of activating certain anti-dilution provisions, the warrants entitle the
holder to purchase 418,507 shares of Common Stock, exercisable at $3.01 per
share. The notes are convertible into 1,785,714 shares of the Company's Common
Stock at a price of $4.20 per share. As of June 30, 1999 $4.87 million of the
Banca Del Gottardo Notes were converted to 1,159,517 shares of the Company's
Common Stock. Interest is payable semi-annually and commenced June 30, 1996.
On November 22, 1996 the Company completed the sale of $5.0 million of
8.0% convertible subordinated notes, due November 22, 2001, to Banca Del
Gottardo in Lugano, Switzerland with the proceeds used to repay a portion of the
previous lender's debt and for working capital purposes. The notes were issued
with warrants to purchase 200,000 shares of the Company's Common Stock at $5.00
per share. As a result of activating certain anti-dilution provisions, the
warrants entitle the holder to purchase 255,643 shares of Common Stock,
exercisable at $3.91 per share. The notes are convertible into one million
shares of the Company's Common Stock at a price of $5.00 per share. Interest is
payable semi-annually beginning May 1997.
- 8 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
On November 22, 1996 the Company entered into a Loan and Security
Agreement (the "Loan Agreement") with Finova Capital Corporation ("Finova")
pursuant to which Finova agreed to loan the Company up to $12,000,000 (the
"Loan") based on an available borrowing base. The borrowing base consisted
primarily of call traffic and trade equipment receivables and inventory, subject
to eligibility requirements determined by Finova. Amounts loaned subject to the
borrowing base were determined by percentages established in the Loan Agreement.
The initial term of the Loan Agreement was three years. The Loan was
secured by first and prior liens and security interests encumbering
substantially all of the assets of the Company, including inventory, equipment,
accounts receivable, general intangibles, trademarks and tradenames. The Loan
Agreement contains various restrictions (including a prohibition against the
payment of dividends, limitations on capital expenditures, and restrictions on
investments) and financial ratio maintenance requirements (including minimum
working capital and net worth requirements). On January 28, 1999, the Company
retired all of its obligations to Finova.
On January 27, 1999, the Company closed and commenced funding under a
Receivable Sale Agreement (the "RFC Agreement") with RFC Capital Corporation
("RFC") pursuant to which RFC has agreed to purchase from the Company certain
telecommunication receivables generated by the Company in the ordinary course of
the Company's business. The proceeds from the initial sale of receivables were
used to pay all of the Company's obligations to Finova and for working capital
purposes. The RFC Agreement calls for RFC to purchase eligible receivables from
the Company from time to time upon presentation thereof for a purchase price
equal to the net value of such receivables. Net value is designed to yield RFC
an effective rate of prime plus 2.75% plus allow RFC to retain a holdback of
5.00% in the face amount of the receivables, net of collections, against future
collection risk.
Under the RFC Agreement, the Company performs certain servicing,
administrative and collection functions with respect to the receivables sold to
RFC. Also, pursuant to the terms of the RFC Agreement, the Company has granted
to RFC a security interest in and to the Company's receivables not sold to RFC
and the Company's customer base relating to the generation of such accounts
receivable.
The initial term of the RFC Agreement is to December 21, 2000.
On April 9, 1999 the Company was granted bridge financing of $1.0
million by Banca del Gottardo in Lugano, Switzerland for the purpose of
satisfying all obligations to T.J. Berthel Investments. The $1.0 million in
bridge financing, together with an additional $1.0 million to be used for
working capital purposes was refinanced by Banca del Gottardo into 7%
convertible long-term notes due June 11, 2004. The notes were issued with
warrants to purchase 200,000 shares at $1.55 per share. These notes are
convertible into 1.3 million shares of the Company's Common Stock at a
- 9 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
price of $1.55 per share. In connection with issuing the notes, the Company has
granted to Banca del Gottardo a right of prepayment from the sale of all or a
portion of 50% of Intellicall's ownership of ILD.
NOTE 4 - INVENTORIES
As of June 30, 1999 and December 31, 1998, the Company's inventories,
net of related reserves, consisted of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
--------- -----------
<S> <C> <C>
Raw materials $ 3,774 $ 3,629
Work-in-process 525 428
Finished goods 772 1,120
--------- ----------
Total inventories, net $ 5,071 $ 5,177
========= ==========
</TABLE>
NOTE 5 - LITIGATION AND CONTINGENCIES
From time to time, the Company is subject to legal proceedings and
claims in the ordinary course of business, including claims of alleged
infringement of trademarks and other intellectual property rights. The Company
is not currently aware of any legal proceedings or claims that the Company
believes will have, individually or in the aggregate, a material adverse effect
on the Company's financial position, results of operations or cash flows.
NOTE 6 - EQUITY FINANCING
On July 21, 1997 (the "Closing Date") the Company entered into a
Securities Purchase Agreement (the "Purchase Agreement") with four institutional
investors (the "Investors") pursuant to which the Investors purchased $4,000,000
of the Company's Series A Convertible preferred stock (the "preferred stock").
The Company utilized the net proceeds from the sale of the preferred stock
(approximately $3,800,000) to pay down indebtedness to Finova.
As of March 31, 1999, all of the Company's Series A convertible
preferred stock had been converted for 2.5 million shares of common stock. The
Company filed a registration statement on the common stock underlying the
conversion of the preferred stock on September 5, 1997.
- 10 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
NOTE 7 - SALE OF PREPAID SERVICES OPERATION
On January 1, 1998 the Company sold its prepaid services operation to
ILD Telecommunications, Inc. ("ILD") in exchange for (i) $2,000,000 in cash,
(ii) forgiveness of the Company's promissory note in the original principal
amount of $2,000,000 which had previously been executed and delivered to ILD to
purchase 18,348.62 shares of ILD common stock valued at $109 a share, and (iii)
a $1,000,000 promissory note due at the earlier of the date of ILD's public
offering or December 31, 1998. As of March 31, 1999, ILD had agreed to payment
arrangements to satisfy the $1,000,000 promissory note. The cash proceeds were
used to further reduce the Company's indebtedness to Finova. The Company
recorded a $835,000 gain on the sale of the prepaid services operation with the
balance recorded as deferred gain on sale of assets to an unconsolidated
investee.
As of June 30, 1999, the Company had 967,000 of deferred gain.
NOTE 8 - SALE OF STOCK OF ILD
On March 30, 1998, the Company sold to SMCO, LLP 18,348.62 shares of
ILD common stock. SMCO is an unrelated third party, the negotiations for the
sale transactions were at arm's length, and there were no additional obligations
or elements of financial consideration relating to the sale transaction. The
Company sold the shares for $325.00 each and recorded a gain on the sale in the
amount of $5.6 million. The transaction lowered the Company's ownership
percentage to 42.9% as of March 31, 1998. Accordingly, the Company accounts for
its investment in ILD under the equity method of accounting retroactively to
January 1, 1998.
On April 3, 1998 the Company sold 1,539 shares of its Series A
preferred stock in ILD to SMCO Investments, LLC. The transaction lowered the
Company's ownership percentage to 42.0% as of April 3, 1998.
NOTE 9 - BUSINESS SEGMENTS
The Company has two reportable segments, services and equipment. The
services segment provides billing and collection services to owners of payphones
who use the Company's automated operator technology. The equipment segment
manufactures and sells payphones, switches and related software.
- 11 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
The accounting policies of the segments are the same as those described
in Note 1, Certain Accounting Policies. The Company evaluates segment
performance based on revenues, gross profit and net income before taxes and
interest.
Financial information that is provided to the chief operating decision
maker includes revenues, gross profit and net income. Note that there are no
intersegment revenues. The Company's primary measure of profit, net income, is
that by which it formulates decisions and communicates to investors and
analysts. Gross profit data is provided for additional information. Financial
information internally reported for the quarters ended June 30, 1999 and 1998,
and the six months ended June 30, 1999 and 1998 is as follows (in thousands):
- 12 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1999
SERVICES EQUIPMENT SUBTOTAL CORPORATE(4) TOTAL
-------- --------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES(1) 2,951 1,549 4,500 4,500
65.6% 34.4% 100.0%
GROSS PROFIT (49)
(LOSS)(2) 55 (104) (49)
52.9% 100.0% N/A
NET LOSS(3) (122) (2,352) (2,474) (585) (3,059)
4.9% 95.1% 100.0%
<FN>
(1) Equipment revenues include international sales of $187.
(2) Percentage is determined based on the greater of the absolute amount of all
segments reporting a positive gross profit or all segments reporting a
negative gross profit. The absolute amount of all segments reporting a
positive gross profit is $55, while the absolute value of all segments
reporting a negative gross profit is $104. Accordingly, the percentages are
calculated based on a denominator of $104.
(3) Percentage is determined based on the greater of the absolute amount of all
segments reporting a profit or all segments reporting a loss. The absolute
amount of all segments reporting a profit is zero, while the absolute value
of all segments reporting a loss is $2,474. Accordingly, the percentages
are calculated based on a denominator of $2,474.
(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
are not calculated for "Corporate".
</FN>
</TABLE>
- 13 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, 1998
SERVICES EQUIPMENT SUBTOTAL CORPORATE(4) TOTAL
-------- --------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES(1) 7,528 3,321 10,849 10,849
69.4% 30.6% 100.0%
GROSS PROFIT(2) 516 764 1,280 -- 1,280
40.3% 59.7% 100.0%
NET INCOME (LOSS)(3) 313 (1,552) (1,239) 71 (1,168)
20.2% 100.0% N/A
<FN>
(1) Equipment revenues include international sales of $176.
(2) Percentage is determined based on the greater of the absolute amount of all
segments reporting a positive gross profit or all segments reporting a
negative gross profit. The absolute amount of all segments reporting a
positive gross profit is $1,280, while the absolute value of all segments
reporting a negative gross profit is zero. Accordingly, the percentages are
calculated based on a denominator of $1,280.
(3) Percentage is determined based on the greater of the absolute amount of all
segments reporting a profit or all segments reporting a loss. The absolute
amount of all segments reporting a profit is $313, while the absolute value
of all segments reporting a loss is $1,552. Accordingly, the percentages
are calculated based on a denominator of $1,552.
(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
are not calculated for "Corporate".
</FN>
</TABLE>
- 14 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1999
SERVICES EQUIPMENT SUBTOTAL CORPORATE(4) TOTAL
-------- --------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
REVENUES(1) 6,109 6,380 12,489 12,489
48.9 51.1% 100.0%
GROSS PROFIT
(LOSS)(2) (55) 458 403 403
12.0% 100.0% N/A
NET LOSS(3) (373) (3,573) (3,946) (1,342) (5,288)
9.5% 90.5% 100.0%
<FN>
(1) Equipment revenues include international sales of $202.
(2) Percentage is determined based on the greater of the absolute amount of all
segments reporting a positive gross profit or all segments reporting a
negative gross profit. The absolute amount of all segments reporting a
positive gross profit is $458, while the absolute value of all segments
reporting a negative gross profit is $55. Accordingly, the percentages are
calculated based on a denominator of $458.
(3) Percentage is determined based on the greater of the absolute amount of all
segments reporting a profit or all segments reporting a loss. The absolute
amount of all segments reporting a profit is zero, while the absolute value
of all segments reporting a loss is $3,946. Accordingly, the percentages
are calculated based on a denominator of $3,946.
(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
are not calculated for "Corporate".
</FN>
</TABLE>
- 15 -
<PAGE>
INTELLICALL, INC.
NOTES TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30, 1998
SERVICES EQUIPMENT SUBTOTAL CORPORATE(4) TOTAL
-------- --------- -------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
REVENUES(1) 13,147 7,583 20,730 20,730
63.4% 36.6% 100.0%
GROSS PROFIT(2) 865 1,514 2,379 -- 2,379
36.4% 63.6% 100.0%
NET PROFIT(LOSS)(3) 459 (3,047) (2,588) 5,938 3,350
15.1% 100.0% N/A
<FN>
(1) Equipment revenues include international sales of $1,723.
(2) Percentage is determined based on the greater of the absolute amount of all
segments reporting a positive gross profit or all segments reporting a
negative gross profit. The absolute amount of all segments reporting a
positive gross profit is $2,379, while the absolute value of all segments
reporting a negative gross profit is zero. Accordingly, the percentages are
calculated based on a denominator of $2,379.
(3) Percentage is determined based on the greater of the absolute amount of all
segments reporting a profit or all segments reporting a loss. The absolute
amount of all segments reporting a profit is $459, while the absolute value
of all segments reporting a loss is $3,047. Accordingly, the percentages
are calculated based on a denominator of $3,047.
(4) Note that "corporate" is not a segment. As a consequence, percentage amounts
are not calculated for "Corporate".
</FN>
</TABLE>
- 16 -
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Forward-Looking Statements - Cautionary Statements
This Form 10-Q contains certain "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended (the
"Securities Act"), and Section 21E of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"). Specifically, all statements other than statements
of historical facts included in this report regarding the Company's financial
position, business strategy and plans and objectives of management of the
Company for future operations are forward-looking statements. These
forward-looking statements are based on the beliefs of the Company's management,
as well as assumptions made by and information currently available to the
Company's management. When used in this report, the words "anticipate,"
"believe," "estimate," "expect," "intend," and words or phrases of similar
import, as they relate to the Company or Company management, are intended to
identify forward-looking statements. Such statements (the "cautionary
statements") reflect the current view of the Company with respect to future
events and are subject to risks, uncertainties and assumptions related to
various factors including, without limitation, competitive factors, general
economic conditions, customer relations, relationships with vendors, the
interest rate environment, governmental regulation and supervision, seasonality,
product introductions and acceptance, technological change, changes in industry
practices and one-time events. Although the Company believes that expectations
are reasonable, it can give no assurance that such expectations will prove to be
correct. Based upon changing conditions, should any one or more of these risks
or uncertainties materialize, or should any underlying assumptions prove
incorrect, actual results may vary materially from those described herein as
anticipated, believed, estimated, expected or intended. All subsequent written
and oral forward-looking statements attributable to the Company or persons
acting on its behalf are expressly qualified in their entirety by the applicable
cautionary statements.
Year 2000 Discussion
The Company has undertaken a program (the "Y2K Program") to ensure that
its operations, computer systems and certain products are not functionally
impaired as a result of a failure to properly record in any electronic medium
the correct time and date on and after January 1, 2000. The Y2K Program is a
multi-year program which commenced in 1997.
Responsibilities for achieving Y2K compliance have been assigned to two
groups of employees: the Engineering Group and the Information Systems Group.
The Engineering Group is responsible for ensuring that the functionality of
certain of the Company's products is not impaired as a result of being Y2K
non-compliant. The Information Systems Group is responsible for assessing and
suitably modifying or replacing components of systems and networks used in the
Company's operations, including those used to process customer call records, so
as to ensure that the Company's business is not materially disrupted by an
instance of Y2K non-compliance over which the Company had control.
- 17 -
<PAGE>
Engineering Group Y2K Program Status. The Company issues periodic
status reports on its Web Page concerning the products which will be certified
for Y2K operation. In general, products which are currently produced, supported
or widely deployed will be certified.
Conceptually, the certification process requires (a) the testing of
selected existing products in a simulated Y2K environment to determine whether
remediation is required (the "Test Phase"), (b) the development of remedial
software (the "Programming Phase"), and (c) final testing and product
certification (the "Final Test Phase"). Since the Test Phase requires the
development of test plans and scripts for a multitude of products and their
components, it is necessarily a lengthy one. The Table below summarizes, for
each phase, the estimated historical cost, the percentage of completion at June
30, 1999, estimated total costs and targeted completion dates.
<TABLE>
<CAPTION>
Phase
----------------------------------------------
Test Programming Final Test
---- ----------- ----------
<S> <C> <C> <C>
Estimated Cost to 6/30/99 $ 136,000 $ 156,800 $ 52,300
Percent Complete at 6/30/99 94% 98% 83%
Estimated Total Cost $ 145,000 $160,000 $ 63,000
Estimated Completion Date 8/99 8/99 10/99
</TABLE>
Until the Test Phase is complete, the timing and cost of remedial
programming can not be reliably estimated. Y2K product modifications are
expected to be completed principally by Company personnel.
There can be no assurance that tests and scripts devised by the Company
will detect all instances of Y2K non-compliance, or that the scope and cost of
work shown to be required upon completion of testing will be consistent with the
Company's current expectations, or that appropriate personnel will be available
when required to make and test the modifications, or that upgraded software will
be installed in customer equipment on a timely basis.
Information Systems Group ("ISG") Y2K Program Status. The ISG's areas
of responsibility include the evaluation and remediation (or replacement) of
information technology systems ("IT Systems") used by the Company, and of the
Y2K readiness of the Company's key vendors. Based upon its evaluation of the IT
system used to process customer-submitted call traffic data (the "CTD System"),
the ISG has concluded that the CTD System requires a major rewrite and upgrade
to be made Y2K compatible. The CTD System upgrade is expected to be undertaken
by existing Intellicall personnel with the use of outside consultants as needed,
to be completed by the end of 1999. The phases, estimated historical and
projected costs, estimated completion dates and percentages of completion of the
CTD System upgrade are set forth in the following table.
- 18 -
<PAGE>
<TABLE>
<CAPTION>
Phase
---------------------------------------------------------------
System Design Coding System Test
------------- ------ -----------
<S> <C> <C> <C>
Implementation
- --------------
Estimated Cost to 6/30/99 $ 33,300 51,760 0
Percent Complete at 6/30/99 100% 23% 0%
Estimated Total Cost $ 33,300 $225,000 $ 25,000
Estimated Completion Date 4/99 10/99 11/99
</TABLE>
Estimates of work scope and projected costs may be imprecise, as there
can be no assurance that the CTD System upgrade will be completed on time or
within budget, or that it will be sufficiently Y2K compatible to permit
processing of customer call traffic without material business disruption or
cost.
The ISG has completed its evaluation of IT Systems used by the Company
in its manufacturing, accounting, administration and human resources
departments, and on the basis of letters of assurance obtained and expected from
third-party vendors, has concluded that the Company's accounting, MRP and
payroll systems will fundamentally be Y2K capable in 1999. Letters of assurance
have been requested from other key third-party vendors concerning other
equipment and systems utilized by the Company, including outside billing agents
used in the collection of customer call traffic accounts receivable. However,
there can be no assurance that the Company will receive responses from all of
its vendors in a timely manner, or that such responses will be accurate or
complete. Moreover, the Company has not conducted, and will be unable to
conduct, an in-depth evaluation of third-party providers in relation to their
ability to adequately address Y2K issues.
The ISG has inventoried all personal computers and related servers and
software used by the Company. The inventory is largely complete, on the basis of
which, the Company has tentatively adopted a plan to spend approximately
$100,000 for replacements and upgrades of the inventoried equipment and software
to achieve Y2K capability and otherwise improved performance. Management
believes that the necessary replacements and upgrades can be obtained from third
parties on a timely basis.
The success of Intellicall's business is dependent on and
interconnected with numerous third-party suppliers. The depth and complexity of
interconnectivity raises the probability that an unforeseen Y2K problem may
arise, notwithstanding the best efforts of the Company and its suppliers to
avoid one. Consequently, there can be no assurance that the Company's
operations, financial condition or prospects will not be materially impaired by
a non-compliant Y2K event over which it had no control.
Y2K Risk Assessment and Contingency Plans. Intellicall's business
interruption insurance excludes coverage of losses resulting from Y2K defects,
and the Company has been informed by its insurance agent that reasonable
insurance protection is unavailable. Most of the Company's software used in its
accounting, human resources, payroll and production functions is purchased from
reliable third-party vendors that have provided assurance of Y2K compatibility.
The planned modifications of product and most other software will be made by
company personnel in lieu of being outsourced.
- 19 -
<PAGE>
On a scale of difficulty, such modifications are not expected to be more
challenging than other software modifications routinely made by Company
personnel in the ordinary conduct of their jobs.
The Company views the inability of the CTD call processing software to
properly edit decripted call records for uncollectible calls after 1999 as the
most probable Y2K worst case scenario. Notwithstanding the Company's effort to
rewrite the system by year end, 1999, the Company's contingency plan for the Y2K
problem relating to the CTD system includes decripting the customer's call
records and submitting them to third party billing agents to collect the call
traffic revenue for the customer. This contingency plan essentially moves
customers using the Easy*Star program to an Unbundled program.
The Company has no other contingency plan at the present time for Y2K
problems that might emerge, but will continue to develop other plans as problems
become evident. There can be no assurance, however, that any plan, currently
developed or yet to be developed, will be sufficiently timely or effective to
avoid a material disruption of Intellicall's or its customer's operations.
Recent Developments
On April 9, 1999 the Company was granted bridge financing of $1.0
million by Banca del Gottardo in Lugano, Switzerland for the purpose of
satisfying all obligations to T.J. Berthel Investments. The $1.0 million in
bridge financing, together with an additional $1.0 million to be used for
working capital purposes was refinanced by Banca del Gottardo into 7%
convertible long-term notes due June 11, 2004. The notes were issued with
warrants to purchase 200,000 shares at $1.55 per share. These notes are
convertible into 1.3 million shares of the Company's Common Stock at a price of
$1.55 per share. In connection with issuing the notes, the Company has granted
to Banca del Gottardo a right of prepayment from the sale of all or a portion of
50% of Intellicall's ownership of ILD.
- 20 -
<PAGE>
Financial Condition
Liquidity and Capital Resources
During the six months ended June 30, 1999 the Company generated $2.5
million of cash from operations including changes in operating assets and
liabilities.
Net changes in operating assets and liabilities during the six months
ended June 30, 1999 provided a source of cash of $6.1 million. The primary
factors affecting these changes were a decrease in accounts receivable of $4.9
million and an increase in accounts payable of $1.1 million.
Cash flows from investing activities include capital expenditures of
$96,000 and expenditures for software and product development of $565,000.
Cash flows from financing activities include a $2.8 million repayment
on the line of credit from Finova, a $1.0 million repayment on the note from
T.J. Berthel Investments, L.P., and the issuance of $2.0 million in Notes to
Banca Del Gottardo.
On January 27, 1999, the Company closed and commenced funding under a
Receivable Sale Agreement (the "RFC Agreement") with RFC Capital Corporation
("RFC") pursuant to which RFC has agreed to purchase from the Company certain
telecommunication receivables generated by the Company in the ordinary course of
the Company's business. The proceeds from the initial sale of receivables were
used to pay all of the Company's obligations to Finova and for working capital
purposes. The RFC Agreement calls for RFC to purchase eligible receivables from
the Company from time to time upon presentation thereof for a purchase price
equal to the net value of such receivables. Net value is designed to yield RFC
an effective rate of prime plus 2.75% plus allow RFC to retain a holdback of
5.00% in the face amount of the receivables, net of collections, against future
collection risk.
Under the RFC Agreement the Company performs certain servicing,
administrative and collection functions with respect to the receivables sold to
RFC. Also, pursuant to the terms of the RFC Agreement, the Company has granted
to RFC a security interest in and to the Company's receivables not sold to RFC
and the Company's customer base relating to the generation of such accounts
receivables.
The initial term of the RFC Agreement is to December 21, 2000.
In and beyond 1999, the Company's ability to obtain further funds from
external sources will depend in part on its ability to generate operating
profits, or to substantially reduce its operating losses. Although management of
the Company believes that the Company's sales will grow during the remainder of
1999 and that profitability will improve with sales, there can be no assurance
that the events necessary for such sales growth will occur as or when expected,
or that future sales growth will be sufficiently large or profitable to permit
the Company to finance its activities without recourse to
- 21 -
<PAGE>
continuing sales of assets or external funding sources. There can be no
assurance that under such conditions, external funds would be available or, if
available, would not potentially dilute shareholders' interests or returns.
Results of Operations
Service Revenues. Service revenues for the second quarter ended June
30, 1999 were $3.0 million compared to $7.5 million for the same period in 1998.
For the six month period ended June 30, 1999, service revenues were $6.1 million
compared to $13.1 million for the six months ended June 30, 1998.
Of the $4.5 million and $7.0 million decrease in service revenues for the
quarter ended and six months ended June 30, 1999, respectively, $3.0 million and
$4.3 million, respectively, was due to the loss of several large customers who
had been using the Intellistar service and now have billing arrangements with
other service providers. The remaining decline, $1.5 million for the quarter
ended June 30, 1999 and $2.7 million decline for the six months ended June 30,
1999 is a result of dial-around. Dial-around is the increasingly prevalent
practice by users of accessing alternative operator service systems, placing 800
calls or using prepaid calling cards when using public payphones.
Equipment Sales. Equipment sales for the second quarter ended June 30,
1999 were $1.5 million compared to $3.3 million for the same period last year.
For the six month period ended June 30, 1999 equipment revenues were $6.4
million compared to $7.6 million for the same period last year.
The following table analyzes sales by market (in thousands):
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
----------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Domestic $ 1,362 $ 3,145 $ 6,178 $ 5,860
International 187 176 202 1,723
----------- ----------- ---------- ----------
Total Equipment Sales $ 1,549 $ 3,321 $ 6,380 $ 7,583
=========== =========== ========== ==========
</TABLE>
The decrease in domestic sales for the quarter ended June 30, 1999 is due
primarily to less than expected shipments into the newly deregulated Canadian
market, which was affected by a labor strike of Bell Canada telephone workers.
The increase in domestic sales for the six months ended June 30, 1999 is due
primarily to shipments into the newly deregulated Canadian market during the
first quarter of 1999. International sales saw a decrease of $1.5 million for
the six months ended June 30, 1999 when compared to last year, primarily due to
less than anticipated switch sales. It is believed that the weak Asian economy
adversely impacted anticipated sales into the region.
- 22 -
<PAGE>
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $1.8 million for the quarter ended June 30, 1999
compared to $2.2 million for the same period last year. For the six months ended
June 30, 1999 selling, general and administrative expenses were $3.8 million
compared to $4.3 million for the same period last year. Selling, general and
administrative expenses declined $500,000 for the six months ended June 30, 1999
compared to the same period last year primarily due to cost cutting measures
undertaken by the Company.
Research and Development Expenses. Gross spending for research and
development increased $13,000 for the quarter ended June 30, 1999 compared to
last year and decreased $58,000 for the six months ended June 30, 1999. During
the quarters ended June 30, 1999 and June 30, 1998 the Company capitalized
$250,000 of software development costs.
Provision for Doubtful Accounts. The provision for doubtful accounts
decreased $58,000 for the six months ended June 30, 1999. The decrease is
primarily due to increased efforts to collect aged accounts receivable which
were previously reserved for.
Gain on Sale of Assets. During the second quarter ended June 30, 1998
the Company reported a gain on sale of assets of $493,000 from the sale of a
portion of the Company's ownership interest in ILD to an unrelated third party
(see Note 8).
During the first quarter of 1998 the Company reported gains on sales of assets
totaling $6.4 million. Such gains resulted from partial gain recognition on the
January 1998 sale of the Company's prepaid services operation to ILD and from
gain on the March 1998 sale of a portion of the Company's ownership interest in
ILD to an unrelated third party.
- 23 -
<PAGE>
Part II. Other Information
Item 4. Submission of Matters to a Vote of Security Holders.
On May 6, 1999 the Company held its annual meeting of stockholders in
Dallas, Texas. At the meeting stockholders elected directors and ratified the
appointment of PriceWaterhouseCoopers LLP as independent public accountants for
the Company.
Set forth below are the results of the meeting:
(1) Election of Directors
---------------------
<TABLE>
<CAPTION>
Name For Against Withheld
---- --- ------- --------
<S> <C> <C> <C>
B. Michael Adler 7,813,067 2,262,670 --
Thomas J. Berthel 8,120,302 1,955,435 --
Lewis E. Brazelton III 9,982,539 93,198 --
Arthur Chavoya 9,957,042 118,695 --
Richard B. Curran 9,957,039 118,698 --
William O. Hunt 9,873,507 202,230 --
John J. McDonald 9,440,135 635,602 --
</TABLE>
(2) Ratification of Auditors
------------------------
For 9,977,427
Against 17,947
Withheld 80,363
Item 5. Other Information
On June 11, 1999 the Company completed the sale of $2.0 million of 7.0%
convertible subordinated notes, due June 11, 2004, to Banca del Gottardo in
Lugano, Switzerland. The net proceeds from the sale of the notes were used to
repay indebtedness ($1,000,000) with the balance utilized for working capital.
The notes were issued with warrants to purchase 200,000 shares of the Company's
Common Stock at $1.55 per share. The notes are convertible into 1,290,323 shares
of the Company's Common Stock at a price of $1.55 per share. Interest is payable
semi-annually beginning December 1999.
- 24 -
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are filed as a part of this Quarterly
Report on Form 10-Q.
*10.1 Note and Warrant Purchase, Paying and
Conversion/Exercise Agency Agreement executed with
Banca del Gottardo.
10.2 Form of 7% Convertible Subordinated Notes (included
within Exhibit 10.2). 10.3 Form of Warrants issued with
Notes (included within Exhibit 10.2).
10.3 Form of Warrants issued with Notes (included within
Exhibit 10.2).
* Filed herewith
(b) Reports on Form 8-K: None.
- 25 -
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
INTELLICALL, INC.
/s/ John J. McDonald, Jr.
-----------------------------------------------------
John J. McDonald, Jr.
President and Chief Executive Officer
/s/ R. Phillip Boyd
-----------------------------------------------------
R. Phillip Boyd
Vice President Finance
and Chief Financial Officer
Date: August 16, 1999
- 26 -
NOTE AND WARRANT PURCHASE,
PAYING AND CONVERSION/EXERCISE AGENCY AGREEMENT
INTELLICALL, INC.
CARROLLTON, TEXAS, U.S.A.
USD 2'000'000.--
7% Convertible Notes of 1999 due June 11, 2004
and 200'000 Warrants expiring June 11, 2004
June 8, 1999
<PAGE>
1.
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 OR 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 DEPOSIT AGREEMENT 94
ANNEX K-1/K-2 CERTIFICATION OF NON U.S. BENEFICIAL OWNERSHIP 103
ANNEX L CERTIFICATE OF NO MATERIAL ADVERSE CHANGE 105
ANNEX M SPECIMEN SIGNATURE FORM 106
ANNEX N CERTIFICATE BY BANCA DEL GOTTARDO 107
<PAGE>
2.
NOTE AND WARRANT PURCHASE,
--------------------------
PAYING AND CONVERSION/EXERCISE AGENCY AGREEMENT
-----------------------------------------------
entered into effective as of June 8, 1999
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 head office is situated at Viale Stefano
Franscini 8, 6901 Lugano, Switzerland,
on the other part
Some Definitions
- ----------------
The Company's 7% Convertible Notes of 1999 due June 11, 2004, are referred to
herein as the "Notes" and the Warrants of 1999 expiring June 11, 2004 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 "Coupon- holder(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
2'000'000.-- issued in bearer form and representing 400 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.
"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
<PAGE>
3.
- the Company, pursuant to authorization by its Board of Directors,
agrees to issue and sell to Banca del Gottardo USD 2'000'000.--
Notes at a price of 100% of their principal amount, and 200'000
Warrants in a ratio of one Note and 500 Warrants and
- Banca del Gottardo agrees not later than June 11, 1999
(1) to purchase (i.e. underwrite) on a firm basis for USD 2'000'000.
-- 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 2'000'000.--
(United States Dollars two million)
maturing on June 11, 2004
bearing interest at the rate of 7% per annum, payable
semi-annually in arrear each
June 11 and December 11,
commencing December 11, 1999
until maturity
and
(ii) Warrants
-------------
in a total number of 200'000 (two hundred thousand)
expiring on June 11, 2004
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 1'000'000.-- to Retire existing debt.; 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.
<PAGE>
4.
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 Definitive Warrant (face)
Annex G: Form of Global Warrant
Annex H: Conversion Agency Agreement
Annex I: Warrant Agency Agreement
Annex J: Deposit Agreement
Annex K: Certification of Non U.S. Beneficial Ownership
Annex L: Form of Certificate of No Material Adverse Change
Annex M: Specimen signature form
Annex N: Certificate by Banca del Gottardo
shall constitute an integral part of this Agreement.
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. Banca del Gottardo certifies that it is
not a United States person and is not acquiring the Notes or the
Warrants for the account or benefit of any United States
person. Banca del Gottardo recognizes that the Company will (i)
implement reasonable procedures to prevent any transfer of the
Notes or Warrants not made in accordance with the provisions of
Regulation S under the Securities Act and (ii) refuse to register
any transfer of the Notes and Warrants unless such transfer is
made in accordance with the registration or exemption provisions
of the Securities Act or in accordance with the requirements of
Regulation S.
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 one
year after the later of the date upon which the Notes and Warrants
were first offered or the date of closing of this offering (the
"Distribution Compliance Period"), it will not offer or sell,
Notes or Warrants
<PAGE>
5.
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 Distribution Compliance Period, (c) it
has and throughout the Distribution Compliance 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 Distribution Compliance 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 Distribution Compliance 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 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 and (v) represents and
agrees that it and its affiliates will send, during the
Distribution Compliance Period, a confirmation or other notice to
any party to whom it delivers Notes or Warrants that such party is
subject to the same restrictions on offers and sales of the Notes
or Warrants that apply to it. Banca del Gottardo will deliver to
the Company the certificate in the form attached hereto as Annex N
within ten business days of the commencement of the Distribution
Compliance 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. Additionally, Banca del
Gottardo agrees (i) that any offer or sale of the Notes or
Warrants will only be made in accordance with the provisions of
Regulation S adopted pursuant to the Securities Act, pursuant to
an exemption from registration under the Securities Act, or
pursuant to a registration statement declared effective under the
Securities Act and (ii) to not engage in any hedging transactions
with regard to the Notes or Warrants unless such hedging
transactions are in compliance with the Securities Act.
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 one year 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
<PAGE>
6.
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 K-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 Distribution Compliance
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 K-1 and K-2 (and, in the case of clearing organizations,
required statements of members of the clearing organization), on
the 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
Distribution Compliance 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.
Hedging transactions involving this Note may not be conducted
unless such hedging transactions are made in compliance with the
Securities Act." 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
<PAGE>
7.
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.
Hedging transactions involving this Warrant may not be conducted
unless such hedging transactions are made in compliance with the
Securities Act."
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 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 June 11, 1999 Lugano time (the "Closing
Date") to Banca del Gottardo
(1) a managing and underwriting commission of 5% calculated on
the principal amount of the Notes
(2) USD 10'000.-- for out-of-pocket expenses incurred by Banca
del Gottardo, which shall include all its Swiss 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>
8.
- 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 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 any
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
<PAGE>
9.
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;
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 December 31,
1998;
9. Litigation: except as disclosed in the Information
Memorandum, no litigation, arbitration or administrative
proceedings 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
<PAGE>
10.
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.
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 June 9, 1999 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
<PAGE>
11.
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 n Annex H hereto;
(5) an executed copy of the Warrant Agency Agreement as set
forth in Annex I hereto;
(6) an executed copy of the Deposit Agreement as set forth in
Annex J hereto;
(7) specimen signatures for the printing of the Notes;
(8) 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 L hereto;
(9) a legal opinion of Kane, Russell, Coleman and Logan, external
U.S. counsel to the Company on the laws of the United States
of America, dated as of the Closing Date;
(10) 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;
(11) 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;
(12) 2 copies of the Information Memorandum duly signed by an
authorized officer of the Company; and
(13) an executed copy of the Registration Rights Agreement dated
June 11, 1999 by and among the Company and Banca del Gottardo
in a form as agreed by Banca del Gottardo.
Each of documents 5, 6, 7, 8, 9, 10 and 12 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.
<PAGE>
12.
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.
(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 M 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 Closing Date.
<PAGE>
13.
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.
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.
<PAGE>
14.
(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.
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.
<PAGE>
15.
(2) To provide Banca del Gottardo forthwith upon becoming aware
thereof with
- any change of its Certificate of Incorporation or By-laws
of itself and of ILD Telecommunications, Inc. (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
statements 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 used by
Company.
(5) To keep appointed Mr. John J. McDonald, President and Chief
Executive Officer of the Company, unless Banca del Gottardo
agrees to his relieve from office.
(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 November 1, 1999, if required, a
registration under the United States securities laws
pursuant to the Registration Rights Agreement set forth
in Art. VII, Section 13 hereof 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.
(7) To maintain the deposit on fifty percent of the shares of
common stock owned by the Company in ILD Telecommunications,
Inc. as provided in the deposit agreement entered into between
the Company and Banca del Gottardo pursuant to Annex J.
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
<PAGE>
16.
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
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: New Issue 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.
<PAGE>
17.
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 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 purpose 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.
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.
<PAGE>
18.
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 June 8, 1999
INTELLICALL, INC.
By: _____________________________
BANCA DEL GOTTARDO
By: _____________________________
<PAGE>
19.
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 one year 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 Distribution Compliance 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 "Distribution Compliance 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 one year 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 7% per
annum, payable semi-annually in arrear on June 11 and December 11 of each
year until maturity (the "Coupon Due Dates") whereby the first payment
shall be made on December 11, 1999 in respect of the period from June 11,
1999 to December 11, 1999. 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.
<PAGE>
20.
(3) Repayment
---------
The Company undertakes to repay the principal amount of the Notes, unless
previously redeemed, without any previous notice on June 11, 2004.
(4) Optional Redemption and Conversion
----------------------------------
(a) The Company reserves the right to call all, but not part, of the
outstanding Notes for redemption on November 1, 1999, or thereafter
up to the close of business on June 10, 2004, 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) The Company reserves the right to call any Note or Notes and each
Noteholder will have the right to require the Company to redeem any
Note or Notes during the following periods at the following prices
of the principal amount thereof, together with interest accrued to
the due date of redemption:
from June 11, 1999 until June 11, 2000 at 105% from June 12, 2000
until June 11, 2001 at 110% from June 12, 2001 until June 11, 2002
at 115% from June 12, 2002 until June 11, 2003 at 120% from June
12, 2003 until June 11, 2004 at 125%
whenever the Company sells some or all of the Series A Preferred
Stock and/or shares of common stock issued by ILD
Telecommunication, Inc. subject to the deposit pledge agreement as
set forth in a separate deposit agreement entered into between
Banca del Gottardo and the Company on June 8, 1999 set forth in
Section 8 hereof.
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 the date when Banca del Gottardo
has released some or all of the shares from the pledge as set forth
in Section 8 hereof accompanied by an irrevocable request for
redemption. Notes called for redemption will become due on the
tenth day after such request has been received by Banca del
Gottardo. Notes called for redemption shall cease to bear interest
from the date fixed for such redemption,
<PAGE>
21.
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 Note- holders 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 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,
<PAGE>
22.
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 December
11, 1999 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.
(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 Collateral
----------------------------------
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 unsubordinated obligations of the
Company and shall rank pari passu among themselves and with all other
unsecured and unsubordinated obligations of the Company with the
exception of obligations in respect of national and local taxes and
with certain other statutory exceptions.
So long as any of the Notes remains outstanding (but not beyond the
date on which payment of the final amounts being due for principal plus
premium (if any) has been made by the Company to Banca del Gottardo),
the Company will not at any time secure any present or future
indebtedness of the Company or any guarantee by the Company by creating
any pledge, mortgage or other charge on any of its present or future
assets or revenues for the benefit of the holders thereof, unless the
benefit of the security is at the same time extended rateably to the
Notes or unless there is provided for the holders of the Notes (the
"Noteholders") such other security or guarantee as Banca del Gottardo
shall, in its reasonable opinion, deem to be not materially less
favourable than such security. The prohibition set forth in the prior
sentence shall not relate to any security arrangements
<PAGE>
23.
in existence as of the first date that the Notes are offered.
So long as any of the Notes remains outstanding (but not beyond the
date on which payment of the final amounts being due for principal plus
premium (if any) has been made by the Company to Banca del Gottardo),
the Company covenants that it will keep free and clear of any charge,
lien, encumbrance or any other similar rights in favour of any third
party other than the third Amended and Restated Shareholders Agreement
dated April 3, 1998 (the "Shareholders Agreement") to which the
ILD-Shares are subject, Series A Preferred Stock which is convertible
into 35'000 shares of common stock of USD 0.01 par value each (the
"ILD-Shares") of ILD Telecommunications, Inc., being a corporation
existing under the laws of the State of Delaware whose head office is
situated at 16200 Addison Road, Suite 100, Addison, Texas 75001,
U.S.A., which ILD-Shares represent initially 50% of the Company's
holding in ILD Telecommunications, Inc.
The Company has further covenanted that this undertaking extends also to
all ILD-Shares received following any split thereof or any spin-off of
assets thereunder received by the Company.
(9) Conversion
----------
Exhibit 1 to Annex H attached to the Agreement dated June 8, 1999 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 June 11, 1999 whereby such
conversion price shall be the equivalent of 90% of the average of the
closing prices of the shares of Common Stock during the period from May
28 to June 11, 1999, but shall in any event not be higher than USD 2.50
(Such price hereinafter called the "Conversion Price").
The holder of 10 Notes or more will be entitled at any time on and after
November 1, 1999 [i.e. to be 135 days after the Filing Date as defined in
the Registration Rights Agreement] up to the close of business on June
11, 2004, subject to prior redemption, to convert the Notes, at the
principal amount thereof, into freely transferable and non-restricted
(such transferability and 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 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.
<PAGE>
24.
The Conversion Price is subject to adjustment in the following events
occurring after June 11, 1999:
- 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.
(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
<PAGE>
25.
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)
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.
<PAGE>
26.
(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, fax 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.
(14) Replacement of Notes or Coupons / Printing of the Notes
-------------------------------------------------------
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.
Banca del Gottardo shall keep the Global Note in the amount of USD
2'000'000.-- representing the whole issue of the Notes as custodian for
all the Noteholders. No physical delivery of the Notes and Coupons shall
be made by Banca del Gottardo unless and until the Notes and Coupons
shall have been printed. Whether any Notes and Coupons shall be printed
shall be determined in the sole discretion of Banca del Gottardo, unless
any Noteholder or the Company has requested Banca del Gottardo following
any Event of Default to print the Notes and Coupons. If any Event of
Default has happened Banca del Gottardo shall arrange for the printing of
the Notes and Coupons and arrange for delivery of the Notes and Coupons
to the Noteholders.
(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 after (i) 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.
<PAGE>
27.
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 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 out-
standing (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
<PAGE>
28.
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 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
Extraordinary 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 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>
29.
ANNEX B
-------
(Form of 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. HEDGING TRANSACTIONS INVOLVING THIS NOTE MAY NOT BE CONDUCTED UNLESS
SUCH HEDGING TRANSACTIONS ARE MADE IN COMPLIANCE WITH THE SECURITIES ACT.
INTELLICALL, INC.
-----------------
(Incorporated in the State of Delaware)
USD 5'000.--
7% Notes due June 11, 2004
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 June 11, 2004 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 June
11, 1999 on said principal amount at the rate of 7% (seven percent) per annum,
payable in cash, semi-annually in arrear on June 11 and December 11 of each year
and at maturity, beginning on June 11, 1999 for the period from June 11, 1999 to
December 11, 1999, 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 the Terms of the Notes.
This Note is one of a duly authorized issue of 7% Notes due June 11, 2004 of the
Company in the aggregate principal amount of 2'000'000.-- US Dollars (the
"Notes") issued pursuant to a Note and Warrant Purchase, Paying and
Conversion/Exercise Agency Agreement, dated as of June 8, 1999 (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.
<PAGE>
30.
IN WITNESS WHEREOF, the Company has caused this Note to be duly executed under
its corporate seal as of June 11, 1999.
Swiss Securities no.: 813'346
INTELLICALL, INC.
By: _____________________________
<PAGE>
31.
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. HEDGING TRANSACTIONS INVOLVING THIS NOTE MAY NOT BE CONDUCTED UNLESS
SUCH HEDGING TRANSACTIONS ARE MADE IN COMPLIANCE WITH THE SECURITIES ACT.
Coupon No. 1-10
INTELLICALL, INC.
Carrollton, TX, U.S.A.
US Dollars 5'000.--
7% Notes due June 11, 2004
Note of US Dollars 5'000.-- (five thousand)
Semi-annual interest due on December 11 and June 11, 1999/2004 payable in cash
on the terms set forth in the Terms of the Notes: US Dollars 175.--
INTELLICALL, INC.
By: _____________________________
(Reverse Coupon)
This coupon is payable at the head office in
Lugano of Banca del Gottardo.
<PAGE>
32.
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. HEDGING TRANSACTIONS INVOLVING THIS NOTE MAY NOT BE CONDUCTED UNLESS
SUCH HEDGING TRANSACTIONS ARE MADE IN COMPLIANCE WITH THE SECURITIES ACT.
INTELLICALL, INC.
USD 2'000'000.--
7% Notes due June 11, 2004
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 7% Notes due June 11, 2004 (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 two million US Dollars and
issued pursuant to a Note and Warrant Purchase, Paying and Conversion/Exercise
Agency Agreement (the "Agreement") dated as of June 8, 1999 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 2'000'000.-- (USD two
million) and interest thereon at 7% per annum, in accordance with the Terms of
the Notes set forth in Annex A of the Agreement.
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 one year 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 K 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 Distribution Compliance Period and that certify that
they have
<PAGE>
33.
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 June 11, 1999.
Dated: June 11, 1999
Swiss Security no.: 813'346
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>
34.
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 June 8, 1999 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 one
year 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 Distribution
Compliance 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 "Distribution Compliance 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 one year 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. Duration
--------
The right to subscribe for and purchase shares of Warrant Stock
represented by the Warrants shall commence subject to Section 8 hereof on
November 1, 1999 and shall expire June 11, 2004 at 5:00
<PAGE>
35.
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
Stock 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 June 11, 1999 whereby such exercise
price shall be the equivalent of 90% of the average of the closing prices
of Common Stock during the period from May 28 to June 11, 1999, but shall
in any event not be higher than USD 2.50 (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.
The date on which these conditions precedent to exercise as stated above
have been verified and recognized by the Warrant Agent as being fulfilled
is 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.
<PAGE>
36.
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. Hedging
transactions involving this Warrant may not be conducted unless such
hedging transactions are made in compliance with 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
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
<PAGE>
37.
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, shall issue a new
Warrant, providing that the 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
<PAGE>
38.
to 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 5), 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 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:
<PAGE>
39.
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 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 5 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
<PAGE>
40.
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 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 Company for issuing such
Common Stock Equivalents, plus the additional consideration
payable to the Company 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
Company 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.
<PAGE>
41.
(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 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 (f)) 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.
<PAGE>
42.
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 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 Warrant dated December
29, 1995 ("Ferraro 1995") issued to Jack Ferraro, (iii) the
exercise of the Warrant dated November 11, 1996 ("Ferraro 1996")
issued to Jack Ferraro, (iv) the exercise of the Warrant dated
January 20, 1999 ("Paytel Warrant") issued to Paytel Canada, Ltd.,
(v) the exercise of the Warrants, dated December 29, 1995
("Gottardo 1995") issued to Banca del Gottardo, (vi) the exercise
of Warrants, dated November 11, 1996 ("Gottardo 1996") issued to
Banca del Gottardo, (vii) the effect of any antidilution
provisions contained in the Ferraro 1995, the Ferraro 1996 and
the Paytel Warrant, the Gottardo 1995 and Gottardo 1996 Warrants
and (viii) 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.
8. Definitions
-----------
For the purposes of this Warrant, the following terms have the following
meanings:
<PAGE>
43.
"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 ("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 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
<PAGE>
44.
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.
"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 June 8,
1999, 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 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
<PAGE>
45.
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 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.
"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
<PAGE>
46.
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 from the adjustments
specified in Section 5 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 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
<PAGE>
47.
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.
13. Delivery and Printing of the Warrants
-------------------------------------
Banca del Gottardo shall keep the Global Warrant representing the whole
issue of the Warrants as custodian for the Noteholders instead of the
definitive Warrant(s). No physical delivery of the Warrants shall be made
by Banca del Gottardo until the Warrants shall have been printed. Whether
the Warrants shall be printed shall be determined in the sole discretion
of Banca del Gottardo, unless the Company is breach of the Terms of the
Warrants and any Warrantholder or the Company has requested Banca del
Gottardo to print the Warrants. In such case, Banca del Gottardo shall
arrange for the printing of the Warrants and arrange for delivery of the
Warrants to the Warrantholders.
<PAGE>
48.
ANNEX F
-------
FORM OF WARRANT
---------------
(FACE)
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. HEDGING TRANSACTIONS INVOLVING THIS WARRANT MAY NOT
BE CONDUCTED UNLESS SUCH HEDGING TRANSACTIONS ARE MADE IN COMPLIANCE WITH THE
SECURITIES 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.
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: June 11, 1999
Swiss Securities no.: 813'352
INTELLICALL, INC.
By: _____________________________
John J. McDonald
Chief Executive Officer
and President
<PAGE>
49.
ANNEX G
-------
(to be typed on security paper)
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. HEDGING TRANSACTIONS INVOLVING THIS WARRANT MAY NOT
BE CONDUCTED UNLESS SUCH HEDGING TRANSACTIONS ARE MADE IN COMPLIANCE WITH THE
SECURITIES 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 June 8, 1999 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 one year 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 Distribution Compliance 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 "Distribution Compliance 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 one year 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
<PAGE>
50.
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 June 11, 1999.
Dated: June 11, 1999
Swiss Securities no.: 813'352
INTELLICALL, INC.
By: _____________________________
John J. McDonald
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>
51.
ANNEX H
-------
CONVERSION AGENCY AGREEMENT
---------------------------
This agreement is entered into effective as of June 11, 1999, 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 corporation 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 May 6, 1999 and pursuant to a Note
and Warrant Purchase, Paying and Conversion/Exercise Agency Agreement dated June
8, 1999 (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.
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.
<PAGE>
52.
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: 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 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
<PAGE>
53.
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 head 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.
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 June 8, 1999.
INTELLICALL, INC.
By: ______________________________
BANCA DEL GOTTARDO
By: ______________________________
<PAGE>
54.
Exhibit 1 to ANNEX H
--------------------
CONVERSION PROVISIONS
---------------------
The following are the provisions for the conversion (the "Conversion
Provisions") of the USD 2'000'000.- - 7% Convertible Notes due June 11, 2004 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 June 8,
1999, 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 November 1, 1999 up to the close of business of banks in Lugano
on June 11, 2004, 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 June 11, 2004 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 transferability and 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 fractional 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.
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, unmatured 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:
<PAGE>
55.
(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 Noteholder
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) 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 fax, 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:
<PAGE>
56.
(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 November 1, 1999, 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 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 June 11, 1999:
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
<PAGE>
57.
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 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.
Notwithstanding anything in this Section 2.2 to the contrary, neither the
number of shares subscribable hereunder nor the Conversion Price shall be
adjusted with respect to any Common Stock Equivalents issued and
outstanding as of the date of the issuance of this Note, 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 Note and held by present or former directors,
officers or employees of the Company, (ii) the exercise of the Warrant
dated December 29, 1995 ("Ferraro 1995") issued to Jack Ferraro, (iii)
the exercise of the Warrant dated November 11, 1996 ("Ferraro 1996")
issued to Jack Ferraro, (iv) the exercise of the Warrant dated January
20, 1999 ("Paytel Warrant") issued to Paytel Canada, Ltd., (v) the
exercise of the Warrants, dated December 29, 1995 ("Gottardo 1995")
issued to Banca del Gottardo, (vi) the exercise of Warrants, dated
November 11, 1996 ("Gottardo 1996") issued to Banca del Gottardo, (vii)
the effect of any antidilution provisions contained in the Ferraro 1995,
the Ferraro 1996 and the Paytel Warrant, the Gottardo 1995 and Gottardo
1996 Warrants and (viii) the issuance of up to 150'000 stock options per
calendar year pursuant to the Company's stock option or stock purchase
plan.
2.3. In case the Company shall fix a record date for the making of a distri-
bution 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
(excluding 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
<PAGE>
58.
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 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>
59.
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 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
<PAGE>
60.
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 an
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 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.
<PAGE>
61.
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 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.
<PAGE>
62.
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 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>
63.
ANNEX I
-------
WARRANT AGENCY AGREEMENT
------------------------
Dated as of June 8, 1999
INTELLICALL, INC.
AND
BANCA DEL GOTTARDO
as Standing Agent
WARRANT AGENCY AGREEMENT dated as of June 8, 1999 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 2'000'000.-- principal amount of 7% Convertible Notes due June 11,
2004 (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 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:
<PAGE>
64.
"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, June 11, 2004.
"Terms of Warrants" shall refer to Annex E of the Note and Warrant Purchase,
Paying and Conversion/Exercise Agency Agreement dated June 8, 1999 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 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
<PAGE>
65.
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.
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 their duties 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.
<PAGE>
66.
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 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 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
<PAGE>
67.
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.
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.
<PAGE>
68.
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
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.
<PAGE>
69.
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>
70.
Exhibit 1 to ANNEX I
--------------------
COMMON STOCK WARRANT EXERCISE FORM
FOR THE EXERCISE OF WARRANTS ISSUED BY INTELLICALL, INC.
EXPIRING JUNE 11, 2004
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 June 8, 1999 (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) hereby (i) certifies that the undersigned is not a United States
person and this Warrant is not being exercised on behalf of a United
States person (as such term is defined in Regulation S under the
Securities Act of 1933) or (ii) delivers herewith a written opinion
of counsel that this Warrant and the shares to be delivered upon
exercise of this Warrant have been registered under the Securities
Act of 1933 or are exempt from registration thereunder;
(C) 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>
71.
Exhibit 2 to ANNEX I
--------------------
BANCA DEL GOTTARDO
Facsimile Transmission
- ----------------------
To: INTELLICALL, INC.
2155 Chenault, Suite 410
Carrollton, Texas 75006, U.S.A.
Attn: Chief Financial Officer
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>
72.
ANNEX J
-------
DEPOSIT AGREEMENT
-----------------
between
INTELLICALL, INC.
being a corporation existing under the State of Delaware, whose office is
situated at 2155 Chenault, Suite 410, Carrollton, Texas 75006-5023, U.S.A.
(hereinafter "Intellicall" as depositor)
of the first 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
(hereinafter "Banca del Gottardo" as "Depositholder" or security custodian)
of the second part
RECITALS
1. Intellicall will own certain Series A Preferred Stock which is convertible
into 35'000 shares of common stock of a par value of USD .01 each issued
by ILD Telecommunication, Inc., being a corporation existing under the
laws of the State of Delaware, whose registered office is situated at
16'200 Addison Road, Suite 100, Addison, Texas 75001, U.S.A. (the
"ILD-Shares").
2. Intellicall will issue USD 2'000'000.-- 7% convertible notes due June 11,
2004 (the "Notes") with warrants (the "Warrants") to purchase shares of
Common Stock of Intellicall (the "Shares") under a Note and Warrant
Purchase, Paying and Conversion/Exercise Agency Agreement (the "NW-
Agreement") dated June 8, 1999, entered into between Intellicall and Banca
del Gottardo.
3. Intellicall has covenanted in favour of the holders of the Notes in
connection with its performance of the obligations under the Notes to keep
the ILD-Shares free and clear from any charge, pledge, encumbrance or
other similar right in favour of a third party other than the Third
Amended and Restated Shareholders Agreement dated April 3, 1998 (the
"Shareholders Agreement") to which the ILD-Shares are subject.
ARTICLE I
---------
Covenant
--------
1. (A) Intellicall hereby agrees to deliver the ILD-Shares (together the
"Covenanted Assets") to the Depositholder to hold such ILD-Shares
until its obligations to the holders of the Notes for payment of
principal, interest and premium (if any) of the Notes have been
satisfied or the Notes have been converted.
<PAGE>
73.
(B) The Depositholder agrees to hold the ILD-Shares, and Intellicall
agrees to transfer the proceeds of any sale of the Covenanted Assets
to its account opened with the Depositholder for the benefit of the
holders of the Notes pursuant to this Agreement.
(C) Intellicall shall not withdraw the Covenanted Assets from the
Depositholder without consent of the Depositholder. The Depositholder
agrees to release the relevant ILD-Shares to Intellicall, whenever
the Notes have been paid in full and/or the Notes have been converted
in accordance with the terms thereof and are no longer outstanding
and/or to the extent Intellicall delivers the relevant proceeds of
such sale so as to repay the Notes.
The Deposit by Intellicall specified in the preceding paragraphs shall
include with respect to each such Deposit all present and future claims,
demands, causes and causes in action in respect of any or all of the items
specified in such Deposit and all payments on or under and all proceeds of
every kind and nature whatsoever in respect of any or all of such items.
2. Intellicall shall immediately deliver all the Covenanted Assets into the
possession of Banca del Gottardo as Depositholder, and hereby instructs
any and all persons in possession of such Covenanted Assets for account of
Intellicall to deliver the same to Banca del Gottardo or any institution
nominated by Banca del Gottardo, in accordance with this Agreement.
Where Covenanted Assets are safekept by third parties on behalf of Banca
del Gottardo, Banca del Gottardo is empowered to take all or part of such
assets into its own custody at any time, notwithstanding that it has
earlier consented to safekeeping by any third parties or delivered such
assets to any third parties for safekeeping.
Intellicall hereby instructs Banca del Gottardo and Banca del Gottardo
hereby consents that the Covenanted Assets are held and recorded by Banca
del Gottardo in the safe custody account in the name of accountholder
Intellicall / reference BANCA DEL GOTTARDO.
3. All sums received by Banca del Gottardo to the account of Intellicall as
interest or dividends or payments for any other reason with respect to the
Deposit shall be kept by Banca del Gottardo as Depositholder.
4. The supervision, observation and exercise of rights (including voting
rights) arising from calls, conversion and exchange offers, repayments
in full or in part, subscription rights, payments of dividends or
interest, as well as all other notices, offers and communications
concerning the Covenanted Assets shall be the responsibility of
Intellicall, and Banca del Gottardo is obliged only to redispatch such
written notices, offers and communications which are received by it to
Intellicall by registered letter addressed to the last address
communicated to it by Intellicall. Banca del Gottardo will also dispatch
to Intellicall copies of public notices contained in newspapers and
circulars which come to Banca del Gottardo's attention, but Banca del
Gottardo accepts no responsibility or liability for failure to do so,
unless caused by the wilful misconduct or gross negligence of Banca del
Gottardo.
5. Intellicall agrees that at any time it is in default under the Notes upon
receipt of a request by Banca del Gottardo, it will undertake such actions
as may be required under the Shareholders Agreement to transfer to Banca
del Gottardo such amount of the ILD-Shares as may be necessary to repay
the Notes.
<PAGE>
74.
ARTICLE II
----------
Representations, Warranties and Undertakings of Intellicall
-----------------------------------------------------------
Intellicall represents and warrants that:
(a) it will be the legal and lawful owner of the ILD-Shares,
(b) the ILD-Shares will be fully paid up,
(c) the ILD-Shares have not been pledged, encumbered or otherwise made
subject to any lien except as mentioned herein,
(d) it has not granted and will not grant any options or other rights
in respect of the ILD-Shares to any third party except as mentioned
herein, and
(e) it is authorised to sign this Agreement and that its obligations
hereunder constitute legal and binding obligations.
Intellicall undertakes that as long as any obligations hereunder remain
outstanding:
(a) it will remain the sole beneficial owner of the ILD-Shares,
(b) it will not sell, transfer or pledge the ILD-Shares except
as mentioned herein.
ARTICLE III
-----------
Conditions Precedent
--------------------
It shall be a condition precedent to the Deposit that Banca del Gottardo shall
have received on or before the date the Deposit is to take effect each in form
and substance satisfactory to Banca del Gottardo:
(A) A copy of the Resolution of the Board of Directors of Intellicall
authorizing the execution, delivery and performance of this
Agreement, accompanied by an incumbency certificate certifying the
incumbency and signatures of the officers signing on behalf of
Intellicall;
(B) such other documents, instruments, approvals (and, if requested by
Banca del Gottardo, certified duplicates of executed copies thereof)
or opinions as Banca del Gottardo may reasonably request.
ARTICLE IV
----------
Amendments
----------
No amendment, waiver, modification or release of any provision of this Agreement
nor consent to any departure by Intellicall therefrom shall in any event be
effective, irrespective of any course of dealing with any of the parties hereto,
unless the same shall be in writing and signed by Banca del Gottardo, and then
such amendment, waiver, modification or release shall be effective only in the
specific instance and for the specific purpose for which given.
<PAGE>
75.
ARTICLE V
---------
Notices and Addresses for Notices
---------------------------------
All notices and other communications provided for hereunder shall be in writing
and, if to Intellicall, mailed or delivered to it, addressed to it at 2155
Chenault, Suite 410, Carrollton, Texas 75006-5023, U.S.A., attn. Chief Financial
Officer, Fax: 972-416-9454 or if to Banca del Gottardo mailed or delivered to
it, addressed to them at Banca del Gottardo, Viale Stefano Franscini 8, 6901
Lugano, Switzerland; Attention: New Issue Department, Telephone: 41-91-808 11
11, Fax: 41-91-808 18 43. All such notices and other communications shall, when
mailed, be effective seven days after the date of deposit in the mails,
addressed as aforesaid. All such notices and other communications to Banca del
Gottardo shall be effective immediately upon the receipt thereof by Banca del
Gottardo. Either Intellicall or Banca del Gottardo may change the above stated
address for giving notices and other communications hereunder by mailing a
letter regarding the same to the other party at the address above stated, which
change of address shall be effective only upon the actual receipt of such letter
by the other party.
ARTICLE VI
----------
No Waiver; Remedies
-------------------
No failure by Banca del Gottardo to exercise, and to delay in exercising, any
right hereunder shall operate as a waiver thereof; nor shall any single or
partial exercise of any right hereunder preclude any other further exercise
thereof or the exercise of any other right.
ARTICLE VII
-----------
Expenses
--------
Intellicall will pay any and all claims, damages, losses, liabilities,
reasonable costs and expenses whatsoever (including attorneys' fees and the
allocated costs, if any, of Banca del Gottardo's in-house legal services) which
Banca del Gottardo in its capacity as pledgeholder may incur (or which may be
claimed against Banca del Gottardo by any person or entity whatsoever) by reason
of or in connection with the preparation, execution and delivery or transfer of,
or payment or failure to pay under this Agreement, except, only if and to the
extent that any such claim, damage, loss, liability, cost or expense shall be
caused by the wilful misconduct, fraud, dishonesty or gross negligence of Banca
del Gottardo in exercising its rights under this Agreement.
ARTICLE VIII
------------
Costs, Expenses and Taxes
-------------------------
Intellicall shall pay any and all stamp and other taxes (including Swiss VAT)
and fees payable or determined to be payable in connection with the execution,
delivery, filing and recording of this Agreement and any related documents and
agrees to save Banca del Gottardo harmless from and against any and all
liabilities with respect to or resulting from any delay in paying or omission to
pay such taxes and fees. All taxes, costs, expenses or fees incurred by Banca
del Gottardo in connection with any sale of Covenanted Assets are at the charge
of Intellicall.
<PAGE>
76.
ARTICLE IX
----------
Severability
------------
Any provision of this Agreement which is prohibited, unenforceable or not
authorized in any jurisdiction shall, as to such jurisdiction, be ineffective to
the extent of such prohibition, unenforceability or non- authorization without
invalidating the remaining provisions hereof or affecting the validity,
enforceability or legality of such provision in any other jurisdiction.
ARTICLE X
---------
Governing Law
-------------
This Agreement shall be governed by, and construed in accordance with, the laws
of Switzerland in the absence of mandatory applications of the relevant laws in
respect of Intellicall.
ARTICLE XI
----------
Headings
--------
Section headings in this Agreement are included herein for convenience of
reference only and shall not constitute a part of this Agreement for any other
purpose.
ARTICLE XII
-----------
Counterparts
------------
This Agreement may be executed in several counterparts, each of which shall be
regarded as the original and all of which shall constitute one and the same
Agreement.
<PAGE>
77.
ARTICLE XIII
------------
Jurisdiction and Venue
----------------------
Place for all measures to be taken, if any, under the Swiss Loi federale sur la
Poursuite pour Dettes et la Faillite and exclusive venue for all legal actions
under this Agreement are at the ordinary courts of the Canton of Ticino, venue
being in Lugano and if such courts should fail to grant jurisdiction, in the
ordinary courts of the Canton of Basle-City, venue being in the city of Basle.
Intellicall specifically agrees to jurisdiction in accordance with the above.
Banca del Gottardo may, however, bring an action against Intellicall before the
courts or other competent authority at its domicile or before any other
competent court.
Carrollton, June 8, 1999 INTELLICALL, INC.
--------------------------
Attorney-in-Fact
Lugano, June 8, 1999 BANCA DEL GOTTARDO
--------------------------
<PAGE>
78.
ANNEX K-1
---------
CERTIFICATION OF NON-U.S. BENEFICIAL OWNERSHIP
----------------------------------------------
INTELLICALL, INC.
7% CONVERTIBLE NOTES DUE JUNE 11, 2004
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
Distribution Compliance Period. Financial institutions that have purchased the
Notes for purposes of resale during the Distribution Compliance 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 "Distribution Compliance
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 one year 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>
79.
ANNEX K-2
---------
CERTIFICATION OF NON-U.S. BENEFICIAL OWNERSHIP
----------------------------------------------
INTELLICALL, INC.
WARRANTS EXPIRING JUNE 11, 2004
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
Distribution Compliance Period. Financial institutions that have purchased the
Warrants for purposes of resale during the Distribution Compliance 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 "Distribution Compliance
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 one year 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>
80.
ANNEX L
-------
Dated: June 11, 1999
To: Banca del Gottardo
Viale Stefano Franscini 8
CH-6901 Lugano/Switzerland
Re: Intellicall, Inc. (the "Company")
USD 2'000'000.-- 7% Convertible Notes of 1999
Due June 11, 2004 (the "Notes")
and Warrants of 1999 expiring June 11, 2004
(the "Warrants")
- --------------------------------------------------------------------------------
"Certificate of No Material Adverse Change"
-------------------------------------------
Pursuant to the Note and Warrant Purchase, Paying and Conversion/Exercise Agency
Agreement dated June 8, 1999 (the "Agreement") between the Company and Banca del
Gottardo covering the issue of the Notes and Warrants by the Company.
I, John J. McDonald, 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
December 31, 1998, 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.
----------------------------------
John J. McDonald
President
<PAGE>
81.
ANNEX M
-------
(Specimen Signature Form)
INTELLICALL, INC.
Carrollton, Texas, U.S.A.
US Dollars 2'000'000.-- 7 per cent US Dollars
Convertible Notes
Due June 11, 2004
and
Warrants
expiring June 11, 2004
The specimen signature of Mr. John J. McDonald, the President to be used for the
printing of the above-captioned Notes and coupons and Warrants is as follows:
----------------------------------
----------------------------------
----------------------------------
June 11, 1999
<PAGE>
82.
ANNEX N
-------
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 7% Convertible Notes due 2004 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
June 8, 1999 (the "Note and Warrant Purchase Agreement"), between the Gottardo
and Intellicall, has closed and the one year distribution compliance 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: _______________________________
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000818674
<NAME> Intellicall, Inc.
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> APR-01-1999
<PERIOD-END> JUN-30-1999
<EXCHANGE-RATE> 1
<CASH> 10
<SECURITIES> 0
<RECEIVABLES> 5,481
<ALLOWANCES> (2,594)
<INVENTORY> 5,071
<CURRENT-ASSETS> 489
<PP&E> 8,456
<DEPRECIATION> (7,232)
<TOTAL-ASSETS> 15,885
<CURRENT-LIABILITIES> 4,534
<BONDS> 0
0
0
<COMMON> 121
<OTHER-SE> 800
<TOTAL-LIABILITY-AND-EQUITY> 15,885
<SALES> 1,549
<TOTAL-REVENUES> 4,500
<CGS> 1,653
<TOTAL-COSTS> 4,549
<OTHER-EXPENSES> 2,093
<LOSS-PROVISION> 332
<INTEREST-EXPENSE> 537
<INCOME-PRETAX> (3,059)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,059)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,059)
<EPS-BASIC> (.25)
<EPS-DILUTED> (.25)
</TABLE>
