UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
/X/ ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 (NO FEE REQUIRED)
For the fiscal year ended December 31, 1998
/ / TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from _____________ to ____________
Commission file number 0-20843
POINTE COMMUNICATIONS CORPORATION
(Name of Small Business Issuer in Its Charter)
NEVADA 84-1097751
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2839 PACES FERRY ROAD
ATLANTA, GEORGIA 30339
(Address of Principal Executive Offices) (Zip Code)
770-468-6800
(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act: None
Securities registered under Section 12(g) of the Exchange Act:
COMMON STOCK, $.00001 PAR VALUE
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No .
----- -----
Check if there is no disclosure of delinquent filers in response to Item
405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-KSB
or any amendment to this Form 10-KSB ____.
State issuer's revenues for its most recent fiscal year: $27,620,202
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days.
The aggregate market value of such stock on April 13, 1999, based on the
average of the bid and asked prices on that date was $37,653,114.
The number of shares of the issuer's common stock outstanding on March 31,
1999 was 45,339,839
Document incorporated by reference:
Related Section Documents
- --------------- ----------------------
III Definitve Proxy statement to be filed pursuant to Regulation
14A on or before April 30, 1999, or amendment to Form 10-KSB to
be filed on or before April 30, 1999.
<PAGE>
FORM 10-KSB
ANNUAL REPORT
FOR THE YEAR ENDED DECEMBER 31, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C> <C>
PART I
Item 1. DESCRIPTION OF BUSINESS 1
Item 2. DESCRIPTION OF PROPERTY 35
Item 3. LEGAL PROCEEDINGS 36
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS 36
PART II
Item 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS 36
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF
OPERATION 38
Item 7. FINANCIAL STATEMENTS 45
Item 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 45
PART III
Item 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL
PERSONS; COMPLIANCE WITH SECTION 16(a) OF THE
EXCHANGE ACT 45
Item 10. EXECUTIVE COMPENSATION 45
Item 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT 45
Item 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 45
Item 13. EXHIBITS LIST AND REPORTS ON FORM 8-K 46
</TABLE>
<PAGE>
PART I
FORWARD-LOOKING STATEMENTS. - This report on Form 10-KSB contains
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934,
as amended. Actual results could differ from those projected in any
forward-looking statements for the reasons detailed in the "Risk Factors" below
as well as in other sections of this report on Form 10-KSB. The forward-looking
statements contained herein are made as of the date of this report and the
Company assumes no obligation to update such forward-looking statements, or to
update the reasons why actual results could differ from those projected in such
forward-looking statements. Investors should consult the Risk Factors and the
other information set forth from time to time in the Company's reports on Forms
10-QSB 8-K, 10-KSB and Annual Report to Stockholders.
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Pointe Communications Corporation (formerly Charter Communications
International, Inc., the "COMPANY", or "POINTECOM"), is an international
facilities based communications company serving residential and commercial
customers in the U.S., Central and South America. The Company and its
subsidiaries provide enhanced telecommunications products and services,
including local, long distance, internet, international private line, carrier
services, prepaid calling card and telecommuting services, with a focus on the
Hispanic community both domestically and internationally. The Company believes
that its ethnically focused strategy and its state of the art network combine to
create a unique approach to the telecommunications market.
HISTORY
The Company was incorporated in Nevada on April 10, 1996, as a wholly owned
subsidiary of Maui Capital Corporation, a Colorado Corporation ("MAUI CAPITAL"),
which incorporated on August 8, 1988. On April 21, 1996, Maui Capital and the
Company merged with the Company being the surviving corporation and succeeding
to all the business, properties, assets and liabilities of Maui Capital. The
purpose of the merger of Maui Capital and the Company was to change the name and
state of incorporation of Maui Capital. Maui Capital had no significant
business or assets prior to September 21, 1995, when it acquired TOPS
Corporation, a Nevada corporation ("TOPS") (TOPS was named Charter
Communications International, Inc., until April 10, 1996, when its name was
changed so that the Company could be formed in Nevada with the same name).
At the time of the acquisition, TOPS was the sole stockholder of Charter
Communicaciones Internacionales Grupo, S.A., a Panama corporation ("CHARTER
PANAMA"), which was engaged in developing a private line telecommunications
system in Panama and pursuing licenses to provide such services in various other
Latin American countries. Since the acquisition of TOPS, the Company (and Maui
Capital, its predecessor) has endeavored to grow both through the development of
its existing businesses and through the acquisition of complementary businesses.
-1-
<PAGE>
Accordingly, on January 8, 1996, Pointe completed the cash acquisition of
90% of Phoenix DataNet ("PDN"), a provider of domestic and international
Internet access. On March 21, 1996, the Company acquired Phoenix Data Systems
("PDS") and the remaining 10% of PDN in a stock transaction that allowed the
Company to enter the network integration business. During 1997, the Company
exited the network integration business and the assets related to PDS were
written off and included in the statement of operations as a non-recurring
charge. On July 31, 1996, the Company acquired Telecommute Solutions, Inc.
("Telecommute") in a stock transaction that allowed the Company to offer various
telecommuting services. On September 21, 1996, the Company acquired Overlook
Communications International Corporation ("OCI") in a stock transaction that
allowed the Company to offer a variety of both domestic and international
enhanced telecommunications and long distance services, including prepaid phone
calling cards. On October 5, 1996, the Company acquired Worldlink
Communications, Inc. ("Worldlink"), a provider of prepaid long-distance calling
cards in a stock transaction.
On June 1, 1998, the Company acquired Galatel Inc. ("Galatel"), a
distributor of prepaid calling cards primarily to the Hispanic community, in a
cash and stock transaction. On July 30, 1998, the Company acquired Pointe
Communications Corporation ("Pointe"), a Delaware Corporation, in a cash and
warrant transaction. Pointe did not have revenue from operations prior to its
acquisition. On August 31, 1998, the Company's stockholders approved an
amendment to the Company's Articles of Incorporation to effect a change in the
Company's name from Charter Communications International, Inc. to Pointe
Communications Corporation. On August 12, 1998, the Company acquired
International Digital Telecommunications Systems, Inc. ("IDTS"), in a cash and
stock transaction. IDTS is a facilities based long distance carrier of voice,
data and other types of telecommunications in the Miami, Florida market. On
October 1, 1998, the Company acquired Rent-A-Line Telephone Company, LLC, in a
stock rights transaction. Rent-A-Line is a reseller of prepaid local telephone
service.
The Company's principal office is located at 2839 Paces Ferry Road,
Atlanta, Georgia, 30339, and its telephone number at such address is (770)
432-6800.
-2-
<PAGE>
RECENT DEVELOPMENTS
In the early part of 1999 and with the assistance of the investment bankers
Headquartered in New York and Atlanta, the Company entered into two separate
non-binding letters of intent for the private placement of approximately $30
million worth of the Company's Class A Convertible Senior Preferred Stock and
warrants to purchase shares of the Company's Common Stock. The Company intends
to use the proceeds from these transactions to address the capital requirements
discussed in the "Liquidity and Capital Resources" section, including to
complete its network expansion, to continue repaying indebtedness, and to
continue funding its current operations.
The Company intends to close these two separate private placements on or
before the end of April 1999. Each transaction is conditioned on negotiating
appropriate definitive documentation and on the Company's continuing to operate
with no adverse changes to the operation, assets, prospects, financial or other
condition to the Company. The Company's management fully expects the Company to
meet the conditions to closing these transactions; however, there can be no
assurances that the transactions will, in fact, close.
Also subsequent to December 31, 1998, the Company raised $9.0 million
(including the refinancing of $1 million executed prior to year end) in a
private placement of short-term bridge financing to fund network expansion,
repay indebtedness and fund operations in advance of completing the preferred
stock private placement and the Company entered into a capital lease facility
with a major equipment vendor to purchase $25.0 million of equipment and to
provide $3.0 million in a working capital line of credit.
STRATEGY
The Company's goal is to become a leading provider of local, long distance,
and other telecommunications services to Hispanic communities in the United
States and corresponding emigre countries. In doing so, the Company will focus
on the following tenants of its business plan:
Target Underserved Markets. The Company intends to capitalize on its
-----------------------------
existing business experience to further penetrate select Hispanic communities in
the United States. In doing so, the Company will select target markets based
upon favorable demographics with respect to local and long distance telephone
usage, including immigration patterns, population growth and income levels.
Initially, the Company believes it can obtain significant market share in
selected U.S. metropolitan areas by providing an integrated bundle of
telecommunications services directly to the Hispanic community, a segment which
has excellent demographics and favorable telecommunications traffic patterns
relative to the Company's focus on Central and South America. The Company
believes that incumbent and competitive local exchange providers have
concentrated on targeting broad markets and, with the exception of limited
in-language advertising, have not focused on ethnic markets. The Company
believes it can capitalize on the experience and customer relationships from its
existing businesses to market telecommunications services effectively to the
Hispanic community.
Offer an Integrated Suite of Telecommunications Services. The Company
---------------------------------------------------------------
offers both consumer and commercial customers an integrated suite of retail
telecommunications services, including local, long distance, Internet access and
data transmission. The Company believes there is substantial demand among
residential and business customers in its target markets for an integrated
package of telecommunications services. The Company will focus on providing
value to its customers by combining competitive pricing of its bundled services
with a high level of customer service and care tailored to its targeted markets.
Providing local service requires appropriate licensure in each state where
service is provided. The Company is currently certified as a Competitive Local
Exchange Carrier ("CLEC") in Georgia, and has applied for and is awaiting
certification in Florida. The Company also intends to apply for certification
in Texas, New York, California and Puerto Rico during 1999. While the Company
believes it will be successful in obtaining such certification the outcome
cannot be assured.
-3-
<PAGE>
Implement CLEC Operations through Success Based Staged Buildout of Markets.
---------------------------------------------------------------------------
The Company intends to implement a success based staged buildout of CLEC
operations, including both switched and dedicated local service, in selected
U.S. and Latin American markets. Once the Company has targeted a market, rather
than installing 100% of its own network (i.e. fiber and switching equipment),
the Company will co-locate at a Incumbent Local Exchange Carrier ("ILEC") or
other CLEC facilities, install a Class 5 (i.e., local service) and data switch,
and use the fiber/copper provided by the ILEC or CLEC to reach the end user. The
Company then intends to interconnect its local networks by way of leases with
major wholesalers of IXC (i.e., long distance) services, thereby establishing
its own local, long distance and data network. A staged buildout will allow the
Company to implement its market pairing strategy and to improve its ability to
originate and terminate telecommunications traffic on its own network, while at
the same time complementing its existing international carriage network.
Capitalize on Benefits Provided by Paired Markets. By combining CLEC
--------------------------------------------------------
operations in selected domestic and paired Latin American markets with
PointeCom's existing international carriage network, the Company believes it
can: (i) maximize the volume of telecommunications traffic carried on its
network, whether originated, transported or terminated; and (ii) reduce its
overall cost of providing telecommunication services. By pairing identifiable
market sub-segments in U.S. cities with their Latin American country
counterparts, the Company is able to originate and terminate traffic between
cities that share the Company as a common network carrier, which will provide an
attractive cost structure.
Construct State-of-the-Art Networks. The Company's networks will emphasize
------------------------------------
flexibility, reliability and scalability as the basis for all development. The
Company intends to avoid the limitations of legacy processes. The network will
utilize SONET transport over fiber with an Asynchronous Transfer Mode ("ATM")
backbone and an Internet protocol ("IP") platform. In addition, the Company
will seek strategic partnering opportunities to extend the reach and flexibility
of its network and minimize technological dependence. Larger commercial
customers will access the Company's products by way of fiber connectivity while
residential customers will access PointeCom's IP platform services through a
seamless switchover from the serving ILEC.
Build on Experienced Management Team. The Company believes that the
-----------------------------------------
quality of its management team and its extensive experience in the emerging
telecommunications industry are critical factors in the successful
implementation of its strategy. Key personnel possess an average of 15 years of
experience with major telecommunications companies. Stephen Raville, the
Company's Chairman and CEO and Patrick Delaney, the Company's CFO, held similar
positions with Advanced Telecommunications Corporation ("ATC"), a domestic, long
distance company, which they grew from $50 million in revenue to over $550
million in six years prior to its $900 million merger with MCI/WorldCom. The
Company believes that it will be able to effectively use the historical
relationships and contacts of its management and directors to enhance the
Company's development.
-4-
<PAGE>
PRODUCTS AND SERVICES
The following is an overview of the Company's product and service
offerings:
Product Description
- -------------------------------- ----------------------------------------------
- - Local Dial tone, switched
access, dedicated access
and value-added services
- - Long Distance Domestic and international
long distance services
- - Internet Services Dedicated and dial-up
Internet access, virtual
web hosting, web page
development, e-mail, web
commerce, database
management, and remote
Internet access
- - Prepaid Calling Card Products Prepaid calling cards,
prepaid Internet access
cards and enhanced
promotional service cards targeted to Hispanic
communities in the U.S.
and Latin American
countries
- - Carrier Terminating Services Facilities-based backbone
with both voice and data
switching capability to
carry wholesale carrier traffic for U.S. and
foreign termination
- - International Private Line Dedicated private line
carried over the Company's
satellite network marketed
to businesses in Mexico,
Panama, Venezuela, El
Salvador, Costa Rica,
Nicaragua and the U.S.
- - Telecommute Services Provisioning turn-key
services that allow
employees to work
efficiently from their
homes
----------------------------------------------
-5-
<PAGE>
Integrated Services
The Company intends to offer residential and commercial customers a full
suite of integrated telecommunications services, including local, long distance,
Internet access and data transmission.
Local Access. With the implementation of CLEC operations in each target
market, the Company will provide residential and commercial accounts with a full
range of local exchange services, including: (i) basic local service (including
dial tone, local area charges, dedicated point-to-point intraLATA service and
enhanced calling features); (ii) interstate dedicated access service (i.e.,
connecting a customer to a long distance carrier's facilities); (iii) interstate
switched access service (i.e., originating and terminating calls from a long
distance carrier); (iv) intraLATA toll calls; (v) intrastate switched access,
(vi) value-added services (Centrex, voicemail, call forwarding); and (vii)
miscellaneous other services (including provision of directories, billing and
collection services). Providing local service requires appropriate licensure in
each state where service is provided. The Company is currently certified as a
CLEC in Georgia and has applied for and is awaiting certification in Florida.
The Company also intends to apply for certification in Texas, New York,
California and Puerto Rico during 1999. While the Company believes it will be
successful in obtaining such certification the outcome cannot be assured.
Long Distance. The Company provides international and domestic long
distance services. An international long distance call typically originates on
a local exchange or private line and is carried to the tandem switch of a long
distance carrier. The call is then transported along a fiber optic cable or a
satellite connection to an international gateway switch in the terminating
country and finally to another local exchange or private line where the call is
terminated. A domestic long distance call is similar to an international long
distance call, but typically only involves one long distance carrier, which
transports the call on fiber, microwave radio or via a satellite connection
within the country of origination and termination. The Company will provide all
or portions of the above networks, depending on the origin and destination of
calls placed.
Internet Services. The Company provides a complete array of Internet
services including dedicated and dial-up Internet access, virtual web hosting,
web page development, e-mail, web commerce, database management and remote
Internet access. The Company focuses on providing defined Internet applications
to business and residential customers instead of simply selling the underlying
component services. When applicable, the Company's Internet solutions are
supported through telephony applications such as Integrated Voice Response, call
center services and 800 services.
-6-
<PAGE>
Prepaid Calling Card
The Company has developed a set of calling card products, including prepaid
calling cards, prepaid Internet access cards, and enhanced promotional service
cards. The Company primarily markets these cards to the U.S. Hispanic community
to call Latin American Countries. The Company's market studies have shown that
the Hispanic community is one of the largest segments of the prepaid calling
card market. In addition, the Company's prepaid cards are marketed to other
market segments in the United States and Latin American countries for customers
who do not have access to postpaid telephone services. By leveraging its
relationship with certain Latin American carriers, the Company is able to
provide calling cards with originating access from Latin American countries. In
the past, the Company has marketed cards to tourists in Mexico to call the
United States and to consumers in other Latin countries to call the United
States. The Company intends to increase its focus on this market segment during
1999.
Carrier Terminating Services
During 1997, the Company began providing dedicated switched voice services to
certain customers. During 1998, the Company began construction of an
international-based facilities backbone for both voice and data switching to
carry wholesale carrier traffic for U.S. and foreign termination. This network
will provide a unique partnering opportunity for both the Company and foreign
Post, Telephone & Telegraph Companys ("PTT"s) in need of U.S. termination
traffic. The Company intends to leverage its relationships and its network in
Latin America to provide high quality, cost-competitive services. Furthermore,
the Company believes its relationships will benefit directly from the volume
of inbound calling traffic because of its ability to direct traffic from
its interconnection point to its domestic network.
International Private Line
The Company currently provides or is licensed to provide IPL services in Mexico,
Panama, Venezuela, El Salvador, Nicaragua, Honduras and Costa Rica. The
Company's licenses for IPL services are either "on premise" or country "gateway"
stations and are composed of a satellite earth station located in the service
area and an earth station located in the United States. Earth stations may be
located directly on customer premises at or nearby telephone company facilities
(with users connected to the earth station via local lines). In instances where
the local telephone company does not have the capability to provide this local
"loop," the Company can provide wireless terrestrial systems to connect to the
earth station and will lease this service to the customer on a monthly basis in
cooperation with the local telephone company. This product is used as a market
entry alternative and is typically phased out as sufficient scale is reached.
-7-
<PAGE>
Telecommute Services
Telecommute Solutions ("TCS") delivers turnkey telecommuting solutions that
allow companies to realize the full financial benefits of telecommuting.
Historically companies have resisted telecommuting programs because of high
start-up and maintenance costs and limited in-house technological and human
resources. By providing an outsourced provisioning and support solution, TCS is
able to provide a telecommute program that overcomes these obstacles. The TCS
product offering includes all equipment, network, implementation and support
necessary to enable an individual to work from home as seamlessly as if they
were in the office. By bundling all of these components into a single product
offering, TCS clients realize the substantial financial benefits inherent in a
telecommuting program while avoiding the cumbersome technological, support and
coordination challenges. TCS derives its revenue by charging an installation or
"provisioning" fee as well as through recurring monthly charges for the ongoing
use of its services.
SALES, MARKETING AND DISTRIBUTION
The Company intends to target Hispanic customers in dense Hispanic
communities in the major metropolitan areas of Florida, Texas and Puerto Rico,
and in other Latin American countries. The Company has initially identified:
Miami, Houston, San Juan, Puerto Rico, Nicaragua and El Salvador for initial
implementation of its operations. Longer term, the Company anticipates
accessing additional markets including Dallas, Los Angeles, San Francisco, San
Diego and New York City.
-8-
<PAGE>
The Company has invested significant resources in these target markets and
has developed substantial demographic data that it will use in its sales
efforts. The sales force will conduct direct marketing calls to customers that
are pre-screened by demographic criteria such as residence, ethnic origin,
telephone usage patterns and credit history. After an initial sales call, in
which the customer is not pressured to switch phone companies immediately, the
sales representative will ask permission to send the customer follow-up
literature on PointeCom's products and services including alternative bundled
service plans with different pricing and billing options and invoicing in
Spanish.
The Company believes its highly targeted, culturally relevant, direct
marketing approach will (i) yield higher "hit" rates than those experienced by
companies using a "switch now" approach and (ii) establish brand name
recognition, generating increased use of the Company's services and enhanced
customer retention. The Company therefore believes it can establish itself as a
value leader in telecommunications services for Hispanics in its target markets.
Although the Company is sensitive to the role that price of services plays in
customer decision-making and will offer competitive pricing, it will not
necessarily be the lowest cost provider. Instead, the Company intends to focus
on providing overall value to its customers by offering a cost-effective,
culturally relevant bundle of integrated telecommunications services.
Integrated Services
The Company currently has an internet sales force for consumer services in
Houston, Panama and Venezuela. The Company plans to continue to be the value
leader by adding a suite of voice services to this customer base. The Company
has a sales force in Miami focused on long distance services that will soon
package internet in the same bundle as a value added service. Management plans
to rapidly grow the sales force and the retail bundle in the targeted markets by
combining value-based services with ethnically focused sales techniques. The
Company plans to grow its direct sales force from 18 to over 100 in 1999. The
Company's sales force will be trained to emphasize the availability of an
integrated bundle of telecommunications services, the available pairing with
other Latin American markets, the Company's involvement in the Hispanic
community and the Company's customer service efforts.
Prepaid Calling Card Products
Prepaid calling card products are sold by a direct sales force who are
responsible for establishing and maintaining relationships with the distributors
that provide access to retail outlets (gas stations, convenience stores, etc.)
in targeted ethnic communities throughout the United States and Latin America.
In addition, the Company recently acquired a wholesale distributor of Hispanic
focused calling cards to enhance its distribution capabilities and reduce its
distribution costs.
Carrier Terminating and IPL
The Company has a wholesale sales group actively contracting carrier
termination and IPL worldwide. The Company augments its direct sales efforts
through the use of agents and brokers that market the Company's service to
institutional customers and carriers.
-9-
<PAGE>
Telecommute Services
TCS targets corporations with over 1,000 employees located in New York, Los
Angeles, San Francisco, Atlanta, Washington, D.C., and Chicago. TCS uses a
combination of direct sales and strategic partnerships to reach its target
markets. Currently TCS employs 3 telecommuting consultants that are responsible
for cultivating telecommuting opportunities within organizations, usually
through a CFO, CIO, or a human resources executive.
CUSTOMER SERVICE AND CARE
The Company has developed a customer service infrastructure, which includes
bilingual customer service representatives. In conjunction with the expansion
of its services and the implementation of CLEC operations, the Company intends
to expand its customer service infrastructure to meet increased demand and
provide billing alternatives tailored to its target markets, including a fully
integrated billing statement for all services available in Spanish. The Company
expects to grow its customer service staff significantly during 1999, including
by staffing service centers in the US and Latin America that will be open 24
hours per day, 365 days per year.
NETWORK FACILITIES
CLEC Operations
The Company's network is being designed with flexibility, reliability and
scalability as the basis. Network construction will be based on central office
technology interfacing in a client/server-based environment. The Company
believes that this architecture will provide a competitive advantage. In target
markets the Company intends to deploy its own Class 5 feature node switching
equipment on a robust data platform. This network is designed to meet the
demands for enhanced services, to support heterogeneous network elements, and
adapt to changing service providers and subscriber requirements easily. For
example, this network will allow the Company to provide local, long distance and
data switched services. PointeCom's network model will include traditional
public switched telephony services and will perform in a multiservice mode with
Internet servers and data networks such as frame relay and corporate intranet.
Construction of the network has begun and the initial phase to service the
initial markets listed above (see "Sales and Marketing") is expected to be
complete by the third quarter of 1999.
The Company will rely on ILECs and IXCs to provide communications capacity
or interconnection for most of its local and long distance telephone services.
Interconnection agreements will typically require the approval of state
regulatory authorities. The 1996 Telecommunications Act established certain
requirements and standards for interconnection arrangements. The FCC, in
conjunction with state regulatory bodies, is still developing these requirements
and standards through a process of negotiation and arbitration. ILECs are
required to negotiate in good faith with competitors, such as the Company,
requesting interconnection. Subject to negotiations with the respective ILECs
and required state regulatory approvals, the Company intends to pursue the
completion of appropriate interconnection agreements with Bell Atlantic,
BellSouth, SBC, US West, and GTE during 1999.
-10-
<PAGE>
Internationally, PointeCom intends to deploy wireless local loop in markets
where terrestrial lines are not available in order to be able to provide
complete point to point services for its bundled retail products.
International Backbone
Critical to cost reduction and corresponding margin improvement is the
creation of a national and international backbone network and a local access
network plan. PointeCom has negotiated a long haul dark fiber contract
interconnecting New York, Houston, Atlanta and Miami, which is an integral
component of the ATM backbone the Company established during the first quarter
of 1999. The Company intends to expand the backbone nationally and
internationally to transport both voice and data to each of its US and Latin
American targeted markets. The Company has built and will continue to build
ATM-based switching facilities that will have full IP transport capabilities.
The Company will then lease or trade switching capacity for fiber transport
capacity to support its traffic requirements.
The Company intends to place a circuit switch in operation in Houston and
Miami during the second quarter of 1999. The Company's circuit-switching
platform will have full E1/T1 capability. ATM capability for OC-48 over a SONET
interface with frame relay, Ethernet bridging, and voice grade carrier will be
deployed. Voice over IP will be transported at a 10:1 ratio with toll quality.
PointeCom has spent $3.2 million to date and intends to spend an additional
$12 million over the next 15 months to complete its ATM backbone. The Company
believes ATM/IP backbones are preferable because: (i) Internet traffic is
growing 15% per month; (ii) the cost of an ATM infrastructure is 70% less than
circuit switching; (iii) circuit switching platforms cannot meet the demands of
today's networks created by increased data traffic; and (iv) by the year 2004,
voice traffic will consume less than 1% of network bandwidth.
Internet Network
The Company's network has been designed for reliable, high speed, efficient
routing and low latency. The Company currently supports six Internet access
Points of Presence ("POPs") in the United States and four in Latin American
countries. Each POP is located in secured facilities or computer rooms that
have 24 hours per day, seven days per week secured access. Each POP has high
performance routers with multiple redundant Unix based servers on an FDDI ring.
Dial-in access facilities are provided via fully managed modems. Each facility
is backed up by an Uninterrupted Power Supply, backup generators, and dual
entrance fiber facilities when available.
Enhanced Voice
The Company's enhanced voice services are provided via dual Summa 4
switches driven by a Unix host integrated with a SQL server backend. Interactive
Voice Response capability is provided using Dialogic technology and again
supported with a SQL backend. These technologies are integrated with the
Company's Internet capability through a combination of dedicated point-to-point
and co-located facilities. During 1998, the Company added an enhanced
self-contained calling card platform to its network, which provides additional
capacity, speed, reliability and lowered costs.
-11-
<PAGE>
Satellite Network
The Company's satellite network consists of a series of teleports as well
as a number of smaller, single user, on-premise satellite ground stations. The
Company currently operates teleports in seven countries (Costa Rica, El
Salvador, Mexico, Nicaragua, Panama (two locations), Venezuela, and the United
States). The teleports are capable of providing international satellite
services within the United States and Latin American countries. The teleports
also provide the Company with the ability to provide high quality Internet
services.
All of the Company's satellite services are carried over the Solidaridad
satellite system. The Solidaridad system is a Mexican owned and operated
satellite system that offers a broad coverage area from the United States to
Argentina that supports the Company's stated mission of servicing Latin American
countries with first class communications services. Through the Company's
agreements with the Mexican government it can offer space segment to support
services via Solidaridad one or two to any locations covered by either of these
satellites. IPL and Internet access services are provided via satellite
transmissions through the Solidaridad satellite system. The Company has
long-term contracts with Satmex, the Solidaridad operator, to provide satellite
space segment of sufficient capacity to service the Company's needs for the
foreseeable future.
The Company's Houston facility acts as the primary network control center.
The Houston facility is outfitted with two satellite ground stations designed to
support C-band communication links between the United States and Latin American
countries, and a Ku-band ground earth station used to carry services from the
United States to Mexico. The system has been sized with growth in mind and can
easily be expanded should growth exceed Company projections. The Company uses
various providers, on an as-needed basis, to accommodate extension of its
satellite based service to any office site customer facilities via terrestrial
local loops. Use of these providers permits the Company to be an "On Net"
facility with the ability to offer competitive terrestrial connections to its
U.S. customer base.
The Company does not rely on any single provider to supply service for any
of its products with the exception of satellite service provided by Satmex. The
Company continually seeks out competitive products to aid in the provision of
its services.
INDUSTRY OVERVIEW
Telecommunications Industry
Prior to its court-ordered breakup in 1984 (the "Divestiture"), AT&T
largely monopolized the telecommunications services in the United States even
though technological developments had begun to make it economically possible for
companies (primarily entrepreneurial enterprises) to compete for segments of the
communications business.
The present structure of the U.S. telecommunications market is largely the
result of the Divestiture. As part of the Divestiture, seven local exchange
holding companies were created to offer services in geographically defined areas
called LATAs. The Regional Bell Operating Companies ("RBOC"s) were separated
from the long distance provider, AT&T, resulting in the creation of two distinct
market segments: local exchange and long distance. The Divestiture provided
for direct, open competition in the long distance segment.
-12-
<PAGE>
The Divestiture did not provide for competition in the local exchange
market. However, several factors served to promote competition in the local
exchange market, including: (i) customer desire for an alternative to the
RBOCs, also referred to as the ILECs; (ii) technological advances in the
transmission of data and video requiring greater capacity and reliability than
ILEC networks were able to accommodate; (iii) a monopoly position and rate of
return-based pricing structure which provided little incentive for the ILECs to
upgrade their networks; and (iv) the significant fees, called "access charges,"
long distance carriers were required to pay to the ILECs to access the ILECs'
networks.
The first competitors in the local exchange market, designated as CAPs by
the FCC, were established in the mid-1980s. Most of the early CAPs were
entrepreneurial enterprises that operated limited networks in the central
business districts of major cities in the United States where the highest
concentration of voice and data traffic is found. Since most states prohibited
competition for local switched services, early CAP services primarily consisted
of providing dedicated, unswitched connections to long distance carriers and
large businesses. These connections allowed high-volume users to avoid the
relatively high prices charged by ILECs.
As CAPs proliferated during the latter part of the 1980s, certain federal
and state regulators issued rulings which favored competition and promised to
open local markets to new entrants. These rulings allowed CAPs to offer a
number of new services, including, in certain states, a broad range of local
exchange services, including local switched services. Companies providing a
combination of CAP and switched local services are sometimes referred to as
Competitive Local Exchange Carriers ("CLEC"s). This pro-competitive trend
continued with the passage of the Telecom Act of 1996 (see "Regulation"), which
provided a legal framework for introducing competition to local
telecommunications services throughout the United States.
Over the last three years, several significant transactions have been
announced representing consolidation of the U.S. telecom industry. Among the
ILECs, Bell Atlantic Corporation and NYNEX Corporation merged in August 1997;
and Pacific Telesis Group and SBC Communications Inc. merged in April 1997.
Major long distance providers have sought to enhance their positions in local
markets through transactions such as AT&T's acquisition of Teleport
Communications Group and WorldCom's mergers with MFS and Brooks Fiber
Properties, and to otherwise improve their competitive positions, through
transactions such as WorldCom's merger with MCI.
Many international markets resemble that of the United States prior to the
Divestiture. In many countries, traditional telecommunications services have
been provided through a monopoly provider, frequently controlled by the national
government, such as a Post, Telegraph and Telephone Company ("PTT"). In recent
years, there has been a trend toward liberalization of many of these markets,
particularly in Europe. Led by the introduction of competition in the United
Kingdom, the European Union mandated open competition as of January 1998.
Similar trends are emerging, albeit more slowly, in Latin America.
-13-
<PAGE>
Internet Industry
The Internet is a global collection of interconnected computer networks
that allows commercial organizations, educational institutions, government
agencies and individuals to communicate electronically, access and share
information and conduct business. The Internet originated with the ARPAnet, a
restricted network that was created in 1969 by the United States Department of
Defense Advanced Research Projects Agency (DARPA) to provide efficient and
reliable long distance data communications among the disparate computer systems
used by government-funded researchers and academic organizations. The networks
that comprise the Internet are connected in a variety of ways, including by the
public switched telephone network and by high speed, dedicated leased lines.
Communications on the Internet are enabled by Internet Protocol ("IP"), an
inter-networking standard that enables communication across the Internet
regardless of the hardware and software used.
Over time, as businesses have begun to utilize e-mail, file transfer and,
more recently, intranet and extranet services, commercial usage has become a
major component of Internet traffic. In 1989, the U.S. government effectively
ceased directly funding any part of the Internet backbone. In the mid-1990s,
contemporaneous with the increase in commercial usage of the Internet, a new
type of provider called an Internet Service Provider ("ISP") became more
prevalent. ISPs offer access, e-mail, customized consent and other specialized
services and products aimed at allowing both commercial and residential
customers to obtain information from, transmit information to, and utilize
resources available on the Internet.
ISPs generally operate networks composed of dedicated lines leased from
Internet backbone providers using IP-based switching and routing equipment and
server-based applications and databases. Customers are connected to the ISP's
POP by facilities obtained by the customer or the ISP from either ILECs or
CLECs, through a dedicated access line or the placement of a circuit-switched
local telephone call to the ISP.
IP Communications Technology
There are two widely used switching technologies in currently deployed
communications networks: circuit-switching systems and packet-switching
systems. Circuit-switch based communications systems establish a dedicated
channel for each communication (such as a telephone call for voice or fax),
maintain the channel for the duration of the call, and disconnect the channel at
the conclusion of the call. Packet-switch based communications systems format
the information to be transmitted, such as e-mail, voice, fax and data into a
series of shorter digital messages called "packets." Each packet consists of a
portion of the complete message plus the addressing information to identify the
destination and return address.
-14-
<PAGE>
Packet-switch based systems offer several advantages over circuit-switch
based systems, particularly the ability to commingle packets from several
communications sources together simultaneously onto a single channel. For most
communications, particularly those with bursts of information followed by
periods of "silence," the ability to commingle packets provides for superior
network utilization and efficiency, resulting in more information being
transmitted through a given communication channel. There are, however, certain
disadvantages to packet-switch based systems as currently implemented. Rapidly
increasing demands for data, in part driven by the Internet traffic volumes, are
straining capacity and contributing to latency (delays) and interruptions in
communications transmissions. In addition, there are concerns about the
adequacy of the security and reliability of packet-switch based systems as
currently implemented.
Many initiatives are under way to develop technology to address these
disadvantages of packet-switch based systems. The Company believes that the IP
standard, which is an "open networking standard" broadly adopted in the Internet
and elsewhere, should remain a primary focus of these development efforts. The
Company expects the benefits of these efforts to be improved communications
throughout, reduced latency and declining networking hardware costs.
REGULATION
While the domestic interstate long distance business in the U.S. is
generally not subject to substantial regulation, local service and domestic
intrastate long distance service are subject to regulation that varies by state,
and can be substantial. The international long- distance business is subject to
the jurisdiction of the FCC in the U.S. and foreign governments abroad, some of
which limit or prohibit the Company's services. Foreign local service is
governed by the respective jurisdiction. Local laws and regulations differ
significantly among the foreign jurisdictions in which the Company operates, and
the interpretation and enforcement of such laws and regulations vary and are
often based on the informal views of the local government ministries, which, in
some cases, are subject to influence by the local PTTs. Accordingly, in certain
of the Company's principal existing and target markets, there are laws and
regulations that either prohibit or limit, or could be used to prohibit or
limit, certain services the Company markets. The Company intends to provide its
services to the maximum extent it believes permissible under applicable local
laws and regulations, and the licenses it has obtained. There can be no
assurance that a portion of the services the Company markets and provides, or
intends to market and provide, will not be or will not continue to be prohibited
in certain jurisdictions.
United States
The Company provides both telecommunications and information services. The
terms and conditions under which the Company provides its services are
potentially subject to regulation by the state and federal government agencies.
With regard to the Company's domestic telecommunications services, federal laws
and FCC regulations generally apply to interstate telecommunications, while
state regulatory authorities generally have jurisdiction over telecommunications
that originate and terminate within the same state.
-15-
<PAGE>
Local Service; Integrated Service
Federal regulation has the greatest impact on the telecommunications
industry and has undergone major changes in the last two years as the result of
the adoption by Congress of the Telecommunications Act of 1996. The 1996
Telecommunications Act is the most comprehensive reform of the nation's
telecommunications laws since the Communications Act was enacted. The 1996
Telecommunications Act imposes a number of access and interconnection
requirements on telecommunications carriers and on all local exchange providers,
including CLECs, with additional requirements imposed on ILECs. The 1996
Telecommunications Act provides a detailed list of items that are subject to
these interconnection requirements, as well as a detailed set of duties for all
affected carriers. All telecommunications carriers must interconnect with the
facilities of other carriers and not install features that will interfere with
the interoperability of networks. All LECs, including CLECs, have a duty to (i)
not unreasonably limit the resale of their services, (ii) provide number
portability if technically feasible, (iii) provide dialing parity to competing
providers, and nondiscriminatory access to telephone numbers, directory
assistance, operator services and directory listings, (iv) provide access to
poles, ducts, conduits, and rights-of-way, and (v) establish reciprocal
compensation arrangements for the transport and termination of
telecommunications. In addition to those general duties of all LECs, ILECs have
additional duties to (i) interconnect at any technically feasible point and
provide service equal in quality to that provided to their customers or the ILEC
itself, (ii) provide unbundled access to network elements at any technically
feasible point at just, reasonable and nondiscriminatory rates, terms and
conditions, (iii) offer retail services at wholesale prices for the use of
telecommunication carriers, (iv) provide reasonable public notice of changes in
the network or the information necessary to use the network or which affect
interoperability, and (v) provide for physical collocation. "Physical
collocation" is an offering by an ILEC that enables another telecommunications
carrier to enter the ILEC's premises to install, maintain and repair its own
equipment that is necessary for interconnection or access to the ILEC's network
elements. An ILEC must allocate reasonable amounts of space to
telecommunications carriers on a first-come, first-serve basis. If space
limitations or practical or technical reasons prohibit physical collocation, an
ILEC must offer "virtual collocation," by which the other telecommunications
carrier may specify ILEC equipment to be dedicated to its use and electronically
monitor and control communications terminating in such equipment.
The FCC adopted pricing and other guidelines to implement the
interconnection provisions of the 1996 Telecommunications Act, but the 8th
Circuit Court of Appeals vacated many of the FCC's guidelines. The Supreme
Court has granted a writ of certiorari to review the 8th Circuit's decision and
is expected to decide the case during its 1998-1999 term. The responsibility
for setting pricing and other guidelines with respect to interconnection has
thus been left up to the individual state public service commissions. It is
expected that varying pricing and guidelines will emerge from state to state and
some of these guidelines may eventually have an indirect adverse effect on the
Company's business.
International Telecommunications; Long Distance
The 1996 Telecommunications Act allows local exchange carriers, including
RBOCs, to provide interLATA long distance service and also grants the FCC the
authority to deregulate other aspects of the telecommunications industry. The
Company is classified by the FCC as a non-dominant carrier for its common
carrier telecommunications services. The Company has applied for and received
all necessary authority from the FCC to provide international telecommunications
service. The FCC reserves the right to condition, modify, or revoke such
international authority for violations of the Federal Communications Act or the
FCC's rules and policies.
-16-
<PAGE>
The FCC and the state commissions have jurisdiction to act upon complaints
against any common carrier for failure to comply with its statutory obligations.
If the FCC or state regulators find that the Company was engaging in activities
that required authorizations which the Company currently does not hold or
violated the regulatory requirements established by the relevant commissions,
the FCC or state regulators could impose financial penalties and order the
Company to comply with the applicable regulations or cease doing business. Such
penalties or action could have a material adverse effect on the Company's
business, financial condition or results of operations.
As a telecommunications carrier, the Company is required to contribute to
universal service funds established by the FCC, the states, or both. Federal
contribution factors have been established by the FCC and have become effective.
Federal universal service requirements are now under review by both Congress and
the appellate court. Whether the Company's universal service contributions can
be passed on to customers depends upon the competitive carrier market and
potential FCC regulation. Certain states are in the process of determining what
universal service contribution requirements to adopt and others have already
made such determinations. Current proposals to change the universal service
support system do not entail the imposition of universal service fees on
enhanced service providers. There can, however, be no guarantee that such fees
will not be assessed in the future. Similarly, individual states may determine
that enhanced services providers should be required to contribute to state
universal service funding mechanisms.
Moreover, information service providers traditionally have been treated by
the FCC as providing an "enhanced" computer processing service rather than a
"basic" telecommunications transmission service and, as a result, were thought
to be beyond the FCC's regulatory authority. A large portion of the Company's
business involves such unregulated enhanced services. Although the 1996
Telecommunications Act continues to distinguish between unregulated information
or enhanced and regulated telecommunications or basic services, the changes made
by the 1996 Telecommunications Act may have important implications for the
providers of unregulated enhanced services.
The intrastate long distance telecommunications operations continue to be
subject to various state laws and regulations, including prior certification,
notification and registration requirements. In certain states, prior regulatory
approval may be required for changes in control of telecommunications
operations. The Company is currently subject to varying levels of regulation in
the states in which it provides "1+" and card services (which are both generally
considered "1+" services by the states). The vast majority of states require
the Company to apply for certification to provide telecommunications services,
or at least register or to be found exempt from regulation, before commencing
intrastate service. The vast majority of the states require the Company to file
and maintain detailed tariffs listing rates for intrastate service. Many states
also impose various reporting requirements and/or require prior approval for
transfers of control of certified carriers, assignments of carrier assets,
including customer bases, carrier stock offerings and incurrence by carriers by
significant debt obligations. Certificates of authority can generally be
conditioned, modified, canceled, terminated or revoked by state regulatory
authorities for failure to comply with state law and/or the rules regulations
and policies of the state regulatory authorities. Fines and other penalties,
including the return of all monies received for intrastate traffic from
residents of a state, may be imposed for such violations.
-17-
<PAGE>
The Company has made the filings and taken the actions it believes are
necessary to become certified or tariffed to provide intrastate long distance
and card services to customers throughout the United States except for Hawaii
and Alaska.
Internet
The Company uses LEC networks to connect its Internet customers to its
POPs. Under current federal and state regulations, the Company and its Internet
customers pay no charges for this use of the LECs' networks other than the
flat-rate, monthly service charges that apply to basic telephone service. The
LECs have asked the FCC to change its rules and require Internet access
providers to pay additional, per minute charges for their use of local networks.
Per minute access charges could significantly increase the Company's cost of
doing business and could, therefore, have a material adverse effect on the
Company's business, financial condition or results of operations. The FCC is
currently considering whether to propose such rule changes.
Data network access providers are generally not regulated under the laws
and regulations governing the telecommunications industry. Accordingly, except
for regulations governing the ability of the Company to disclose the contents of
communications by its customers, no state or federal regulations currently exist
pertaining to the pricing, service characteristics or capabilities, geographic
distribution or quality control features of Internet access services. The
Company cannot predict the impact that future regulation or regulatory changes,
if any, may have on its Internet access business.
The 1996 Telecommunications Act imposes criminal liability on persons
sending or displaying in a manner available to minors indecent material on an
interactive computer service such as the Internet. The 1996 Telecommunications
Act also imposes criminal liability on an entity knowingly permitting facilities
under its control to be used for such activities. Entities solely providing
access to facilities not under their control are exempted from liability, as are
service providers that take good faith, reasonable, effective and appropriate
actions to restrict access by minors to the prohibited communications. The
constitutionality of these provisions has been successfully challenged in lower
federal courts and is now before the U.S. Supreme Court; the final
interpretation and enforcement of these provisions is uncertain. The Act may
decrease demand for Internet access, chill the development of Internet content,
or have other adverse effects on Internet access providers such as the Company.
In addition, in light of the uncertainty attached to interpretation and
application of this law, there can be no assurances that the Company would not
have to modify its operations to comply with the statute, including prohibiting
users from maintaining home pages on the Internet.
State Regulation
The 1996 Telecommunications Act is intended to increase competition in the
telecommunications industry, especially in the local exchange market. The 1996
Telecommunications Act prohibits state and local governments from enforcing any
law, rule or legal requirement that prohibits or has the effect of prohibiting
any person from providing any interstate or intrastate telecommunications
service. In addition, under current FCC policies, any dedicated transmission
service or facility that is used more than 10% of the time for the purpose of
interstate or foreign communication is subject to FCC jurisdiction to the
exclusion of any state regulation. Notwithstanding these prohibitions and
limitations, states regulate telecommunications services, including through
certification of providers of intrastate services, regulation of intrastate
rates and service offerings, and other regulations and retain jurisdiction under
the 1996 Telecommunications Act to adopt regulations necessary to preserve
universal service, protect public safety and welfare, ensure the continued
quality of communications services and safeguard the rights of consumers.
Accordingly, the degree of state involvement in local telecommunications
services may be substantial.
-18-
<PAGE>
The state regulatory environment varies substantially from state to state.
State regulatory agencies have regulatory jurisdiction when Company facilities
and services are used to provide intrastate services. A portion of the
Company's current traffic may be classified as intrastate and therefore subject
to state regulation. Currently, the Company does not anticipate that the
regulatory requirements to which it will be subject in Florida, Puerto Rico, New
York, Texas, and California will have any material adverse effect on its
operations. In some jurisdictions, the Company's pricing flexibility for
intrastate services may be limited because of regulation, although the Company's
direct competitors will be subject to similar restrictions. However, there can
be no assurance that future regulatory, judicial, or legislative action will not
have a material adverse effect on the Company.
Foreign Markets
The Company is subject to the regulatory regimes in each of the countries
in which it conducts business. Local regulations range from permissive to
restrictive, depending upon the country. In general, provision of
telecommunications services in these countries is permitted only through
obtaining proper licenses and service is limited to that specifically provided
for within the license. The World Trade Organization ("WTO") Agreement, which
became effective in February 1998, is intended to open foreign
telecommunications markets of signatory countries. The Company cannot predict
whether or how the WTO Agreement will be implemented by foreign governments.
COMPETITION
The Company operates in extremely competitive service and geographical
markets that are influenced significantly by larger industry participants and
are expected to become more competitive in the future. There are no substantial
barriers to the entry of additional participants into any of the services in
which the Company competes in the US. In general, provision of service in
Latin American countries outside the U.S. requires a license from the local PTT.
Local Services; Integrated Services
PointeCom's ability to acquire market share from ILECs, CLECs, and
resellers will be contingent on bundling services that address customers needs,
understanding competitor strategy, and establishing a professional management
team.
-19-
<PAGE>
One major impact of the 1996 Telecommunications Act may be a trend toward
the use and the acceptance of bundled service packages, consisting of local and
long distance telephony, combined with other elements such as cable television
and wireless telecommunications service. As a result, the Company will be
competing with the ILEC, with traditional providers of long distance service,
such as AT&T, Sprint, and MCI/WorldCom, and with other CLECs or CAPs. The
Company may also face competition from providers of cable television service.
The Company's ability to compete successfully in telephony will depend on the
attributes of the overall bundle of services the Company is able to offer,
including price, features, and customer service.
Wireless telephone service (cellular, PCS, and Enhanced Specialized Mobile
Radio) now is generally viewed by consumers as a supplement to, not a
replacement for, wireline telephone service. In particular, wireless is more
expensive than wireline local service and is generally priced on a usage basis.
It is possible, however, that in the future the rate and quality differential
between wireless and wireline service will decrease, leading to more direct
competition between providers of these two types of services. In that event,
the Company's telephony operations may also face competition from wireless
operators.
International Telecommunications; Long Distance
The Company is seeking international telecommunications licenses in various
foreign countries. The Company faces competition for licenses from major
international telecommunications entities as well as from local competitors in
each country. If a communications license is obtained, the Company's
international telecommunications operations will face competition from existing
government owned or monopolistic telephone service companies and from other
operators who receive licenses. The Company may also face significant potential
competition from other communication technologies that are being or may be
developed or perfected in the future. Some of the Company's competitors have
substantially greater financial, marketing, and technical resources than does
the Company. Accordingly, there can be no assurance that the Company will be
able to obtain any additional licenses or that its international
telecommunication operations will be able to compete effectively.
The Company competes with (i) IXCs engaged in the provision of long
distance access and other long distance resellers and providers, including large
U.S. carriers, (ii) foreign PTTs, (iii) other marketers of international long
distance and call reorigination services, (iv) wholesale providers of
international long distance services, (v) alliances for providing wholesale
carrier services, (vi) new entrants to the long distance market such as the
RBOCs in the United States, who have entered or have announced plans to enter
the U.S. interstate long distance market pursuant to recent legislation
authorizing such entry, and utilities, and (vii) small resellers and
facility-based IXCs. Many of the Company's competitors are significantly larger
and have substantially greater market presence and financial, technical,
operational, marketing, and other resources and experience than the Company.
Because of their close ties to their national regulatory authorities,
foreign PTTs and newly privatized successors thereto can influence their
national regulatory authorities to the detriment of the Company. With the
increasing privatization of international telecommunications in foreign
countries, it is also possible that new foreign service providers, with close
ties to their national regulatory authorities and customer bases, will enter
into competition with the Company, or that PTTs will become deregulated and gain
the pricing flexibility to compete more effectively with the Company. The
ability of a deregulated PTT to compete on the basis of greater size and
resources and long-standing relationships with customers in its own country
could have a material adverse effect on the Company's business, financial
condition or results of operations.
-20-
<PAGE>
The large U.S. long distance carriers have, in the past, been reluctant to
compete directly with the PTTs. There can be no assurance, however, that other
large carriers will not begin to compete in the industry. Because of their
ability to compete on the basis of superior financial and technical resources,
the entry of any large U.S. long distance carrier into the business could have a
material adverse effect on the Company's business, financial condition or
results of operations.
Competition for customers in the Company's international telecommunication
and long distance markets is primarily on the basis of price and, to a lesser
extent, on the basis of the type and quality of service offered. Increased
competition could force the Company to reduce its prices and profit margins if
the Company's competitors are able to procure rates or enter into service
agreements comparable to or better than those the Company obtains, or to offer
other incentives to existing and potential customers. Similarly, the Company
has no control over the prices set by its competitors in the long distance
resale carrier-to-carrier market. The Company could also face significant
pricing pressure if it experiences a decrease in its market share of
international long distance traffic, as the Company's ability to
obtain-favorable rates and tariffs depends, in large part, on the volume of
international long distance call traffic the Company can generate for
third-party IXCs. There is no guarantee that the Company will be able to
maintain the volume of domestic and international long distance traffic
necessary to obtain favorable rates and tariffs. In addition, the Company is
aware that its ability to market its carrier services depends upon the existence
of spreads between the rates offered by the Company and those offered by the
IXCs with whom it competes as well as those from whom it obtains service. A
decrease in such spreads could have a material adverse effect on the Company's
business, financial condition, or results of operations.
Internet Access
The Company's current and prospective competitors include many large
companies that have substantially greater market presence and financial,
technical, operational, marketing and other resources and experience than the
Company. The Company's Internet access business competes or expects to compete
directly or indirectly with the following categories of companies: (i) other
national and regional commercial Internet access providers; (ii) established
on-line services companies that offer Internet access; (iii) software and
technology companies; (iv) national long distance telecommunications carriers;
(v) RBOCs; (vi) cable television operators; (vii) nonprofit or educational
Internet service providers; and (viii) newly licensed providers of
spectrum-based wireless data services.
-21-
<PAGE>
Many of the established on-line services companies and telecommunications
companies have begun to offer or announced plans to offer expanded Internet
access services. The Company expects that all of the major on-line services
companies will eventually compete fully in the Internet access market. In
addition, the Company believes that new competitors, including large computer
hardware and software, cable, media, wireless, and wireline telecommunications
companies such as the RBOCs, will enter the Internet access market, resulting in
even greater competition for the Company. The ability of these competitors or
others to bundle services and products not offered by the Company with Internet
access services could place the Company at a significant competitive
disadvantage. In addition, certain of the Company's competitors that are
telecommunications companies may be able to offer customers reduced
communications charges in connection with their Internet access services or
other incentives, reducing the overall cost of their Internet access solution
and increasing price pressures on the Company. This price competition could
reduce the average selling price of the Company's services. In addition,
increased competition for new subscribers could result in increased sales and
marketing expenses and related subscriber acquisition costs, which could
materially adversely affect the Company's profitability. There can be no
assurance that the Company will be able to offset the effects of any such price
reductions or incentives with an increase in the number of its customers, higher
revenue from enhanced services, cost reductions or otherwise.
Competition is also expected to increase in overseas markets, where
Internet access services are just beginning to be introduced. There can be no
assurance that the Company will be able to increase its presence in the overseas
markets it presently serves, or to enter other overseas markets. There can be
no assurance that the Company will be able to obtain the capital required to
finance such continued expansion. In addition, there can be no assurance that
the Company will be able to obtain the permits and operating licenses required
for it to operate, hire and train employees or market, sell and deliver services
in foreign countries. Further, entry into foreign markets will result in
competition from companies that may have long-standing relationships with or
possess a better understanding of their local markets, regulatory authorities,
customers and suppliers. There can be no assurance that the Company can obtain
similar levels of local knowledge, and failure to obtain that knowledge could
place the Company at a serious competitive disadvantage. To the extent the
ability to provide access to locations and services overseas becomes a
competitive advantage in the Internet access industry, failure of the Company to
penetrate overseas markets or to increase its presence in the overseas markets
it presently serves may result in the Company being at a competitive
disadvantage relative to other Internet access providers.
The Company believes that its ability to compete successfully in the
Internet access market depends upon a number of factors, including: market
presence; the adequacy of the Company's customer support services; the capacity,
reliability and security of its network infrastructure; the ease of access to
and navigation of the Internet; the pricing policies of its competitors and
suppliers; regulatory price requirements for interconnection to and use of
existing local exchange networks by Internet services; the timing of
introductions of new products and services by the Company and its competitors;
the Company's ability to support existing and emerging industry standards; and
trends within the industry as well as the general economy. There can be no
assurance that the Company will have the financial resources, technical
expertise or marketing and support capabilities to continue to compete
successfully in the Internet access market.
-22-
<PAGE>
LICENSES
In the United States, licenses must be obtained from the FCC or state
regulatory authorities depending upon the type of license and/or services to be
offered. In order to provide telecommunications services outside the United
States, the Company must obtain appropriate licenses or enter into agreements
with the foreign government or PTT.
In most foreign countries in which the Company operates, telecommunications
licenses must be held by a corporation organized under the laws of that country.
In Panama, Venezuela, Mexico, Honduras, El Salvador, Nicaragua and Costa Rica,
the Company has created a corporation in each such country, obtained appropriate
licenses with the assistance of local partners and obtained a majority ownership
position in exchange for the capital required to build out the system. The
Company intends to operate only in Latin American countries (other than the
United States) where foreign majority ownership of the license-holding
corporation is permitted.
The Company has been successful in negotiating and obtaining the Latin
American licenses and agreements summarized below:
<TABLE>
<CAPTION>
================================================================================
TYPE OF LICENSE OR
COUNTRY AGREEMENT DATE SCOPE
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Costa Satellite Aug. 1997 Establish and operate "on
Rica premise" private
satellite earth
stations; license from
both Instituto
Costarricense de
Electricidad (ICE) and
Radiografica
Costarricense S.A.
(RACSA)
Costa Teleport Jan. 1998 Establish Teleport
Rica services; license issued
by RACSA
Costa Private Aug. 1997 Private satellite
Rica satellite stations; the Company is
stations obligated to pay Costa
Rican tariff for
satellite services, but
a discounted tariff is
provided for when the
satellite station is
provided by the Company;
agreement with ICE and
RACSA
Costa Teleport Apr. 1998 Teleport services (which
Rica will avoid the cost of single user private
satellite stations);
agreement with RACSA
El Satellite Jul. 1996 Provide "on premises"
Salvador private satellite earth
stations using the
Solidaridad satellite
system; license issued
by ANATEL
Honduras Teleport Dec. 1995 Provide "on premises"
authorized earth
stations for private
line and data services;
license issued by
Honduran
Telecommunications
Company ("HONDUTEL")
-23-
<PAGE>
TYPE OF LICENSE OR
COUNTRY AGREEMENT DATE SCOPE
- --------------------------------------------------------------------------------
Mexico Satellite Jul. 1995 Provide satellite
services with Mexico and
complete use of Mexican
Solidaridad satellite
system; agreements with
TELECOMM MEXICO
Mexico Communications Jan. 1998 Provide value-added
services communications services;
license issued by
Telecom de Mexico
Nicaragua Internet Provide Internet
services; license
Nicaragua Teleport Provide Teleport
services; license
Nicaragua IPL Right to sell dedicated
services international private
lines; agreement with
Nicaraguan government.
Nicaragua International International switched
switched voice; agreement with
voice Nicaraguan government
Panama Satellite Dec. 1995 Authorized to provide
international carrier
voice and data via the
Solidaridad satellite
system and other agreed
communications services;
joint venture with
Instituto Nacional de
Telecomunicaciones de
Panama ("Intel")
Panama Internet Dec. 1995 Authorized by Intel to
provide Internet
services retail and
wholesale within Panama;
license
Panama Digital Construction of digital
Teleport; Teleport to provide IPL
IPL services for Panamanian
services customers
United International Apr. 1995 International
States facilities facilities-based
- based carrier; license from
carrier FCC
United International May 1995 International satellite
States satellite connectivity; license
connectivity from FCC
United Radio station Apr. 1996 Fixed earth station in
States Clear Lake City, Texas,
for domestic fixed satellite service and
international fixed
satellite service;
authorization from FCC
-24-
<PAGE>
TYPE OF LICENSE OR
COUNTRY AGREEMENT DATE SCOPE
- --------------------------------------------------------------------------------
United Radio station Sep. 1996 Fixed earth station in
States Houston, Texas, for
domestic fixed satellite
service and
international fixed
satellite service;
authorization from FCC
United Long Various Long distance services;
States distance certification from
(Various respective state Public
States) Service Commissions
United CLEC May 1997 Interim certification of
States authority to provide
(Georgia) CLEC services; issued by
Georgia Public Service
Commission
United CLEC Pending Authority to provide
States CLEC services;
(Florida) application made to
Florida Public Service
Commission
Venezuela Point to Apr. 1996 Provide voice, data and
point; video point to point and
point to point to multipoint
multipoint services throughout
Venezuela and
internationally; license
authorized by Commision
Nacional de
Telecomunicaciones
("Conatel")
Venezuela Access Jul. 1996 To offer domestic and
international access to
databases for offering
enhanced services such
as Internet services, e-
mail, etc.; concession
from Conatel
Venezuela Digital Mar. 1997 Construction of digital
Teleport; Teleport to provide IPL
IPL services for Venezuelan
services customers; the Company
pays Conatel on an
annual basis the
equivalent of 1/2 of 1% of
gross invoicing for the
services provided under
the Agreement; agreement
with Conatel
- --------------------------------------------------------------------------------
</TABLE>
EMPLOYEES
As of March 31, 1999, the Company had 183 full time employees, 129 located
in the US and 54 located in various Latin American countries. None of the
Company's employees is represented by a labor union or covered by a collective
bargaining agreement and the Company has never experienced a work stoppage. The
Company believes that its relations with its employees are good.
-25-
<PAGE>
RISK FACTORS
Limited Operating History; Operating Losses
The Company has only a limited history upon which an evaluation of it and
its prospects can be based. Although the Company has experienced substantial
revenue growth since the inception of its business in April 1995, it has
incurred losses totaling approximately $30,752,863 as of December 31, 1998. As
of December 31, 1998, the Company had stockholder's equity of $12,385,245. The
Company's current focus is on increasing its customer and subscriber bases, and
the Company continues to hire additional personnel and to increase its expenses
related to product development, marketing, network infrastructure, technical
resources and customer support. As a result, the Company expects that it will
continue to incur net operating losses at least through the end of the second
quarter of 1999. There can be no assurance that revenue growth will continue or
that the Company will in the future achieve or sustain profitability on either a
quarterly or annual basis.
The Company may implement its strategy to grow its customer and subscriber
bases through methods that may result in increases in costs as a percentage of
revenues, such as expansions of its promotional programs and implementation of
new pricing programs. In addition, an acceleration in the growth of the
Company's subscriber and customer bases or changes in usage patterns among
subscribers may also increase costs as a percentage of revenues. Consequently,
there can be no assurance that the Company's operating margins will not be
adversely affected in the future by these strategies or events.
Need for additional capital to finance grawth and capital requirements
The Company must continue to enhance and expand its network in order to
maintain its competitive position and continue to meet the increasing demands
for service quality, availability and competitive pricing. The Company's
ability to grow depends, in part, on its ability to expand its operations
through the establishment of new POP's and earth stations, each of which
requires significant advance capital equipment expenditures as well as advance
expenditures and commitments for leased telephone company facilities and
circuits and advertising. The Company will need to raise additional capital
from equity or debt sources to fund its anticipated development. There can be
no assurance that the Company will be able to raise such capital on favorable
terms or at all. If the Company is unable to obtain such additional capital,
the Company may be required to reduce the scope of its anticipated expansion,
which could have a material adverse effect on the Company's business, financial
condition or results of operations and its ability to compete.
Risks of Growth and Expansion
The number of the Company's employees has grown rapidly and several members
of the Company's current management team have joined the Company recently. The
Company's growth has placed, and is expected to continue to place, a significant
strain on the Company's management, administrative, operational, financial and
technical resources and increased demands on its systems and controls. The
Company believes that it will need, in the long term, to hire additional
qualified administrative management personnel in the accounting and finance
areas to manage its financial control systems. In addition, there can be no
assurance that the Company's operating and financial control systems,
infrastructure and existing facilities will be adequate to support the Company's
future operations or maintain and effectively monitor future growth. Failure to
manage the Company's growth properly could have a material adverse effect on the
Company's business, financial condition or results of operations.
-26-
<PAGE>
The Company plans to build additional points-of-presence ("POPs"). There
can be no assurance that the Company will be able to add service in new cities
at the rate presently planned by it. In addition, increases in the Internet
subscriber base will result in additional demands on its customer support,
sales, marketing, administrative and technical resources and network
infrastructure. Increases in the Company's telecommunications customer base
will also produce increased demands on its sales, marketing and administrative
resources, as well as on its engineering resources and on its switching and
routing capabilities. The Company anticipates that its continued growth will
require it to recruit and hire a substantial number of new managerial, technical
and sales and marketing personnel. The inability to continue to upgrade the
networking systems of the operation and financial control systems, the inability
to recruit and hire necessary personnel or the emergence of unexpected expansion
difficulties could have a material adverse effect on the Company's business,
financial condition or results of operations.
Demands on the Company's network infrastructure and technical staff and
resources have grown rapidly with the Company's expanding customer base, and the
Company has in the past experienced difficulties satisfying the requests for its
Internet access and telecommunications services. The Company expects to
experience even greater strain on its billing and operational systems as it
develops, operates and maintains its network. There can be no assurance that
the Company's finance and technical staff will be adequate to facilitate the
Company's growth. The Company believes that its ability to provide timely
access for subscribers and adequate customer support services will largely
depend upon the Company's ability to attract, identify, train, integrate and
retain qualified personnel. There can be no assurance that the Company will be
able to do this. A failure to effectively manage its customer base and reduce
its subscriber cancellation rate could have a material adverse effect on the
Company's business, financial condition or results of operations.
Dependence on Key Personnel; Need to Hire Additional Qualified Personnel
The Company is highly dependent on the technical and management skills of
its key employees, including technical, sales, marketing, financial and
executive personnel, and on its ability to identify, hire and retain additional
personnel. Competition for such personnel is intense and there can be no
assurance that the Company will be able to retain existing personnel or identify
or hire additional personnel. In addition, the Company is highly dependent on
the services of Stephen E. Raville, Chairman of the Board and Chief Executive
Officer; Gary D. Morgan, President and Chief Operating Officer; and Patrick E.
Delaney, Chief Financial Officer. The loss of the services of any of them could
have a material adverse effect on the Company's business, financial condition or
results of operations.
-27-
<PAGE>
Shares Available for Future Sale
The Company has financed its operations and acquisitions principally
through the issuance of securities in "private placements" exempt from
registration under federal and applicable state securities laws. As a
consequence, approximately thirty-three percent (33%) of the Company's issued
and outstanding common stock at March 31, 1999 are "restricted securities" which
cannot be resold except in compliance with similar exemptions from federal and
applicable state securities laws. Under Rule 144 as currently in effect,
restricted securities are generally available for public resale after such
securities have been held by the purchasers thereof for a period of one year.
After the expiration of the one year holding period, such securities may be sold
in "broker's transactions" provided that certain requirements are met and that
the sales by a holder of such securities during any three month period do not
exceed the greater of one percent (1%) of the then issued and outstanding shares
of the issuer or the average weekly trading volume of such shares in the
over-the counter market during the four calendar weeks preceding the date on
which a notice of such sale is sent to the Securities and Exchange Commission.
At the end of two years, persons not "affiliated" with the issuer may sell
restricted securities without regard to the volume limitations imposed by Rule
144. Persons "affiliated" with the issuer are persons deemed to be in control of
the issuer, including executive officers, directors and ten percent or greater
shareholders; such persons may sell shares only in compliance with the
requirements of Rule 144, including the volume limitations imposed thereby,
regardless of the length of time such securities have been held. As of March
31, 1999, approximately 33% of the Company's issued and outstanding stock is
held by affiliates. Most of the Common Stock of the Company will be available
for public sale within the next twelve months. The large numbers of the
Company's shares which have or will become available for public sale in the near
future, along with the demand and piggyback registration rights granted by the
Company (described elsewhere herein) create the possibility of volatility in the
market for the Company's stock and the possibility of adverse effects on the
prevailing market price of the Company's stock.
Dependence on Technological Development
The markets the Company serves are characterized by rapidly changing
technology, evolving industry standards, emerging competition and frequent new
service and product introductions. There can be no assurance that the Company
can successfully identify new service opportunities and develop and bring new
products and services to market in a timely and cost-effective manner, or that
products, services or technologies developed by others will not render the
Company's products, services or technologies noncompetitive or obsolete. In
addition, there can be no assurance that product or service developments or
enhancements introduced by the Company will achieve or sustain market acceptance
or be able to effectively address the compatibility and inoperability issues
raised by technological changes or new industry standards.
The Company is also at risk to fundamental changes in the way Internet
access services are delivered. Currently, Internet services are accessed
primarily by computers through telephone lines. However, several companies have
recently introduced, on an experimental basis, delivery of Internet access
services through cable television lines. If the Internet becomes accessible by
cable modem, screen-based telephones, television or other consumer electronic
devices, or customer requirements change the way Internet access is provided,
the Company will need to develop new technology or modify its existing
technology to accommodate these developments. Required technological advances
by the Company as the industry evolves could include compression, full motion
video, and integration of video, voice, data and graphics. The Company's
pursuit of these technological advances may require substantial time and
expense, and there can be no assurance that the Company will succeed in adapting
its Internet service business to alternate access devices and conduits.
-28-
<PAGE>
The Company's success is dependent in part upon its ability to enhance
existing products and services and to develop new products and services that
meet changing customer requirements on a timely and cost-effective basis. There
can be no assurance that the Company's competitors will not independently
develop technologies that are substantially equivalent or superior to the
Company's technology. In addition, there can be no assurance that licenses for
any intellectual property that might be required for the Company's services or
products would be available on reasonable terms if at all.
Dependence on Suppliers
The Company is dependent on third party suppliers of hardware and network
connectivity for many of its products and services and generally does not have
long-term contracts with suppliers. Certain of these suppliers are or may
become competitors of the Company, and such suppliers are not subject to
restrictions upon their ability to compete with the Company. To the extent that
any of these suppliers change their pricing structure or terminate service, the
Company may be adversely affected. The Company is dependent upon third party
providers, which are the primary providers to the Company of data communications
facilities and capacity and lease to the Company physical space for switches,
modems and other equipment. If these suppliers are unable to expand their
networks or unwilling to provide or expand their current level of service to the
Company in the future, the Company's operations could be adversely affected.
The Company has from time to time experienced delays in the receipt of
network access and telecommunications services. In addition, the Company has
also from time to time experienced delays in the receipt of certain hardware
components. A failure by a supplier to deliver quality services or products on
a timely basis, or the inability to develop alternative sources if and as
required, could result in delays which could have a material adverse effect on
the Company. In addition, the Company maintains relationships with certain
equipment suppliers in the design of products, which they sell to the Company.
The Company's remedies against suppliers who fail to deliver products on a
timely basis are limited, in many cases, by practical considerations relating to
the Company's desire to maintain relationships with the suppliers. As the
Company's suppliers revise and upgrade the technology of their equipment, the
Company may encounter difficulties in integrating the new technology into its
network.
International Expansion
The Company's strategy includes expansion of its business into
international markets. There can be no assurance that the Company will be able
to obtain the permits and operating licenses, if any are required, necessary for
it to operate, to hire and train employees or to market, sell and deliver high
quality services in these markets. In many countries, the Company may need to
enter into a joint venture or other strategic relationship with one or more
third parties in order to successfully conduct its operations. There can be no
assurance that such factors will not have a material adverse effect on the
Company's future international operations and, consequently, on the Company's
business, financial condition or results of operations.
-29-
<PAGE>
International Economic Volatility
The Company and its customers are subject to a variety of risks in
connection with conducting business internationally, including: fluctuations in
exchange rates; political and economic instability; changes in diplomatic and
trade relationships; longer payment cycles; difficulties in collecting accounts
receivable; managing independent sales organizations; staffing and managing
international operations; protecting intellectual property and enforcing
agreements in other countries; cultural differences affecting product demand;
potentially adverse tax consequences resulting from operating in multiple
jurisdictions with different tax laws; and changes in tariffs and other barriers
and restrictions. There can be no assurance that such factors will not require
the Company to modify its current business practices or have a material adverse
impact on the Company's business, financial condition and prospects.
New and Uncertain Market
The market for Internet connectivity services and related software products
is in an early stage of growth. Since this market is relatively new and because
current and future competitors are likely to introduce Internet connectivity
and/or online services and products, it is difficult to predict the rate at
which the market will grow or at which new or increased connection will result
in market saturation. The novelty of the market for Internet access services
may also adversely affect the Company's ability to retain new customers, as
customers unfamiliar with the Internet may be more likely to discontinue the
Company's services after an initial trial period than other subscribers. If
demand for Internet services fails to grow, grows more slowly than anticipated,
or becomes saturated with competitors, the Company's business, operating results
and financial condition will be adversely affected.
To continue to realize customer growth in all its markets, the Company must
continue to replace terminating customers and attract additional customers.
However, the sales and marketing expenses and acquisition costs associated with
attracting new customers are substantial. Accordingly, the Company's ability to
improve operating margins will depend in part on the Company's ability to retain
its customers. The Company continues to invest significant resources in its
telecommunications infrastructure and customer support resources in connection
with all its businesses. There can be no assurance that the Company's
investments in telecommunications infrastructure and customer support
capabilities will improve customer retention. Since the Company's markets are
new and the utility of available service is not well understood by new and
potential customers, the Company is unable to predict future customer retention
rates.
Risks of Implementation of the CLEC Networks
The Company's ability to achieve its strategic objectives will depend in
large part upon the successful, timely, and cost-effective completion of its
networks. The Company's inability to complete its CLEC networks in a timely,
cost-efficient manner will have a material adverse effect on the Company's
business, financial condition, and results of operations.
Uncertainty of Market Acceptance; Potential Lack of Customer Demand
The Company has not yet commenced marketing certain of its services to
potential subscribers. There can be no assurance that there will be sufficient
demand from its target customers for its services, and if such demand exists,
there can be no assurance that the Company will be able to service successfully
its target market on a profitable basis. The Company's ability to attract and
retain customers (including those that switch their current telecommunications
service to the Company) is crucial to the Company's success.
-30-
<PAGE>
To continue to realize customer growth in all its markets, the Company must
continue to replace terminating customers and attract additional customers.
However, customer acquisition costs are substantial. Accordingly, the Company's
ability to improve operating margins will depend in part on the Company's
ability to retain its customers. Since the Company's markets are new and the
utility of available service is not well understood by new and potential
customers, the Company is unable to predict future customer retention rates.
Risk of System Failure
The success of the Company is largely dependent upon its ability to deliver
high quality, uninterrupted access to the Internet and other telecommunication
services. Any system failure that causes interruptions in the Company's
operations could have a material adverse effect on the Company. The Company has
experienced failure relating to individual POP's and the Company's customers
have experienced difficulties in accessing, and maintaining connection to the
Internet. The backbone of the Company's network, in addition to the Company's
overall telecommunications and Internet network, is currently leased from
certain suppliers, such as Quest LCI, Savvis, Sprint, Cable & Wireless, and
MCI/Worldcom. If these suppliers are unable to expand their networks or are
unwilling to provide or expand their current level of service to the Company in
the future, the Company's operations could be adversely affected. As the
Company attempts to expand its network and data traffic grows, there will be
increased stress on network hardware and traffic management systems. However,
there can be no assurance that the Company will not experience failures relating
to individual POP's or even failure of the entire network. The Company's
operations also are dependent on its ability to successfully expand its network
and integrate new and emerging technologies and equipment into its network,
which are likely to increase the risk of system failure and cause unforeseen
strains upon the network. The Company attempts to minimize customer
inconvenience in the event of a system disruption by high quality services and
redundancy. However, significant or prolonged system failures, or difficulties
for subscribers in accessing, and maintaining connection with the Internet could
damage the reputation of the Company and result in the loss of subscribers.
Such damage or losses could have a material adverse effect on the Company's
ability to obtain new subscribers and on the Company's business, financial
condition or results of operations.
The Company's operations are dependent on its ability to protect its
software and hardware against damage from fire, earthquake, power loss,
telecommunications failure, natural disaster and similar events. A significant
portion of the Company's computer equipment is located at its facilities in
Houston, Texas. The Company's switches and other telephone equipment are located
in Houston, Texas; Miami, Florida; Atlanta, Georgia; New York, New York; Panama
City and Colon, Panama; Caracas, Venezuela; San Jose, Costa Rica; Mexico City,
Mexico; Managua, Nicaragua; and San Salvador, El Salvador. Any damage or
failure that causes interruptions in the Company's operations could have a
material adverse effect on the Company's business and results of operations.
While the Company and its subsidiaries carry some property and business
interruption insurance, such coverage may not be adequate to compensate the
Company for all losses that may occur.
-31-
<PAGE>
Security Risks
Despite the implementation of network security measures by the Company,
such as limiting physical and network access to its routers, its
telecommunications infrastructure is vulnerable to computer viruses, break-ins
and similar disruptive problems caused by its customers or other Internet users.
Computer viruses, break-ins or other problems caused by third parties could lead
to interruption, delays or cessation in service to not only the Company's
Internet customers, but also the Company's telecommunication users.
Furthermore, such inappropriate use of the voice and data systems by third
parties could also potentially jeopardize the security of confidential
information stored in the computer systems of the Company's customers and other
parties, which may deter potential subscribers. Persistent security problems
continue to plague public and private data networks. Recent break-ins reported
in the press and otherwise have reached computers connected to the Internet at
major corporations and Internet access providers and have included incidents
involving hackers by-passing fire-walls by posing as trusted computers and
involving the theft of information. Alleviating problems caused by computer
viruses, break-ins or other problems caused by third parties may require
significant expenditures of capital and resources by the Company, which could
have a material adverse effect on the Company. Moreover, until more
comprehensive security technologies are developed, the security and privacy
concerns of existing and potential customers may inhibit the growth of the
Internet service industry in general and the Company's customer base and
revenues in particular.
Potential Liability for Informations Disseminated Through the Network
Internet service providers face potential liability of uncertain scope for
the actions of subscribers and others using their systems, including liability
for infringement of intellectual property rights, rights of publicity,
defamation, libel and criminal activity under the laws of the U.S. and foreign
jurisdictions. The Company carries errors and omissions insurance; however, such
insurance may not be adequate to compensate the Company for all liability that
may be imposed. Any imposition of liability in excess of the Company's coverage
could have a material adverse effect on the Company. In addition, recent
legislative enactments and pending legislative proposals aimed at limiting the
use of the Internet to transmit indecent or pornographic materials could,
depending upon their interpretation and application, result in significant
potential liability to Internet access and service providers including the
Company, as well as additional costs and technological challenges in complying
with any statutory or regulatory requirements imposed by such legislation.
-32-
<PAGE>
Fluctuations in Quarterly Operating Results
The Company's quarterly operating results have fluctuated in the past and
may fluctuate significantly in the future as a result of a variety of factors,
some of which are outside the Company's control. These factors include general
economic conditions, acceptance and use of the Internet, user demand for long-
distance telecommunication services, capital expenditures and other costs
relating to the expansion of operations, the timing of new product announcements
by the Company or its competitors, changes in pricing strategies by the Company
or its competitors, market availability and acceptance of new and enhanced
versions of the Company's or its competitors' products and services and the
rates of new subscriber and customer acquisition and retention. These factors
could also have a material adverse effect on the Company's annual results of
operations and financial condition.
Volatility of Stock Price
The market price of the Company's Common Stock may be highly volatile. The
"public float" of the Company's Common Stock is a small percentage of the total
issued and outstanding shares of Common Stock and substantial numbers of shares
have been subject to restrictions on transfer which will terminate in the near
future. Factors such as variations in the Company's revenue, earnings and cash
flow and announcements of new service offerings, technological innovations or
price reductions by the Company, its competitors or providers or alternative
services could cause the market price of the Common Stock to fluctuate
substantially. In addition, the stock markets recently have experienced
significant price and volume fluctuations that particularly have affected
companies in the technology sector and resulted in changes in the market price
of the stocks of many companies that have not been directly related to the
operating performance of those companies.
Ability of Management to Dictate Corporate Policy and the Composition of the
Board of Directors
Management and certain members of the Board of Directors of the Company own
or control, directly or indirectly, approximately one-third of the issued and
outstanding shares of the Common Stock of the Company. The Articles of
Incorporation and Bylaws of the Company provide that: (1) the presence of a
majority of the shareholders eligible to vote is required to constitute a quorum
at shareholders' meetings; (2) the vote of the holders of a majority of the
shares present at a meeting where a quorum is constituted is required to adopt
any resolution, unless a greater percentage is required by statute, in which
case a majority of the outstanding shares will be required; (3) shareholder
action may be taken by written consent, without prior notice, signed by the
holder(s) of the number of shares necessary to approve such action; and (4)
voting is noncumulative. As a consequence of the concentrations of stock
ownership in the hands of such persons, they have the ability to significantly
influence corporate policy, the persons elected to the Board of Directors of the
Company and may be able to block certain corporate actions.
Potential Adverse Impact of Antitakeover Provisions
The Company's articles of incorporation and bylaws and the provisions of
the Nevada General Corporation Law may have the effect of delaying, deterring or
preventing a change in control or an acquisition of the Company. The Company's
articles of incorporation authorizes the issuance of "blank check" preferred
stock, which, in the event of issuance, could be utilized by the board of
directors of the Company as a method of discouraging, delaying or preventing a
change in control or an acquisition of the Company, even though such an attempt
might be economically beneficial to the holders of Common Stock. Such
provisions may have an adverse impact from time to time on the price of the
Common Stock.
-33-
<PAGE>
Government Regulation
The telecommunications industry is subject to extensive regulation by
federal, state and local governmental agencies, including common carrier
regulation by the Federal Communications Commission ("FCC"). The
Telecommunications Act of 1996 (the "1996 Telecommunications Act") eliminates
many of the pre-existing legal barriers to competition in the telephone and
video programming communications businesses, preempts many of the state barriers
to local telephone service competition that previously existed in state and
local laws and regulations, and sets basic standards for relationships between
telecommunications providers. Among other things, the 1996 Telecommunications
Act removes barriers to entry in the local exchange telephone market by
preempting state and local laws that restrict competition and by requiring LECs
to provide nondiscriminatory access and interconnection to potential
competitors, such as cable operators, wireless telecommunications providers, and
long distance companies. In addition, the 1996 Telecommunications Act provides
relief from the earnings restrictions and price controls that have governed the
local telephone business for many years. The 1996 Telecommunications Act will
also, once certain thresholds are met, allow ILECs to enter the long distance
market within their own local service regions. The 1996 Telecommunications Act
thus introduced the possibility of new, non-traditional competition for
telecommunications companies and resulted in greater potential competition for
the Company. The outcome of pending federal and state administrative
proceedings may also affect the nature and extent of competition that will be
encountered by the Company.
Providing local service requires appropriate licensure in each state where
service is provided. The Company is currently certified as a Competitive Local
Exchange Carrier ("CLEC") in Georgia, but has applied for and is awaiting
certification in Florida. The Company also intends to apply for certification
in Texas, New York, California and Puerto Rico during 1999. While the Company
believes it will be successful in obtaining such certification the outcome
cannot be assured. Future regulations may prevent the Company from generating
revenues from sales of database information about consumers obtained by the
Company from its telephone business. These competitive developments, as well as
other regulatory requirements relating to privacy issues, may have a material
adverse effect on the Company's business.
The Company is also subject to regulation by governmental authorities in
certain foreign countries with respect to the licenses it holds, agreements to
which it is a party, and its operations in such foreign countries.
-34-
<PAGE>
Year 2000 Issue
The Year 2000 Issue is a problem resulting from computer programs being
written using two digits rather than four digits to define the applicable year.
Date-sensitive software may recognize a date using 00 as the year 1900 rather
than 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company is addressing this issue on several different fronts.
First of all, a team has been assigned to evaluate risks to the Company's
internal systems used in the provisioning of telecommunications services through
a five phase process including Awareness, Assessment, Renovation, Validation and
Implementation. A web page has been established at www.y2k.c-com.net containing
additional information about the Year 2000 problem and the Company's compliance
program. Second, the Company has requested Year 2000 compliance certification
from each of its major vendors and suppliers for their hardware or software
products and for their internal business applications and processes. Finally,
the Company has established a team to coordinate solutions to the Year 2000
issue for its own internal information systems and physical facilities. The
Company currently does not expect that the cost of its Year 2000 compliance
program will be material to its financial condition or results of operations or
that its business will be adversely affected by the Year 2000 issue in any
material respect. Nevertheless, achieving Year 2000 compliance is dependent on
many factors, some of which are not completely within the Company's control.
Should either the Company's internal systems or the internal systems of one or
more significant vendors or suppliers fail to achieve Year 2000 compliance, the
Company's business and its results of operations could be adversely affected.
ITEM 2. DESCRIPTION OF PROPERTY.
The Company has its principal office located in Atlanta, Georgia. The
Company leases approximately 11,500 square feet of office space at 2839 Paces
Ferry Road, Suites 500 and 250, Atlanta, Georgia 30339. The term of the lease
commenced on October 1, 1995 and continues for sixty months, expiring September
30, 2000 with a base rent of $18,267 per month.
The Company leases approximately 10,000 square feet of office space at
17100 El Camino Real, Houston, Texas 77058. The lease is for an initial term of
five years and expires on June 30, 2001, unless the Company exercises its
contractual right to renew the lease for two additional terms of five years
each. The monthly rental under the lease is currently $9,800.
The Company leases approximately 1,700 square feet of office space at 28
West Flagler Street, Miami, Florida 33130. The lease is for an initial term of
three years and has been extended two years until January 1, 2001. The monthly
rental under the lease is currently $2,054.
The Company leases additional office and equipment co-location space in the
U.S. in Phoenix, Arizona; Ft. Lauderdale, Florida; Atlanta, Georgia; Houston,
Texas; and New York; New York. The monthly rental under these leases is
currently $31,251.
The Company also leases office or equipment co-location space in Panama
City, Panama; Colon, Panama; Caracas, Venezuela; Cancun, Mexico; San Salvador,
El Salvador; Managua, Nicaragua and San Jose, Costa Rica. The monthly rental
under these leases is currently $15,523.
The physical properties of the Company are in good condition.
-35-
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
Other than the matters discussed below, the Company is not a party to any
legal proceeding or dispute which is not routine and incidental to the business
or which involves an amount, exclusive of interest and costs, which exceeds ten
percent of the current assets of the Company.
Since mid-1996, the Cpmpany has been negotiating with Sprint Communications
L.P. ("Sprint") to resolve a dispute involving Sprint's past services to OCI. On
March 11, 1997, Sprint sent a letter to OCI, claiming that OCI owes Sprint
$4,044,835 for telecommunications services already provided. As of December 31,
1996, the Company had accrued the entire amount, which Sprint claimed was due.
During 1998, the Company finalized and entered into a settlement agreement with
Sprint that required the Company to pay $100,000 upon execution of the agreement
and $50,000 per month of the next 18 months in settlement of the disputes
between the parties. As of December 31, 1998, the Company had paid a total of
$300,000.
During 1998, the Company agreed in principal (pending final documentation)
upon the terms of a settlement of a lawsuit with its former President over
certain agreements including an Executive Employment Agreement. The settlement
agreed to would obligate the Company to pay $25,000 and 77,838 shares. The
amount of the settlement has been accrued, along with related legal fees, and
the related expense is included in Other Income, net for the year ended December
31, 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY-HOLDERS.
No matters were submitted by the Company to a vote of the Company's
security holders, through the solicitation of proxies or otherwise, during the
fourth quarter of the fiscal year covered by this report.
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The Company's Common Stock is traded in the over-the-counter market. The
table set forth below reflects high and low closing bid prices on a quarterly
basis for the period beginning January 1, 1997 and ending December 31, 1998. The
information was obtained from the National Quotation Bureau. The quotations
reflect inter-dealer prices, without retail mark-up, mark-down or commission and
may not represent actual transactions.
-36-
<PAGE>
<TABLE>
<CAPTION>
=================================
1998 HIGH BID LOW BID
- -------------- -------- -------
<S> <C> <C>
First Quarter 1.421 .797
- -------------- -------- -------
Second Quarter 1.687 .875
- -------------- -------- -------
Third Quarter 1.687 .781
- -------------- -------- -------
Fourth Quarter 1.156 .594
- -------------- -------- -------
1997 HIGH BID LOW BID
- -------------- -------- -------
First Quarter 3.312 1.25
- -------------- -------- -------
Second Quarter 2.75 .875
- -------------- -------- -------
Third Quarter 2.50 1.2187
- -------------- -------- -------
Fourth Quarter 2.625 1.1875
- -------------- -------- -------
</TABLE>
As of March 31, 1999, the Company's Common Stock was held by approximately
306 holders of record. The Company estimates that it has a significantly larger
number of shareholders because a substantial number of the Company's shares are
held by broker-dealers for their customers in street name. The Company has not
paid any cash dividends on its Common Stock to date. There are no restrictions
which limit the Company's ability to pay cash dividends on its Common Stock;
however, the Company's current policy is to retain earnings to provide funds for
the operation and expansion of its business.
During the last quarter of 1998, the Company issued 500,000 shares of its
$.00001 par value common stock to an accredited investor in a private placement
as commission for the placement of 4,500,000 shares issued in a private
placement during the first quarter of 1998. Also during the last quarter of
1998, the Company issued 206,250 shares of its $.00001 par value common stock in
a private placement to accredited investors as consideration for the acquisition
of a business. The private placements were intended to be exempt from
registration under the Securities Act of 1933, as amended (the "Act") pursuant
to Regulation D promulgated under the Act and Section 4(2) of the Act.
During the last quarter of 1998, in a private placement, the Company
entered into promissory notes with a par value of $2,000,000. The notes earn
interest at 10% and mature in April 1999. In conjunction with these notes, the
Company issued 760,000 warrants to purchase common stock at $1.00 per share for
three years. These notes are secured by a blanket interest in all personal
property in which the Company has an interest as well as shares of Company stock
owned by officers of the Company. The $2,000,000 raised in this private offering
will be used to offset the Company's operating deficit and to fund capital
expenditures as described in the "Liquidity and Capital Resources" section of
this filing.
-37-
<PAGE>
Item 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
MANAGEMENT'S DISCUSSION AND ANALYSIS
Pointe Communications Corporation (formerly Charter Communications
International, Inc., "PointeCom", or the "Company") is an international,
facilities-based communications company serving residential and commercial
customers in the U.S., Central America and South America. The Company's
products and services include long distance, Internet access, data transmission,
private line services and local dial tone services. The Company also offers
prepaid calling cards to specifically targeted demographic groups and
telecommuting services to corporate clients.
PointeCom began operations in 1995 predominately offering International
Private Line ("IPL") services between the U.S. and Panama. Subsequently, the
Company has secured various communications licenses in the U.S., Panama, Costa
Rica, Venezuela, El Salvador, Nicaragua, Mexico, and Honduras, acquired nine
companies and increased revenue from $544,000 in 1995 to $27.6 million in 1998.
Licenses held by the Company, which vary by country, typically allow the Company
to offer an array of services includung international private line, long
distance, Internet access and data transmission, especially between the U.S. and
Latin America. The Company has established an infrastructure including
satellite earth stations, interconnection agreements, peripheral infrastructure,
and sales and marketing channels in all of the above countries except Honduras
to service existing and future customers. The Company also enjoys strong
relationships with the responsible government agencies, telephone company
authorities and international carriers.
Since its inception, the Company has been focused on providing businesses
with dedicated voice and data services via its private line network. The
Company's primary retail offerings have been Internet access and prepaid calling
cards. The Company's recently adopted strategy is to provide a full array of
bundled telecommunications and network services to both commercial and
residential customers with particular focus on ethnic communities in "paired"
U.S and international markets. In the U.S., the Company's focus is on
communities with large Hispanic populations. Internationally, the Company has
targeted complementary markets with telecommunications traffic patterns that
correspond with the paired U.S. target markets. Management believes that
originating and terminating traffic between domestic and international cities
that share the Company as a common network carrier will provide significant
competitive, marketing and cost advantages.
The Company's strategy assumes that there exists (i) a significant
population in the U.S. that is dissatisfied with its current telecommunications
service, (ii) substantial demand for telecommunications services in the U.S.
Hispanic population, (iii) a lack of ready access to telephony services in Latin
America for a substantial portion of the population, and (iv) a natural synergy
in providing local services in both the U.S. and Latin America to meet basic
telephony needs along with bundled services to meet more advanced communications
requirements between the U.S. and Latin America.
-38-
<PAGE>
The Company anticipates that its strategy will permit it to establish and
maintain profitable growth while developing as a local service provider and long
distance carrier. The Company is attempting to position itself as a cost
efficient, reliable alternative to ILECs by providing bundled telecommunication
services tailored specifically to the needs of certain ethnic groups in paired
domestic and international markets. The Company is implementing a facilities
based infrastructure on a staged basis in certain identified markets with the
ultimate objective of being a full-service CLEC with a low-cost base of
operations.
As part of its implementation plan, the Company is currently establishing
an international backbone for both voice and data switching in and between
Houston, Texas; Atlanta, Georgia; Miami, Florida; New York, New York; San Juan,
Puerto Rico; Managua, Nicaragua; and San Salvador, El Salvador. Future plans
include similar network infrastructure in other U.S. and South and Central
American locations. This network will provide PointeCom with a lower cost basis
for its existing business and a unique partnering opportunity with foreign
Postal, Telephone and Telegraph companies ("PTTs"). The network will also
provide significant marketing advantages and cost savings to its existing
prepaid calling card and telecommute solutions product lines. Failure of the
Company to raise all or a significant portion of the funds needed to build this
network could materially adversely affect the Company's planned and continuing
operations.
See "Liquidity and Capital Resources" for a discussion of the Company's
ability to meet the capital requirements associated with its expansion plans.
-39-
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain financial data for the years ended
December 31, 1998 and 1997. Operating results for any period are not
necessarily indicative of results for any future period. Dollar amounts (except
per share data) are shown in thousands.
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
------------------- -------------------
% of % of
Revenues Revenues
-------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenues:
Communications services $24,392 88.3% $ 9,379 72.5%
Hardware and
Software sales 393 1.4 369 2.8
Internet connection
Services 2,835 10.3 2,748 21.2
Network services - - 455 3.5
-------- --------- --------- --------
Total revenues 27,620 100.0 12,951 100.0
Cost and expenses:
Cost of services 22,972 83.2 9,482 73.2
Cost of hardware
and oftware 274 0.9 284 2.2
Selling, general
and administrative 9,933 36.0 8,766 67.7
Nonrecurring
Charge - - 2,677 20.7
Depreciation and
Amortization 3,452 12.5 2,995 23.1
-------- --------- --------- --------
Total costs
and expenses 36,631 132.6 24,204 186.9
-------- --------- --------- --------
Operating loss <9,011> <32.6> <11,253> <86.9>
-------- --------- --------- --------
Interest expense, net <1,760> <6.4> <481> <3.7>
Other income (loss) 1,624 5.9 <242> <1.9>
-------- --------- --------- --------
Net Loss <9,147> <33.1> <11,976> <92.5>
-------- --------- --------- --------
Net loss per share $ <.22> $ <.39>
Shares used in computing:
net loss per share 42,144 31,085
</TABLE>
-40-
<PAGE>
Consolidated revenues for the combined lines of business for the years
ended December 31, 1998 and 1997 were $27,620,000 and $12,951,000, respectively.
The increase in revenue was principally the result of increased prepaid calling
card sales, primarily driven by competitive rates to Latin America, increased
quality that resulted from a new calling card platform purchased during the
year, and acquisitions during 1998. Other increases came from International
Private Line, mainly to Costa Rica, and the start up of the Telecommuting
Services business. Cost of services and hardware and software costs for the
year ended December 31, 1998 were $23,246,000 and $9,766,000 for the comparable
period in 1997, yielding gross profit margins of 15.9% for 1998 and 24.6% for
the same period in 1997. Gross profit margins were adversely affected by the
fact that prepaid calling card revenues, which generally carry a lower margin
than the Company's other products, represented a higher proportion of total
revenues in 1998 than in 1997. Also contributing to the lower margins were
sales of "off-net" prepaid calling cards i.e., other carriers cards, by a
distributor acquired during 1998, which carry a lower margin than revenues
earned on Company provided cards. Management expects margins to increase as
higher margin businesses increase in proportion to prepaid calling cards and as
the Company expands its network thereby lowering the marginal cost of
terminating voice and data traffic.
Selling, general, and administrative ("SG&A") expenses for 1998 were
$9,933,000 or 36% of sales compared to $8,766,000 or 67.7% of sales for 1997.
The overall increase in expenses was primarily attributable to expansion of the
Company's operations; however, the Company was able to gain economies of scale
while expanding operations as represented by the lower SG&A as a proportion of
sales in 1998. The Company anticipates benefiting further from economies of
scale, as costs such as salaries and wages are not expected to increase in
direct proportion to increases in revenues. Additionally, management
anticipates cost reductions as a result of certain cost control efforts,
including a reduction of the workforce, implemented during the last quarter of
1998.
The non-recurring charge during 1997, was primarily the result of a write
off of the assets related to a business that was exited during the year. In an
effort to narrow the scope of the Company's product offering and to focus
resources on its core competencies, the Company decided to exit the computer
network integration business. As a result, the assets related to PDS, including
approximately $1,889,000 of goodwill and other intangibles and $250,000 of
hardware and software inventory, were written off and approximately $80,000 in
severance and other related costs were accrued.
Depreciation and amortization expense was $3,452,000 for 1998 compared to
$2,995,000 for the prior year. The increase is attributable to the increase in
property, plant and equipment and amortization associated with the acquisitions
completed during 1998.
-41-
<PAGE>
Other income in 1998 resulted from a gain recognized on the settlement of
an account payable to Sprint (see "Legal Proceedings"). An agreement in
principal was reached during 1997 to restructure the Company's payable to
Sprint. At year end 1997, the disputed amount was accrued as a deferred credit.
During 1998, the Company signed a settlement agreement requiring it to pay $1.0
million, at which time the deferred credit was recognized in the statement of
operations. The settlement agreement obligates the Company to pay $100,000 at
settlement and $50,000 per month over the succeeding 18 months. As of December
31, 1998, $700,000 was included in accounts payable, current portion of notes
payable and long term portion of notes payable related to this matter.
Interest expense was $1,760,000 and $481,000 for the years ended December
31, 1998 and 1997, respectively. Interest expense increased significantly
during 1998 because of a number of new debt instruments entered into in late
1997 and during 1998. These include $6.2 million in capital leases, $3.0
million in financing type leases, $2.0 million in bridge loans, $900,000 in
promissory notes and a $600,000 receivable facility. Also included in interest
during 1998 was approximately $400,000 related to a guarantee with regard to
shares issued in conjunction with the 1997 financing type leases. The guarantee
obligated the Company to reimburse the holder of these shares for the difference
between $2.33 and the average closing price of the Company's stock for the
twenty trading days prior to June 30, 1998. The average closing price for this
period was below $2.33 resulting in an approximate $400,000 liability, which is
included in the current portion of notes payable at December 31, 1998.
There was no income tax benefit recorded in either 1998 or 1997, as
management recorded a valuation reserve due to the uncertainty of the timing of
future taxable income. The net losses for the years ended December 31, 1998 and
1997 were approximately $9,147,000 and $11,976,000, respectively.
LIQUIDITY AND CAPITAL RESOURCES
The Company has not generated net cash from operations for any period
presented. The Company has primarily financed its operations to date through
private sales of equity securities and debt to affiliates and outside investors.
During 1998, the Company issued shares of common stock through various
private placement offerings as follows: 9.0 million shares at $0.50 per share,
850,000 shares at $1.00 per share and 500,000 shares at $1.30 per share for
gross proceeds totaling $6.0 million. Also during the year, the Company issued
short-term promissory notes, ranging in term from on demand to one year, for
gross proceeds totaling $2.9 million. During the third quarter, the Company's
subsidiary, Telecommute Solutions, Inc. ("TCS"), completed a private placement
of 2,000 shares of its $1.00 par value Series A Preferred Stock, which is
convertible into TCS or Pointe common stock at the holder's discretion. Gross
proceeds totaled $2.0 million. Finally, the Company entered into a Receivable
purchase facility for gross proceeds of $600,000 and two financing type lease
transactions for gross proceeds totaling $778,000, to complete the $3.0 million
facility entered into in 1997. These funds were used to offset an operating
cash flow deficiency of $7.5 million, purchase assets of $3.5 million, acquire
businesses for approximately $350,000, pay the principal portion of leases of
approximately $403,000, repay lines of credit of approximately $85,000 and repay
notes payable of approximately $158,000. Additionally, during the year, the
Company acquired assets under capital leases for approximately $6.2 million.
-42-
<PAGE>
The Company estimates that it will need to raise approximately $69.7
million to fund existing operations during 1999, including approximately $14.7
million to fund debt due in 1999 and $55 million to fund 1999 capital
expenditures. Prior to year end, a subsidiary of the Company entered into a
master lease facility with a major telecommunications equipment vendor to
purchase $10 million of equipment. As of December 31, 1998, $762,000 had been
drawn upon under this facility. Subsequent to year end, the Company entered
into a $25 million master lease facility and $3 million working capital line of
credit with this same vendor. Also, subsequent to December 31, 1998, the
Company raised $9.0 million in a private placement of short-term bridge
financing to fund network expansion, repay indebtedness and fund operations in
advance of completing a preferred stock private placement. Subsequent to year
end, the Company obtained letters of intent from investors to purchase $30
million of the Company's convertible preferred stock, a portion of which will
be utilized to repay the interim borrowings. The Company anticipates closing
this private placement in April 1999. Additional means of financing will be
sought if necessary and may include but would not be limited to bank loans and
private placements of debt and/or equity. Additionally, the Company may
realize proceeds from exercise of outstanding warrants. However, there can be
no assurance that the Company will be able to raise any such capital on terms
acceptable to the Company, or at all. Failure of the Company to raise all or a
significant portion of the funds needed could materially and adversely affect
the Company's continuing and its planned operations. At December 31, 1998, the
Company had a significant working capital deficit and, at times, has borrowed
funds and sold equity to affiliates/shareholders to fund essential obligations.
While the Company has been able to fund such essential obligations to date and
while management believes its current business activity is such that operating
funds will be available to it as needed to continue operations and to fund
planned growth, no assurance can be given that the Company will be able to raise
such funds on a timely basis or at all. Failure to raise such funds could have
material adverse consequences to the Company and its continuing and planned
operations.
Any increases in the Company's growth rate, shortfalls in anticipated
revenues or increases in anticipated expenses could have a material adverse
effect on the Company's liquidity and capital resources and would either require
the Company to raise additional capital from public or private debt or equity or
scale back operations. The funds raised subsequent to year end, including the
$30 million private placement of the Company's Prefered Stock for which letters
of intent have been received from investors and is expected to close in April
1999, should allow the Company to achieve its potential expansion plans noted in
"Management's Discussion and Analysis"; however if there is any shortfall, the
Company will not engage in such expansion until adequate capital sources have
been arranged. Accordingly, the Company anticipates additional future private
placements and/or public offerings of debt or equity securities will be
necessary to fund such plans. If such sources of financing are insufficient or
unavailable, the Company will be required to significantly change or scale back
its operating plans to the extent of available funding. The Company may need to
raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary businesses or the
development of new products, or to otherwise respond to unanticipated
competitive pressures. There can be no assurance that the Company will be able
to raise any such capital on terms acceptable to the Company or at all.
-43-
<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants
(AICPA) issued a Statement of Position, Accounting for Costs of Computer
Software Developed of Obtained for Internal Use. This statement requires
capitalization of certain costs of internal-use software. The Company adopted
this statement in 1999 and it did not have a material impact on the Company's
financial statements.
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 (SOP 98-5), "Reporting on the Costs of
Start-Up Activities," which is effective for fiscal years beginning after
December 15, 1998. SOP 98-5 requires entities to expense certain start-up costs
and organization costs as they are incurred. The Company does not expect SOP
98-5 to have a material impact on the Company's financial statements.
In June 1998, the Financial Accounting Standards Board issued Statement No.
133 "Accounting for Derivative Instruments and Hedging Activities," which is
effective for fiscal years beginning after June 15, 1999. The statement
establishes accounting and reporting standards for derivative instruments and
transactions involving hedge accounting. The Company adopted the Statement in
the first quarter and it did not have a material impact on its financial
statements.
YEAR 2000
The Year 2000 Issue is a problem resulting from computer programs being
written using two digits rather than four digits to define the applicable year.
Date-sensitive software may recognize a date using 00 as the year 1900 rather
than 2000. This could result in system failures or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities. The Company is addressing this issue on several different fronts.
First of all, a team has been assigned to evaluate risks to the Company's
internal systems used in the provisioning of telecommunications services through
a five phase process including Awareness, Assessment, Renovation, Validation and
Implementation. A web page has been established at www.y2k.c-com.net containing
additional information about the Year 2000 problem and the Company's compliance
program. Second, the Company has requested Year 2000 compliance certification
from each of its major vendors and suppliers for their hardware or software
products and for their internal business applications and processes. Finally,
the Company has established a team to coordinate solutions to the Year 2000
issue for its own internal information systems and physical facilities. The
Company currently does not expect that the cost of its Year 2000 compliance
program will be material to its financial condition or results of operations or
that its business will be adversely affected by the Year 2000 issue in any
material respect. Nevertheless, achieving Year 2000 compliance is dependent on
many factors, some of which are not completely within the Company's control.
Should either the Company's internal systems or the internal systems of one or
more significant vendors or suppliers fail to achieve Year 2000 compliance, the
Company's business and its results of operations could be adversely affected.
-44-
<PAGE>
MARKET RISKS
Management believes the Company's exposure to market rate fluctuations on
its investments is nominal due to the short-term nature of those investments.
To the extent the Company has borrowings outstanding under credit facilities (or
other variable lines), there is market risk relating to such amounts because
the interest rates under the credit facility are variable. The Company does not
believe its exposure represents a material risk to the financial statements.
The Company has operations in Central and South America, which expose it to
currency exchange rate risks. To manage the volatility attributable to these
exposures, the Company nets the exposures to take advantage of natural offsets.
Currently, the Company does not enter into any hedging arrangements to reduce
this exposure. The Company is not aware of any facts or circumstances that
would significantly impact such exposures in the near-term principally as the
significant majority of the Company's activities are settled in the US Dollar.
If, however, there was a 10 percent sustained decline in these currencies versus
the U.S. dollar, then the consolidated financial statements could be effected as
international operations represented approximately 4.6% of total assets as of
December 31, 1998 and 8.3% and 21.6% of total revenues and net loss for the year
ended December 31, 1998, respectively.
ITEM 7. FINANCIAL STATEMENTS.
Attached following the Signature Pages and Exhibits, see the index to the
financial statements.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
The Company has not had any disagreements with its independent accountants
and auditors.
PART III
Pursuant to instruction E(3) to Form 10-KSB, the information in Items 9-12
is incorporated by reference from the Company's definitive proxy statement which
will be filed with the Commission pursuant to Regulation 14A on or about April
30, 1999, or from an amendment to this Form 10-KSB to be filed no later than
April 30, 1999.
-45-
<PAGE>
ITEM 13. EXHIBITS LIST AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
Exhibit No. Description Location
- ----------- --------------------------------------- -----------------------------
<C> <S> <C>
3.01 Articles of Incorporation Form 10-QSB for the quarter
ended March 31, 1996
3.01.01 Certificate of Amendment to Filed herewith
Articles of Incorporation
3.03 Bylaws Form 10-QSB for the quarter
ended June 30, 1996
4.2 Form of 18% Convertible, Form 10-KSB for year ended
Subordinated Debenture 12/31/97
10.1 Contract with INTEL Form 10-KSB for the year
ended 12/31/95
10.2 Employee Incentive Stock Option Plan Form S-8 filed August 7, 1998
10.3 Executive Long Term Stock Option Plan Form S-8 filed August 7, 1998
10.4 Non-employee Director Stock Form S-8 filed August 7, 1998
Option Plan
10.5 Agreement with Hondutel Form 10-QSB for the quarter
ended June 30, 1996
10.6 Agreement with Telecommunicaciones Form 10-QSB for the quarter
de Mexico ended June 30, 1996
10.7 Agreement with Comison Nacional de Form 10-QSB for the quarter
Telecommunications (Conatel) ended June 30, 1996
10.8 Form of Purchase and Sale Agreement Form 10-KSB for the year end
December 31, 1997
10.9 Form of Equipment Lease Agreement Form 10-KSB for the year end
December 31, 1997
10.10 Form of Security Agreement Form 10-KSB for the year end
December 31, 1997
10.11 Receivable Purchase Facility Agreement Form 10-KSB for the year end
December 31, 1997
10.12 Registration Rights and Minimum Value Form 10-KSB for the year end
Guarantee Agreement December 31, 1997
10.13 Master Lease Agreement and Warrant Form 10-KSB for the year end
December 31, 1997
10.14 Promissory Note, Security Agreement Filed herewith
and Warrant Agreement - Cordova
10.15 Promissory Note, Security Agreement Filed herewith
and Warrant Agreement - FSE
10.16 Promissory Note, Security Agreement Filed herewith
and Warrant Agreement - Gibralt
10.17 Promissory Note, Security Agreement Filed herewith
and Warrant Agreement - EGL
10.18 Telecommute Solutions Stock Option Filed herewith
Option Plan
10.19 Purchase of Preferred Stock in Filed herewith
Telecommute Solutions Inc.
11.1 Net Loss Per Share Calculation Filed herewith
21.1 List of subsidiaries Filed herewith
23.1 Consent of Arthur Andersen LLP Filed herewith
27 Financial Data Schedule Filed herewith
</TABLE>
-46-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, this registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
POINTE COMMUNICATIONS CORPORATION
By: /s/ STEPHEN E. RAVILLE Date: April 15, 1999
-------------------------
STEPHEN E. RAVILLE, CHIEF EXECUTIVE OFFICER
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Stephen E. Raville, his true and lawful
attorney in-fact and agent with full power of substitution and resubstitution,
to sign any and all amendments (including post effective amendments) to this
Annual Report on Form 10-KSB and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent, full power and
authority to do and perform each and every act and thing requisite and necessary
to be done in connection therewith, as fully to all intents and purposes as he
could do in person, hereby ratifying and confirming that said attorney-in-fact
or his substitute, or any of them shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- --------------------------- ----------------------------- --------------
By: /s/ STEPHEN E. RAVILLE Chief Executive Officer and April 15, 1999
- ---------------------------
STEPHEN E. RAVILLE Director
By: /s/ GARY D. MORGAN President and Chief Operating April 15, 1999
- ---------------------------
GARY D. MORGAN Officer
By: /s/ PATRICK E. DELANEY Chief Financial Officer and April 15, 1999
- ---------------------------
PATRICK E. DELANEY Director
By: /s/ RICHARD P. HALEVY Treasurer and Controller April 15, 1999
- ---------------------------
RICHARD P. HALEVY
By: /s/ WILLIAM P. O'REILLY Director April 15, 1999
- ---------------------------
WILLIAM P. O'REILLY
By: /s/ GERALD F. SCHMIDT Director April 15, 1999
- ---------------------------
GERALD F. SCHMIDT
By: /s/ F. SCOTT YEAGER Director April 15, 1999
- ---------------------------
F. SCOTT YEAGER
By: /s/ JAMES R. DORSEY Director April 15, 1999
- ---------------------------
JAMES R. DORSEY
-47-
<PAGE>
<TABLE>
<CAPTION>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
----
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets as of December 31, 1998 and 1997 F-2
Consolidated Statements of Operations for the Years Ended
December 31, 1998 and 1997 F-4
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1998 and 1997 F-5
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998 and 1997 F-7
Notes to Consolidated Financial Statements F-8
</TABLE>
-48-
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pointe Communications Corporation:
We have audited the accompanying consolidated balance sheets of POINTE
COMMUNICATIONS CORPORATION and subsidiaries (a Nevada corporation) (formerly,
"Charter Communications International, Inc.") as of December 31, 1998 and 1997
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for each of the two years in the period ended December
31, 1998. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Pointe Communications
Corporation and subsidiaries as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for each of the two years in the period
ended December 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 15, 1999
F-1
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . . . $ 1,255,199 $ 155,503
Restricted cash. . . . . . . . . . . . . . . . . . . . . . . 185,000 135,000
Accounts receivable, net of allowance for
doubtful accounts of $900,000 and $650,000
at December 31, 1998 and 1997, respectively. . . . . . . . 3,686,153 2,606,104
Accounts receivable-- affiliate, net . . . . . . . . . . . . 215,337 -
Inventory, net . . . . . . . . . . . . . . . . . . . . . . . 652,187 252,120
Prepaid expenses and other . . . . . . . . . . . . . . . . . 263,249 224,595
------------- -------------
Total current assets . . . . . . . . . . . . . . . . . . . 6,257,125 3,373,322
------------- -------------
PROPERTY AND EQUIPMENT, at cost:
Equipment and machinery. . . . . . . . . . . . . . . . . . . 14,168,428 6,058,943
Earth station facility . . . . . . . . . . . . . . . . . . . 835,527 618,497
Software . . . . . . . . . . . . . . . . . . . . . . . . . . 1,732,700 1,121,248
Furniture and fixtures . . . . . . . . . . . . . . . . . . . 578,698 360,694
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,157,344 583,861
------------- -------------
18,472,697 8,743,243
Accumulated depreciation and amortization. . . . . . . . . . (3,984,392) (2,113,198)
------------- -------------
Property and equipment, net. . . . . . . . . . . . . . . . 14,488,305 6,630,045
------------- -------------
OTHER ASSETS:
Goodwill, net of accumulated amortization
of $1,544,360 and $865,087,
at December 31, 1998 and 1997, respectively. . . . . . . . 17,709,865 17,391,398
Acquired customer bases, net of accumulated
amortization of $969,182 and $579,369
at December 31, 1998 and 1997, respectively. . . . . . . . 844,543 1,181,651
Other intangibles, net of accumulated
amortization of $1,184,062 and $590,884
at December 31, 1998 and 1997, respectively. . . . . . . . 1,848,762 1,938,582
Other. . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,073,279 551,087
------------- -------------
Total other assets . . . . . . . . . . . . . . . . . . . . 21,476,449 21,062,718
------------- -------------
TOTAL ASSETS . . . . . . . . . . . . . . . . . . . . . . . $ 42,221,879 $ 31,066,085
============= =============
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Balance Sheets.
F-2
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 1998 AND 1997
1998 1997
------------- -------------
CURRENT LIABILITIES:
Current portion of notes payable . . . . . . . . . . . . . . $ 3,728,062 $ 175,001
Current portion of lease obligations . . . . . . . . . . . . 1,273,298 342,249
Lines of credit. . . . . . . . . . . . . . . . . . . . . . . 1,000,000 485,000
Loans from stockholders. . . . . . . . . . . . . . . . . . . 670,000 520,000
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 6,214,952 4,889,518
Accounts payable-- affiliate . . . . . . . . . . . . . . . . 68,000 249,655
Accrued liabilities. . . . . . . . . . . . . . . . . . . . . 2,346,622 1,676,547
Unearned revenue . . . . . . . . . . . . . . . . . . . . . . 2,928,990 1,645,722
------------- -------------
Total current liabilities. . . . . . . . . . . . . . . . . 18,229,924 9,983,692
------------- -------------
LONG TERM LIABILITIES:
Capital and financing lease obligations. . . . . . . . . . . 7,128,451 1,397,473
Convertible debentures . . . . . . . . . . . . . . . . . . . 1,180,000 1,180,000
Senior subordinated notes. . . . . . . . . . . . . . . . . . 690,278 660,278
Notes payable and other long term obligations. . . . . . . . 626,022 711,110
------------- -------------
Total long term liabilities. . . . . . . . . . . . . . . . 9,624,751 3,948,861
------------- -------------
Deferred settlement gain . . . . . . . . . . . . . . . . . . - 2,757,132
------------- -------------
COMMITMENTS AND CONTINGENCIES (Notes 4 and 11)
MINORITY INTEREST. . . . . . . . . . . . . . . . . . . . . . 1,981,959 -
------------- -------------
STOCKHOLDERS' EQUITY:
Preferred stock, $0.01 par value; 100,000 shares
authorized, 550 shares issued, - shares
outstanding at both December 31, 1998 and 1997 . . . . . . - -
Common stock, $0.00001 par value; 100,000,000
shares authorized; 45,339,839 and 34,134,776 shares
outstanding at December 31, 1998 and 1997, respectively. . 454 341
Additional paid-in-capital . . . . . . . . . . . . . . . . . 43,137,654 35,981,440
Accumulated deficit. . . . . . . . . . . . . . . . . . . . . (30,752,863) (21,605,381)
------------- -------------
Total stockholders' equity . . . . . . . . . . . . . . . . 12,385,245 14,376,400
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY . . . . . . . . . $ 42,221,879 $ 31,066,085
============= =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Balance Sheets.
F-3
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
REVENUES:
Communications services. . . . . . . $24,391,803 $ 9,379,496
Internet connection services . . . . 2,835,446 2,747,635
Hardware and software. . . . . . . . 392,953 368,818
Network services . . . . . . . . . . - 455,473
------------ -------------
Total revenues . . . . . . . . . . . 27,620,202 12,951,422
------------ -------------
COSTS AND EXPENSES:
Cost of services . . . . . . . . . . 22,972,312 9,481,498
Cost of hardware and software. . . . 274,120 284,358
Selling, general, and administrative 9,933,265 8,766,282
Nonrecurring charge. . . . . . . . . - 2,677,099
Depreciation and amortization. . . . 3,451,982 2,995,334
------------ -------------
Total costs and expenses . . . . . . 36,631,679 24,204,571
------------ -------------
OPERATING LOSS . . . . . . . . . . . . (9,011,477) (11,253,149)
------------ -------------
INTEREST EXPENSE, NET. . . . . . . . . (1,760,315) (480,924)
OTHER INCOME/(EXPENSE), NET. . . . . . 1,624,310 (241,785)
------------ -------------
NET LOSS BEFORE INCOME TAXES . . . . . (9,147,482) (11,975,858)
INCOME TAX BENEFIT . . . . . . . . . . - -
------------ -------------
NET LOSS . . . . . . . . . . . . . . . $(9,147,482) $(11,975,858)
============ =============
NET LOSS PER SHARE -
BASIC AND DILUTED . . . . . . . . . $ (0.22) $ (0.39)
============ =============
SHARES USED IN COMPUTING
NET LOSS PER SHARE . . . . . . . . . . 42,143,733 31,084,693
============ =============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
F-4
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional
---------------- --------------------- Paid-In
Shares Amount Shares Amount Capital
------- ------- ----------- -------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1996 . . . . . . . . . . . . . . - $ - 24,202,779 $ 242 $28,302,025
Issuance of common stock ($1.00 per share) (Note 7). . . - - 9,283,997 93 9,203,844
Retirement of shares in conjunction with a contribution
agreement executed by certain members of management. . - - (2,500,000) (25) (3,538,698)
Issuance of common stock in conjunction with
conversion of debenture, net ($.50 per share) (Note 7). - - 2,200,000 22 999,978
Issuance of common stock in conjunction with
the acquisition of communications operating licenses. . - - 400,000 4 399,996
Issuance of common stock in conjunction with
financing lease transaction (Note 4). . . . . . . . . . - - 450,000 5 449,995
Issuance of common stock in conjunction with debt
issuance. . . . . . . . . . . . . . . . . . . . . . . . - - 98,000 - 98,000
Issuance of common stock warrants in conjunction with
operating lease ($0.34 per warrant) . . . . . . . . . . - - - - 66,300
Net loss . . . . . . . . . . . . . . . . . . . . . . . . - - - - -
------- ------- ----------- -------- ------------
Balance at December 31, 1997 . . . . . . . . . . . . . . - - 34,134,776 341 35,981,440
Issuance of common stock ($.50 per share) (Note 7) . . . - - 9,500,000 95 4,499,905
Issuance of common stock ($1.00 per share) (Note 7). . . - - 850,000 9 849,991
Issuance of common stock warrants in conjunction with
promissory note ($0.21 per warrant) (Note 4). . . . . . - - - - 114,069
Issuance of common stock in conjunction with a
merger ($0.90 per share) (Note 3) . . . . . . . . . . . - - 206,250 2 186,761
Issuance of common stock ($1.30 per share) (Note 7). . . - - 500,000 5 649,995
Issuance of common stock warrants in conjunction with
a merger ($0.49 per warrant) (Note 3) . . . . . . . . . - - - - 289,100
Exercise of warrants ($0.70 per share) . . . . . . . . . - - 10,354 - 7,248
Exercise of warrants ($0.70 per share) . . . . . . . . . - - 20,709 1 14,496
Exercise of stock options ($1.00 per share). . . . . . . - - 117,750 1 117,749
Issuance of common stock rights in conjunction with
a merger ($0.44 per warrant) (Note 3) . . . . . . . . . - - - - 272,500
Issuance of common stock warrants in conjunction with
promissory note ($0.18 per warrant) (Note 4). . . . . . - - - - 68,400
Issuance of common stock warrants in conjunction with
promissory note ($0.16 per warrant) (Note 4). . . . . . - - - - 60,800
Issuance of common stock warrants in conjunction with
promissory note ($0.21 per warrant) (Note 4). . . . . . - - - - 25,200
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . - - - - -
------- ------- ----------- -------- ------------
Balance at December 31, 1998 . . . . . . . . . . . . . . - $ - 45,339,839 $ 454 $43,137,654
======= ======= =========== ======== ============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
F-5
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
Accumulated Stockholders'
Deficit Equity
------------- ---------------
<S> <C> <C>
Balance at December 31, 1996 . . . . . . . . . . . . . . ($9,629,523) $ 18,672,744
Issuance of common stock ($1.00 per share) (Note 7). . . - 9,203,937
Retirement of shares in conjunction with a contribution
agreement executed by certain members of management. . - (3,538,723)
Issuance of common stock in conjunction with
conversion of debenture, net ($.50 per share) (Note 7). - 1,000,000
Issuance of common stock in conjunction with
the acquisition of communications operating licenses. . - 400,000
Issuance of common stock in conjunction with
financing lease transaction (Note 4). . . . . . . . . . - 450,000
Issuance of common stock in conjunction with debt
issuance. . . . . . . . . . . . . . . . . . . . . . . . - 98,000
Issuance of common stock warrants in conjunction with
operating lease ($0.34 per warrant) . . . . . . . . . . - 66,300
Net loss . . . . . . . . . . . . . . . . . . . . . . . . (11,975,858) (11,975,858)
------------- ---------------
Balance at December 31, 1997 . . . . . . . . . . . . . . (21,605,381) 14,376,400
Issuance of common stock ($.50 per share) (Note 7) . . . - 4,500,000
Issuance of common stock ($1.00 per share) (Note 7). . . - 850,000
Issuance of common stock warrants in conjunction with
promissory note ($0.21 per warrant) (Note 4). . . . . . - 114,069
Issuance of common stock in conjunction with a
merger ($0.90 per share) (Note 3) . . . . . . . . . . . - 186,763
Issuance of common stock ($1.30 per share) (Note 7). . . - 650,000
Issuance of common stock warrants in conjunction with
a merger ($0.49 per warrant) (Note 3) . . . . . . . . . - 289,100
Exercise of warrants ($0.70 per share) . . . . . . . . . - 7,248
Exercise of warrants ($0.70 per share) . . . . . . . . . - 14,497
Exercise of stock options ($1.00 per share). . . . . . . - 117,750
Issuance of common stock rights in conjunction with
a merger ($0.44 per warrant) (Note 3) . . . . . . . . . - 272,500
Issuance of common stock warrants in conjunction with
promissory note ($0.18 per warrant) (Note 4). . . . . . - 68,400
Issuance of common stock warrants in conjunction with
promissory note ($0.16 per warrant) (Note 4). . . . . . - 60,800
Issuance of common stock warrants in conjunction with
promissory note ($0.21 per warrant) (Note 4). . . . . . - 25,200
Net Loss . . . . . . . . . . . . . . . . . . . . . . . . (9,147,482) (9,147,482)
------------- ---------------
Balance at December 31, 1998 . . . . . . . . . . . . . . $(30,752,863) $ 12,385,245
============= ===============
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
F-6
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss. . . . . . . . . . . . . . . . . . . . . . . $(9,147,482) $(11,975,858)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization. . . . . . . . . . . 3,451,982 2,995,334
Bad debt expense . . . . . . . . . . . . . . . . . 883,462 586,687
Amortization of discounts on debt and lease
obligations. . . . . . . . . . . . . . . . . . . 250,244 56,891
Loss on extinguishment of debt . . . . . . . . . . - 241,785
Nonrecurring charge. . . . . . . . . . . . . . . . - 2,677,099
Deferred settlement gain . . . . . . . . . . . . . (2,757,132) -
Changes in operating assets and liabilities:
Accounts receivable, net. . . . . . . . . . . . (1,820,958) (1,645,919)
Accounts receivable-- affiliate, net. . . . . . (215,337) 63,802
Inventory . . . . . . . . . . . . . . . . . . . (155,880) (194,180)
Prepaid expenses. . . . . . . . . . . . . . . . (38,654) 23,832
Other assets. . . . . . . . . . . . . . . . . . (640,641) (225,135)
Accounts payable, accrued and other liabilities 1,642,165 971,375
Accounts payable-- affiliate. . . . . . . . . . (181,655) 26,656
Unearned revenue. . . . . . . . . . . . . . . . 1,283,268 (185,009)
------------ -------------
Total Adjustments. . . . . . . . . . . . . 1,700,864 5,393,218
------------ -------------
Net cash used in operating activities. . . (7,446,618) (6,582,640)
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment. . . . . . . . . . (3,505,889) (2,577,080)
Restricted cash . . . . . . . . . . . . . . . . . . . (50,000) (135,000)
Acquisition of businesses . . . . . . . . . . . . . . (350,633) -
------------ -------------
Net cash used in investing activities. . . (3,906,522) (2,712,080)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock . . . . . . . 6,000,000 5,831,604
Proceeds from issuance of preferred stock. . . . . . 1,981,959 -
Proceeds from lease obligations, net . . . . . . . . 352,160 2,086,096
Proceeds from receivable facility, net . . . . . . . 574,500 -
Proceeds from issuance of convertible debentures . . - 2,180,000
Proceeds from exercise of stock warrants . . . . . . 25,495 -
Repayment of lines of credit, net. . . . . . . . . . (85,000) (1,161,092)
Proceeds from loans from shareholders. . . . . . . . 150,000 (282,683)
Proceeds from (Repayment of) notes payable, net. . . 3,453,722 476,046
------------ -------------
Net cash provided by financing activities. 12,452,836 9,129,971
------------ -------------
INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS. . . . 1,099,696 (164,749)
CASH AND CASH EQUIVALENTS AT
BEGINNING OF PERIOD . . . . . . . . . . . . . . . . . . 155,503 320,252
------------ -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD. . . . . . . $ 1,255,199 $ 155,503
============ =============
Supplemental Non-Cash Disclosures:
- --------------------------------------------------------
Cash paid for interest . . . . . . . . . . . . . . . . . 1,238,442 339,874
Cash paid for income taxes . . . . . . . . . . . . . . . - -
Capital Leases . . . . . . . . . . . . . . . . . . . . . 6,219,977 -
Assets acquired in excess of liabilities assumed . . . . 1,381,531 -
Purchase price adjustments . . . . . . . . . . . . . . . - 864,612
Value of warrants issued . . . . . . . . . . . . . . . . 830,069 -
Value of stock issued for acquisition. . . . . . . . . . 186,761 -
Incurrance of notes payable to pay operating obligations 1,397,000
Conversion of liabilities to equity
Subordinated debentures . . . . . . . . . . . . . . - 2,115,000
Stockholder loans . . . . . . . . . . . . . . . . . - 937,865
Accrued liabilities . . . . . . . . . . . . . . . . - 319,468
Giveback of shares by members of management . . . . . . - 3,538,723
Deferred settlement gain. . . . . . . . . . . . . . . . - 2,757,132
Conversion of subordinated debenture. . . . . . . . . . - 1,000,000
Shares issued for operating licenses. . . . . . . . . . - 400,000
</TABLE>
The accompanying Notes to Consolidated Financial Statements
are an integral part of these Statements.
F-7
<PAGE>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND NATURE OF BUSINESS
Pointe Communications Corporation ("Pointe" or the "Company", formerly
Charter Communications International, Inc.), was incorporated in Nevada on April
10, 1996, as a wholly owned subsidiary of Maui Capital Corporation, a Colorado
Corporation ("Maui Capital"), which incorporated on August 8, 1988. On April
21, 1996, Maui Capital and the Company merged with the Company being the
surviving corporation and succeeding to all the business, properties, assets and
liabilities of Maui Capital. The purpose of the merger of Maui Capital and the
Company was to change the name and state of incorporation of Maui Capital. Maui
Capital had no business or assets prior to September 21, 1995, when it acquired
TOPS Corporation, a Nevada corporation ("TOPS") (TOPS was named Charter
Communications International, Inc., until April 10, 1996, when its name was
changed so that the Company could be formed in Nevada with the same name). At
the time of the acquisition, TOPS was the sole stockholder of Charter
Communicaciones Internacionales Grupo, S.A., a Panama corporation ("Charter
Panama"), which was engaged in developing a private line telecommunication
system in Panama and pursuing licenses to provide such services in various other
Latin American countries. Since the acquisition of TOPS, the Company (and Maui
Capital, its predecessor) has endeavored to grow both through the development of
its existing businesses and through the acquisition of complementary businesses.
Proceeds from private placements of securities with principals and outside
investors have funded the development of the Company to date.
The Company is an international facilities based communications company
serving residential and commercial customers in the U.S., Central and South
America. The Company and its subsidiaries provide enhanced telecommunications
products and services, including local, long distance, internet, international
private line, carrier services, prepaid calling card and telecommuting services,
with a focus on the Hispanic community both domestically and internationally.
The Company is implementing a facilities based infrastructure on a staged basis
in certain identified markets with the ultimate objective of being a
full-service CLEC with a low-cost base of operations.
On January 8, 1996, Pointe completed the cash acquisition of 90% of Phoenix
DataNet ("PDN"), a provider of domestic and international Internet access. On
March 21, 1996, the Company acquired Phoenix Data Systems ("PDS") and the
remaining 10% of PDN in a stock transaction that allowed the Company to enter
the network integration business. During 1997, the Company exited the network
integration business and the assets related to PDS were written off and included
in the statement of operations as a non-recurring charge (Note 9). On July 31,
1996, the Company acquired Telecommute Solutions, Inc. ("Telecommute") in a
stock transaction that allowed the Company to offer various telecommuting
services. On September 21, 1996, the Company acquired Overlook Communications
International Corporation ("OCI") in a stock transaction that allowed the
Company to offer a variety of both domestic and international enhanced
telecommunications and long distance services, including prepaid phone calling
cards. On October 5, 1996, the Company acquired Worldlink Communications, Inc.
("Worldlink"), a provider of prepaid long-distance calling cards in a stock
transaction. All of these transactions were accounted for as purchases.
F-8
<PAGE>
On June 1, 1998, the Company acquired Galatel Inc. ("Galatel"), a
distributor of prepaid calling cards primarily to the Hispanic community, in a
cash and stock transaction. On July 30, 1998, the Company acquired Pointe
Communications Corporation ("Pointe"), a Delaware Corporation, in a cash and
warrant transaction. Pointe did not have revenue from operations prior to its
acquisition. On August 31, 1998, the Company's stockholders approved an
amendment to the Company's Articles of Incorporation to effect a change in the
Company's name from Charter Communications International, Inc. to Pointe
Communications Corporation. On August 12, 1998, the Company acquired
International Digital Telecommunications Systems, Inc. ("IDTS"), in a cash and
stock transaction. IDTS is a facilities based long distance carrier of voice,
data and other types of telecommunications in the Miami, Florida market. On
October 1, 1998, the Company acquired Rent-A-Line Telephone Company, LLC, in a
stock rights transaction. Rent-A-Line is a reseller of prepaid local telephone
service. All of these transactions were accounted for as purchases (See Note
3).
Some of the telecommunication services offered by Pointe require licensing
by United States federal and state agencies and the foreign countries wherein
services are offered. Pointe has formed wholly owned or majority owned foreign
corporations. Pointe maintains financial control of all subsidiaries. The
Company has been licensed by the United States Federal Communication Commission
as an International facilities based carrier. Pointe has selected the Mexican
Solidaridad system as its primary satellite carrier. A variety of U.S. carriers
are used to provide domestic long-distance services. The Company is licensed to
provide enhanced communications services in Panama, Mexico, Honduras, Venezuela,
El Salvador, Nicaragua, and Costa Rica. Generally, licensing of enhanced
services in the United States is not required. As of December 31, 1998, the
Company was operating in the United States, Panama, Venezuela, Costa Rica,
Mexico, El Salvador and Nicaragua.
The Company is seeking international telecommunication licenses in various
foreign countries. The Company faces competition for such licenses from major
international telecommunications entities as well as from local competitors in
each country. If a communications license is obtained, the Company's
international telecommunications operations will face competition from existing
government owned or monopolistic telephone service companies and from other
operators who receive licenses. The Company may also face significant potential
competition from other communication technologies that are being or may be
developed or perfected in the future. Some of the Company's competitors have
substantially greater financial, marketing, and technical resources than does
the Company. Accordingly, there can be no assurance that the Company will be
able to obtain any additional licenses or that its international
telecommunications operations will be able to compete effectively.
Operations prior to 1996 consisted primarily of raising capital, obtaining
financing, locating and acquiring equipment, obtaining customers and suppliers,
installing and testing equipment, and administrative activities. Since the
Company has only recently made the transition to an operating company, the
Company's ability to manage its growth and expansion will require it to
implement and continually expand its operational and financial systems, recruit
additional employees, and train and manage both current and new employees.
Growth may place a significant strain on the Company's operational resources and
systems, and failure to effectively manage this projected growth would have a
material adverse effect on the Company's business.
F-9
<PAGE>
The Company, which has never operated at a profit, has experienced
operating losses since its inception as a result of efforts to build its
customer base and develop its operations. The Company estimates that its cash
and financing needs for its current business through 1999 will be met by the
cash on hand following the bridge loans secured during the last quarter of 1998
and first quarter of 1999, the $30 million private placement offering of its
preferred stock expected to close in April 1999, vendor sponsored credit
facilities set in place during the first quarter of 1999 and cash flows from
operations. However, any increases in the Company's growth rate, shortfalls in
anticipated revenues, increases in anticipated expenses, or significant
acquisition or expansio opportunities could have a material adverse effect on
the Company's liquidity and capital resources and would require the Company to
raise additional capital from public or private equity or debt sources in order
to finance operating losses, anticipated growth, and contemplated capital
expenditures and expansions. The Company has significant expansion plans which
it intends to fund with funds raised subsequent to year end, including the $30
million private placement of the Company's preferred stock for which letters
of intent have been received from investors; however, if there is any delay in
the anticipated closing of the preferred stock private placement or any
shortfall the Company will not engage in such expansion until adequate capital
sources have been arranged. Accordingly, the Company may need additional
future private placements and/or public offerings of debt or equity securities
to fund such plans. If such sources of financing are insufficient or
unavailable, the Company will be required to modify its growth and operating
plans or scale back operations to the extent of available funding. The Company
may need to raise additional funds in order to take advantage of unanticipated
opportunities, such as acquisitions of complementary businesses or the
development of new products, or otherwise respond to unanticipated competitive
pressures. There can be no assurance that the Company will be able to raise any
such capital on terms acceptable to the Company or at all.
The Company expects to continue to focus on developing and expanding its
enhanced telecommunication services offerings, while continuing to expand its
current operation market penetration. Accordingly, the Company expects its
capital expenditures and cost of revenues and depreciation and amortization
expenses will continue to increase significantly, all of which could have a
negative impact on short-term operating results. In addition, the Company may
change its strategy to respond to a changing competitive environment. There can
be no assurance that growth in the Company's revenue or market penetration will
continue, that its expansion efforts will be profitable, or that the Company
will be able to achieve or sustain profitability or positive cash flow. Further,
the Company may require substantial financing to accomplish any significant
acquisition or merger transaction and for working capital to operate its current
and proposed expanded operations until profitability is achieved, if ever.
While the Company currently expects to meet its 1999 operating cash flow and
capital expenditure requirements through cash on hand after the various first
and second quarter 1999 financing activities and vendor financing and internally
generated funds, there can be no assurance that this will be achieved. The
availability of such financing on terms acceptable to the Company is not
assured. Accordingly, there can be no assurance that the Company's planned
expansion of its operations will be successful.
F-10
<PAGE>
2. SUMMARY OF ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements are prepared on the
accrual basis of accounting and include the accounts of the Company and all of
its majority-owned subsidiaries. All significant intercompany balances have been
eliminated.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements. Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
SOURCE OF SUPPLIES
The Company relies on local and long distance telephone companies to
provide certain communications services. Although management feels alternative
telecommunication facilities could be found in a timely manner, any disruption
of these services could have an adverse effect on operating results. During
December 1996, the Company's long-distance provider discontinued service in a
dispute over payment of invoices resulting in the Company's prepaid calling card
platform not being accessible for a period of approximately ten days.
Subsequently, alternative long distance providers were found, but any such
recurrence of this situation could have a material adverse effect on the
Company's operating results.
PRESENTATION
Certain prior year amounts have been reclassified to conform with the
current year presentation.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash on hand, demand deposits, and
short-term investments with original maturities of three months or less. The
carrying value of the cash and cash equivalents approximates fair market value
at December 31, 1998 and 1997.
RESTRICTED CASH
The Company's restricted cash represents deposits on hand with a bank as
security for letters of credit.
F-11
<PAGE>
CONCENTRATION OF RISK
A portion of the Company's assets and operations are located in various
South and Central American countries. The Company's business cannot operate
unless the governments of these countries provide licenses, privileges or other
regulatory clearances. No such assurance can be given that such rights, once
granted, could not be revoked without due cause.
The Company's accounts receivable potentially subject the Company to credit
risk, as collateral is generally not required. The Company's risk of loss is
limited due to advance billings to customers for services and the ability to
terminate access on delinquent accounts. The concentration of credit risk is
mitigated by the large number of customers comprising the customer base;
however, one significant customer comprises approximately 17% of the total
receivable balance. The carrying amount of the Company's receivables
approximates their fair value.
INVENTORIES
Inventories consist primarily of prepaid calling cards, computer products,
and prepackaged software. All inventory is recorded as finished goods and is
available for sale. Inventories are stated at the lower of cost or market.
Cost is determined on the first-in, first-out method.
PROPERTY AND DEPRECIATION
Property and equipment are recorded at cost, including certain engineering
costs. The property and equipment acquired in conjunction with the acquisitions
was recorded on the Company's books at net book value, which approximated fair
market value at the dates of acquisition. The Company records depreciation
using the straight-line method over the estimated useful lives of the assets,
which are:
Classification Estimated Useful Lives
Equipment and machinery 5-10 years
Earth station facility 10 years
Software 5-7 years
Furniture and fixtures 5-7 years
Other property 3-10 years
Leasehold improvements are amortized over the shorter of the useful life of
the improvement or the life of the lease. The Company's policy is to remove the
cost and accumulated depreciation of retirements from the accounts and recognize
the related gain or loss upon the disposition of assets. Such gains and losses
were not material for any period presented. Property and equipment recorded
under capital and financing leases are included with the Company's owned assets.
Amortization of assets recorded under capital leases is included in depreciation
expense.
F-12
<PAGE>
INTANGIBLES
In conjunction with its acquisitions in 1998 (see Note 3), the Company
recorded intangible assets of approximately $1,382,000 due to the purchase
prices exceeding the values of the tangible net assets acquired subject to
adjustment for up to one year from the date of acquisition. After identifying
the tangible assets and liabilities, the Company allocated the excess to
identifiable intangible assets and the remainder to goodwill. Amortization of
these costs is included in depreciation and amortization in the accompanying
statements of operations. The following table summarizes the intangible assets'
respective amortization periods:
Category Amortization Period
Acquired Customer Base 3-10 years
Other Intangibles 3-10 years
Goodwill 3-30 years
IMPAIRMENT OF LONG-LIVED ASSETS
The Company periodically reviews the values assigned to long-lived assets,
including property and equipment and intangibles, to determine if any
impairments are other than temporary. Management believes that the long-lived
assets in the accompanying balance sheets are appropriately valued.
STOCK-BASED COMPENSATION PLANS
The Company accounts for its stock-based compensation plans under
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees" ("APB 25"). The Company adopted the disclosure option of Statement
of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123") (Note 8), for all options granted subsequent to
January 1, 1995. SFAS 123 defines a fair value based method of accounting for an
employee stock option or similar equity instrument and encourages all entities
to adopt that method of accounting for all of their employee stock compensation
plans. SFAS 123 requires that companies which do not choose to account for
stock-based compensation as prescribed by this statement shall disclose the pro
forma effects on earnings and earnings per share as if SFAS 123 had been
adopted. Additionally, certain other disclosures are required with respect to
stock compensation and the assumptions used to determine the pro forma effects
of SFAS 123.
REVENUE RECOGNITION
Revenues from telecommunications, Internet access services, and network
computer sales and services are generally recognized when the services are
provided. Invoices rendered and payments received for telecommunications
services and Internet access in advance of the period when revenues are earned
are recorded as unearned revenues and are recognized ratably over the period the
services are provided or the term of the Internet subscription agreements, which
are generally 3 to 12 months. Sales of prepaid phone calling cards are recorded
as unearned revenues and revenue is recognized as minutes are used or when the
cards expire.
F-13
<PAGE>
ADVERTISING COSTS
The Company expenses all advertising costs as incurred.
FOREIGN CURRENCY TRANSLATION
Assets and liabilities denominated in foreign currencies are translated at
exchange rates in effect at the balance sheet date, except that fixed assets are
translated at exchange rates in effect when these assets are acquired. Revenues
and expenses of foreign operations are translated at average monthly exchange
rates prevailing during the year, except that depreciation and amortization
charges are translated at the exchange rates in effect when the related assets
are acquired.
The national currency of Panama is the U.S. dollar. The currencies of
Venezuela and Mexico are considered hyper-inflationary; therefore, the U.S.
dollar is the functional currency. Accordingly, no foreign currency translation
is required upon the consolidation of the Company's Panamanian, Venezuelan or
Mexican operations. The effects of foreign currency translation on the
Company's El Salvadoran, Nicaraguan and Costa Rican operations were not
material.
NET LOSS PER SHARE
Effective with the fourth quarter of 1997, the Company adopted Statement of
Financial Accounting Standards No. 128, "Earnings Per Share." This standard
requires the computation of basic earnings per share using only the weighted
average common shares outstanding, and diluted earnings per share, using the
weighted average common shares outstanding, adjusted for potentially dilutive
instruments using either the if converted or treasury stock method as
appropriate if dilutive. This statement required retroactive restatement of all
prior period earnings per share data presented. The adoption of this statement
had no effect on the Company, as for all periods, the effect of any dilutive
instruments was antidilutive. Accordingly, for all periods presented basic and
diluted earnings per share are the same.
RECENT ACCOUNTING PRONOUNCEMENTS
In 1998, the Company was subject to the provisions of Statement of
Financial Accounting Standards No. 130, "Reporting Comprehensive Income"
("SFAS 130") and SFAS No. 131, "Disclosures about Segments of an Enterprise
and Related Information". SFAS 130 and 131 had no impact on the Company's
financial statements as it has no comprehensive income elements other than
distributions to owners and returns on equity and it operates in one segment
offering a variety of products. The Company will continue to review these
statements over time to determine if any additional disclosures are necessary
based on evolving circumstances.
F-14
<PAGE>
3. BUSINESS COMBINATIONS AND ACQUISITIONS
During 1998, the Company acquired 100% of the outstanding capital stock in
four companies for cash, stock and warrants/stock rights. All of these
transactions were accounted for as purchases. On June 1, 1998, the Company
acquired Galatel Inc. ("Galatel"), a distributor of prepaid calling cards, for
up to $200,000 and 300,000 shares of common stock, of which $162,500 and 206,250
shares had been earned as of year end. The shares have been valued at a
weighted average price of $0.90 per share, the estimated fair value at the date
issuance. On July 30, 1998, the Company acquired Pointe Communications
Corporation ("Pointe"), a Delaware Corporation, for $168,000 and 590,000
warrants to purchase common stock at $1.50 for five years. The warrants have
been valued at $0.49 per warrant. On August 12, 1998, the Company acquired
International Digital Telecommunications Systems, Inc. ("IDTS"), for $150,000
and 50,000 shares of stock, which were retained by the Company in order to
secure representations and warranties and covenants of IDTS and IDTS
shareholders and will be subject to offset against claims against IDTS. IDTS is
a facilities based long distance carrier of voice, data and other types of
telecommunications in the Miami, Florida market. On October 1, 1998, the
Company acquired Rent-A-Line Telephone Company, LLC, in a stock transaction for
rights to purchase 625,000 shares at prices that range from $0.01 to $0.63 until
December 31, 2000. The rights have been valued at a weighted average price of
$0.44 per share. Rent-A-Line is a reseller of prepaid local telephone service.
All of these transactions were accounted for as purchases and were not
considered to be significant business combinations. Accordingly, no pro forma
information is presented.
4. LONG-TERM OBLIGATIONS
Obligations consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1998 1997
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
18% Convertible Debentures due October 1, 2002 $ 1,180,000 $ 1,180,000
Financing Lease Obligation, net of discount
of $306,672 and $429,308 as of December 31, 1998
and 1997, respectively 2,230,029 1,739,722
12% Senior Subordinated Notes due December
2000, net of discount of $39,722 and $69,722
as of December 31, 1998 and 1997, respectively 690,278 660,278
Notes Payable and other 2,458,584 886,111
Lines of Credit:
Due November, 1998 400,000 485,000
Due January, 1999 600,000 0
Loans from stockholders 670,000 520,000
Bridge Loans due April, 1999 net of discount of
$104,500 at December 31, 1998 1,895,500 0
Capital Lease Obligations 6,171,720 0
- ----------------------------------------------------------------------------------------------------------
16,296,111 5,471,111
Less current portion 6,671,360 1,522,250
- ----------------------------------------------------------------------------------------------------------
Long-term obligations $ 9,624,751 $ 3,948,861
------------- -------------
</TABLE>
F-15
<PAGE>
During the last quarter of 1998, the Company entered into two promissory
notes totaling $2,000,000, which earn interest at 10% and are due in April 1999.
In conjunction with these notes, the Company issued 760,000 warrants to purchase
common stock at $1.00 per share for three years. The fair market value of these
warrants was estimated to be $129,200, which has been recorded as additional
paid in capital and a discount on the notes to be amortized over the term of the
notes. These notes are secured by a blanket interest in all personal property in
which the Company has an interest as well as shares of Company stock owned by
officers of the Company. On March 8, 1999, one of the notes for $1,000,000 was
refinanced with a $5,000,000 promissory note (see Note 14). The Company
undertook these short-term obligations in order to fund operations and network
requirements in advance of a private placement of $30,000,000 of the Company's
convertible preferred stock which is expected to close early in the second
quarter of 1999.
During 1998, the Company entered into a Receivable Purchase Facility
Agreement, which enables it to sell its receivables to the purchaser, up to the
maximum facility amount of $600,000. Receivables are sold at 60% of book value
with the additional 40% representing collateral until the receivables are paid,
repurchased or substituted with other receivables, at which time the 40% is
returned to the Company. Interest accrues on the purchase amount at a rate of
prime (8.25% at December 31, 1998) plus 2%, per annum, until the receivables are
paid, repurchased or substituted. As of the date of this report, the Company
has received $600,000 for receivables sold under this facility.
During 1998, the Company issued a $750,000 Promissory Note to a member of
the Company's Board of Directors (Note 12), which is non-interest bearing and
matures June 1, 1999. In conjunction with the promissory note, the Company
issued 545,455 warrants to purchase common stock at $1.375 for a period of one
year from issuance. The fair market value of these warrants was estimated to be
$114,069, which has been recorded as additional paid in capital and a discount
on the note to be amortized over the term of the note. This note is unsecured.
Also during 1998, the Company reached a settlement with Sprint over its
disputed trade payable. The settlement agreement obligated the Company to pay
Sprint $1,000,000, $100,000 of which was paid at the time of settlement. The
remaining $900,000 was converted into a non-interest bearing promissory note,
under which the Company is obligated to pay $50,000 per month for 18 months. At
December 31, 1998, the remaining $700,000 liability was recorded as follows:
$50,000 in accounts payable, $600,000 in the current portion of notes payable
and $50,000 in the long-term portion of notes payable.
F-16
<PAGE>
During 1997, the Company entered into a $3,000,000 sale-leaseback facility
with regard to certain of its assets included in property and equipment.
Through December 31, 1997, $2,222,000 of the facility had been drawn down.
During 1998, the remaining $778,000 was used. For accounting purposes, the
leases are being accounted for as financing type leases as they do not meet the
criteria for sale. The lease term is five years commencing December 1, 1997,
February 1, 1998 and December 1, 1998, respectively. Lease payments are due
monthly, in arrears. The lease obligations are stated net of discount, which is
being amortized over the term of the lease. The leases include options for the
Company to repurchase the equipment at the end of the lease term for $100. In
conjunction with the lease, a security agreement was signed granting the lessor
a security interest in all current and future purchases (for the life of the
lease) of plant and equipment, receivables and inventory. Also, in conjunction
with the lease, 450,000 shares of common stock were granted to the lessor and
its agent. The Company issued a guarantee with regard to these shares stating
that it would reimburse the holder of these shares for the difference between
$2.33 and the average closing price of the Company's stock for the twenty
trading days prior to June 30, 1998. The average closing price for this period
was below $2.33 resulting in an approximate $400,000 liability to the Company,
which was converted into an unsecured promissory note due June 30, 1999 earning
interest at 14%. In conjunction with the promissory note, the holders received
120,000 warrants to purchase common stock at $0.78 for three years. The fair
market value of these warrants was estimated to be $25,200, which has been
recorded as additional paid in capital and a discount on the notes to be
amortized over the term of the notes.
Also, during 1998, the Company entered into five capital leases for a total
value of approximately $6.2 million. The leases range from three to seven years
and are payable monthly, in arrears. The Company holds options to purchase the
equipment at the end of the lease period for $1.00 with respect to $3.0 million,
10% with respect to $1.0 million, 15% with respect to $0.7 million and fair
market value with respect to $1.5 million.
During 1997, the Company issued, in a private offering, $1,180,000
principal amount 18% Convertible Subordinated Debentures due October 1, 2002.
The Debentures are convertible at any time into shares of common stock at a
price of $1.20 per share. Interest is payable quarterly at a rate of 18% per
annum, in arrears. The debentures were non-callable for a period of one year
from issuance and are not secured by any assets of the Company or guaranty.
During 1995 and 1996, the Company issued, in a private offering, $2,845,000
12% Senior Subordinated Notes due December 31, 2000 with attached warrants which
grant the purchasers of the Notes the right to buy 2,244,000 shares of the
Company's common stock at $2.25 in 1999 and $2.50 in 2000. As of December 31,
1998, 758,400 of these warrants remained outstanding. Interest is payable
quarterly at the rate of 12% per annum, in arrears. The fair market value of
the 2,244,000 warrants issued in conjunction with the notes was estimated by the
Company to be $345,000 and was recorded as additional paid-in capital and a
discount on the notes. The notes are stated net of discount, which is being
amortized over the term of the notes. Amortization of this discount is included
in the accompanying financial statements as interest expense. The notes are not
secured by any assets of the Company or guaranty. During 1997, principal
amounts of $2,115,000 of the Senior Subordinated Notes were converted to common
stock in the January 1997 private placement.
The Company has $670,000 in loans from stockholders outstanding at December
31, 1998. Interest rates on the loans range from 10% - 12%. During 1998, the
Company issued a promissory note to Peachtree Capital Corporation, a company
affiliated with the Chairman of the Board of Directors, and another member of
the Company's Board of Directors for $150,000 payable on demand (Note 12). The
note was repaid on March 15, 1999. The Company had stockholder loans of
$520,000 outstanding at December 31, 1997, all of which remained outstanding at
December 31, 1998.
F-17
<PAGE>
The Company has established one line of credit with a commercial bank that
provides for borrowings up to $500,000. The revolving credit line is secured by
marketable securities of an affiliate of a shareholder of the Company and
guaranteed by that stockholder. Interest is payable quarterly at the bank's
prime rate (8.25% at December 31, 1998) plus 1.5%. The line of credit matured in
November 1998, all interest is current and the Company is currently in
negotiation with the lender to extend the payment term of the line.
At December 31, 1998, the Company had other outstanding term notes payable
with varying terms and conditions in the total amount of $755,407. The interest
rates on these notes range from 6.5% to prime 9.7%, with maturity dates between
March 1999 and November 2007. A portion of these notes is secured by the
guaranties of shareholders and property of one of the Company's subsidiaries.
The portion of the total notes payable, including other notes discussed above,
that will become due within the next twelve months amounted to $3,728,062 at
December 31, 1998.
The carrying value of the Notes and Lines of Credit approximated
market value at December 31, 1998.
Scheduled maturities of long-term obligations including capital and
financing leases are as follows for years ended December 31:
<TABLE>
<CAPTION>
Notes & Lease
Debt Obligations Total
<S> <C> <C> <C>
1999 5,678,864 2,115,753 7,794,617
2000 1,011,260 2,970,228 3,981,488
2001 43,489 3,592,823 3,636,312
2002 1,183,317 1,470,031 2,653,348
2003 3,646 660,012 663,658
Thereafter 353,425 - 353,425
------------ ----------- -----------
Sub-total 8,274,001 10,808,847 19,082,848
Interest Portion - (2,111,277) (2,111,277)
Discounts (368,788) (306,672) (675,460)
------------ ----------- -----------
Total 7,905,213 8,390,898 16,296,111
</TABLE>
5. OTHER INCOME
Since mid-1996, a subsidiary has been negotiating with Sprint
Communications L.P. ("Sprint") to resolve a dispute involving Sprint's past
services to the subsidiary. The Company had accrued the entire amount which
Sprint claimed. During 1997, OCI reached an agreement in principal with Sprint
to pay $100,000 down and $50,000 per month for 18 months for a total of
$1,000,000 with release of all claims regarding the remaining balance. As of
December 31, 1997, the disputed balance was recorded as a deferred settlement
gain on the Company's balance sheet. A definitive settlement agreement was
signed during the second quarter of 1998, at which time payments commenced and
the Company recognized the deferred settlement gain of $2,757,132 in other
income and cost of services. This is offset by approximately $232,000 for legal
fees and settlement of a lawsuit with the Company's former President over
certain agreements, including an Executive Employment Agreement.
F-18
<PAGE>
6. MINORITY INTEREST
The Company's subsidiary, Telecommute Solutions, Inc. ("TCS"), completed a
private placement of 2,000 shares of its $1.00 par value Series A Preferred
Stock. The Preferred Stock is convertible at any time on or prior to the third
anniversary date of issuance into 2,643 shares of TCS's common stock or 666,667
shares of Company common stock. At the same time, the purchaser also received an
option to purchase 2,000 shares of Series B Preferred Stock at any time prior to
August 7, 1999. The Series B shares are convertible at any time until August 7,
2001 into 1,057 shares of TCS or 500,000 shares of Company common stock. The
Preferred Stock is non-redeemable, non-voting and does not pay dividends. Total
proceeds received in the private placement were $2,000,000, which is recorded
net of issuance costs of $18,041, as Minority Interest in the accompanying
balance sheet.
7. STOCKHOLDERS' EQUITY
The Articles of Incorporation provide for the issuance of 100,000,000
shares of $0.00001 par value Common Stock and 100,000 shares of $0.01 par value
preferred stock. All of the preferred stock has been designated as Series A
Convertible Preferred Stock by the Board of Directors. There are no shares of
Series A outstanding during the periods presented. The $0.00001 Common Stock
authorized for issuance represents an increase from 45,000,000 shares authorized
as of December 31, 1997. The increase was approved by the Company's
shareholders at a meeting on August 31, 1998.
COMMON STOCK
During 1998, the Company issued shares of common stock through various
private placement offerings as follows: 9,000,000 shares at $0.50 per share,
850,000 shares at $1.00 per share and 500,000 shares at $1.30 per share for
gross proceeds totaling $6,000,000. Additionally, during the year the Company
issued 500,000 shares as commission for one of the private placements, 206,250
shares in conjunction with a merger, 31,063 shares for warrant exercises at
$0.70 per share and 117,750 shares for option exercises at $1.00 per share. In
conjunction with certain of the private placements, warrants to purchase
additional shares of common stock were granted to the purchasers. The warrants
granted the holders the right to purchase 500,000 shares at $1.25 for a period
of two years, 150,000 shares at $1.50 for three years and 600,000 shares for
$3.00 for a period of three years.
During 1997, the Company issued 5,911,664 shares of common stock at $1 per
share, or $5,911,664 gross proceeds; 2,115,000 shares of common stock for
conversion of senior subordinated debt; 937,865 shares of common stock for
conversion of shareholder loans; 319,468 shares of common stock for conversion
of other accrued liabilities; and 400,000 shares of common stock to an agent in
conjunction with securing licenses to operate in two Latin American countries.
All of the preceding conversions of stock for liabilities were executed at a
rate of $1 of the related liability for $1 of common stock. Also, during 1997,
the Company issued 2,000,000 shares of common stock for conversion of the
$1,000,000 par value subordinated debenture issued to offshore investors at a
rate of $.50 per share. In conjunction with the issuance of these shares,
holders were granted 2,000,000 warrants to purchase the Company's common stock
at $1.50 per share. In conjunction with the placement of the subordinated
debenture, the Company issued 200,000 shares to the placement agent in an
offshore market. In conjunction with the January 1997 private placement,
certain major stockholders returned 2,500,000 shares of common stock to the
Company for no consideration and such shares were retired.
F-19
<PAGE>
COMMON STOCK WARRANTS
At December 31, 1998, the Company had outstanding warrants that gave the
holders the right to purchase a total of 7,352,023 shares of common stock at
prices ranging from $0.70 to $4.00 per share as summarized in the table below.
<TABLE>
<CAPTION>
Number of Exercise Remaining Weighted
Shares Price Average Life
<S> <C> <C>
1,831,568 $ 0.70 1.1 years
2,920,000 $ 1.00 1.9 years
500,000 $ 1.25 1.5 years
545,454 $ 1.37 1.4 years
590,000 $ 1.50 5.0 years
150,000 $ 2.50 2.7 years
795,000 $ 3.00 2.4 years
20,000 $ 4.00 2.5 years
</TABLE>
The 2,000,000 warrants at $1.00 per share were issued in conjunction
with the common stock issued to offshore investors pursuant to the conversion of
the convertible debenture. The Company retains the right to require exercise of
these warrants since the criteria that the stock price trade above $1.75 for at
least 20 of 30 trading days was met in the third quarter of 1997.
8. STOCK OPTION PLANS
1995 OPTIONS
During 1995, the Company granted 1,250,000 stock options to certain key
employees and directors. The director shares were subsequently changed to be
issued under the Non-employee Director Stock Option Plan ("NEDSOP"). The
exercise price of the stock options granted to the employees and directors is
$0.70 per share, the estimated fair market value of the Company's common stock
at the date of grant. Options generally vest ratably over four years and expire
five years after becoming fully vested. As of December 31, 1998, 250,000
non-NEDSOP issued in 1995 were still outstanding, of which, 190,000 were
exercisable.
F-20
<PAGE>
STOCK OPTION PLANS
The Company has established three stock option plans: Long-Term Stock
Option Plan ("LTSOP"), the Incentive Stock Option Plan ("ISOP"), and the NEDSOP
(collectively, the "Plans"); 3.0 million, 5.0 million and 2.0 million shares of
Common Stock are authorized for issuance in each plan, respectively. The shares
authorized for issuance were increased to their current amounts from 500,000
each at December 31, 1997 by shareholder approval at the special meeting held
August 31, 1998. Options are exercisable at the fair market value of the Common
Stock (as determined by the Board of Directors) on the date of grant. Options
generally vest ratably over four years and expire seven years after date of
grant. The plans contain various provisions pertaining to accelerated vesting
in the event of significant corporate changes. The following table summarizes
the status of the Plans as of December 31, 1998:
<TABLE>
<CAPTION>
LTSOP ISOP NEDSOP
<S> <C> <C> <C>
Balance at December 31, 1996 260,002 392,000 400,000
Granted 464,000 1,380,964 200,000
Forfeited (120,002) (376,500) 0
Exercised 0 0 0
Balance at December 31, 1997 604,000 1,396,464 600,000
Granted 0 755,000 0
Forfeited 0 (603,250) 0
Exercised (114,000) (3,750) 0
Balance at December 31, 1998 490,000 1,544,464 600,000
Exercisable 446,668 812,048 325,000
</TABLE>
In addition to the amounts under the above plans, the Company had 80,000
options outstanding as of December 31, 1998 at a price of $6.00 per share, which
vest ratably over three years.
The exercise price of the stock options granted to the employees is equal
to the estimated fair market value of the Company's common stock at the date of
grant. During the first quarter of 1998, the Company re-established the
exercise price of all existing employees options granted under the ISOP, with a
strike price greater than $1.00, at $1.00 per share, which was the fair market
value on the date of re-pricing.
STATEMENT OF FINANCIAL ACCOUNTING STANDARDS NO. 123
The Company accounts for its stock-based compensation related to the Plans
under APB 25; accordingly, no compensation expense has been recognized, as all
options have been granted with an exercise price equal to the fair value of the
Company's stock on the date of grant. For SFAS 123 pro forma purposes, the fair
value of each option grant has been estimated as of the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Risk-free interest rate 5.00% 5.70%
Expected dividend yield 0 0
Expected lives 5.0 years 5.0 years
Expected volatility 80% 64%
</TABLE>
F-21
<PAGE>
Using these assumptions, the fair value of the stock options granted in
1998 and 1997 is $685,023 and $1,274,520, respectively, which would be amortized
as compensation expense over the vesting period of the options. The 1997 fair
value of stock options granted was calculated using the revised price of $1 per
share. Had compensation cost been determined consistent with the provisions of
SFAS 123, the Company's net loss and pro forma net loss per share for 1998 and
1997 would have been as follows :
<TABLE>
<CAPTION>
1998 1997
<S> <C> <C>
Net loss:
As reported ($9,147,482) ($11,975,858)
Pro forma ($9,691,957) ($12,421,433)
Net loss per share:
As reported ($0.22) ($0.39)
Pro forma ($0.23) ($0.40)
</TABLE>
There were no issues prior to January 1, 1995 and the resulting pro forma
compensation cost may not be representative of that expected in future years.
A summary of the status of the Company's Stock Plans at December 31, 1997
and 1998 and changes during the years ended December 31, 1997 and 1998 is
presented in the following table:
<TABLE>
<CAPTION>
Weighted
Number of Average
Shares Exercise Price
----------- ---------------
<S> <C> <C>
Outstanding at December 31, 1996 2,432,002 $ 1.27
Granted 2,049,964 1.06
Forfeited (1,551,502) 1.05
Exercised 0 0.00
Outstanding at December 31, 1997 2,930,464 $ 1.22
Granted 755,000 1.26
Forfeited (603,250) 1.06
Exercised (117,750) 1.00
Outstanding at December 31, 1998 2,964,464 $ 1.27
</TABLE>
The following table summarizes, as of December 31, 1998, the number of
options outstanding, the exercise price range, weighted average exercise price,
and remaining contractual lives by year of grant:
F-22
<PAGE>
<TABLE>
<CAPTION>
Weighted
Average
Number of Exercise Weighted Remaining
Grant Shares Price Range Average Price Contractual Life
<C> <S> <C> <C> <C>
1998 687,000 $ 1.00-$2.00 $ 1.28 6.0 years
1997 1,024,000 $ 1.00-$1.25 $ 1.05 5.2 years
1996 703,464 $ 1.00-$7.00 $ 2.03 3.9 years
1995 550,000 $ 0.70 $ 0.70 2.4 years
</TABLE>
Total stock options exercisable at December 31, 1998 were 1,773,716 at a
weighted average exercise price of $1.20.
TELECOMMUTE SOLUTIONS STOCK OPTION PLAN
During 1998, the Company's subsidiary Telecommute Solutions established a
stock option plan, the Telecommute Solutions Stock Option Plan ("TCS Plan").
The number of shares authorized for issuance under the TCS Plan is 600,000.
Options are exercisable at the fair market value of the Common Stock (as
determined by the Board of Directors of Telecommute Solutions) on the date of
grant. Options generally vest ratably over three years and expire seven years
after date of grant. The plans contain various provisions pertaining to
accelerated vesting in the event of significant corporate changes. During 1998,
options to purchase 547,900 were granted at an exercise price of $1.51 per
share. As of December 31, 1998, all options granted were outstanding and none
were exercisable. Using the assumptions below, the fair value of the stock
options granted in 1998 was $627,466, which would be amortized as compensation
expense over the vesting period of the options; thereby, increasing the
historical net loss by approximately $209,000.
<TABLE>
<CAPTION>
. 1998
---------
<S> <C>
Risk-free interest rate 5.00%
Expected dividend yield 0
Expected lives 7.0 years
Expected volatility 80%
</TABLE>
9. NONRECURRING CHARGE
In March 1996, the Company purchased PDS (Note 3), which engaged in the
business of providing computer network integration. During 1997, in an effort
to narrow the scope of the Company's product offering and to focus resources on
its core competencies, the Company decided to exit the computer network
integration business. As a result, the assets related to PDS, including
approximately $1,889,000 of goodwill and other intangibles, and $250,000 of
hardware and software inventory, were written off and approximately $80,000 in
severance and other related costs were accrued. The associated charges to
operations are included in the nonrecurring charge to operations.
F-23
<PAGE>
Also during 1997, the Company was party to arbitration proceedings related
to an employee terminated subject to an employment contract. The arbitrator
ruled in favor of the employee and awarded approximately $300,000 plus 80,000
options to purchase the Company's stock at a price of $6.00 per share. The
liability is included in accrued liabilities at December 31, 1997, and the
associated charge, including related legal fees, is included in the nonrecurring
charge to operations.
10. INCOME TAXES
The following is a summary of the items which caused recorded income
taxes to differ from taxes computed using the statutory federal income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED
DECEMBER 31,
1998 1997
<S> <C> <C>
Statutory federal tax benefit (34)% (34)%
Increase (decrease) in tax benefit
resulting from --
State taxes, net of Federal benefit (3) (3)
Nonrecurring charges 0 6
Goodwill amortization 7 5
Other 1 1
Valuation Allowance 29 25
--- ---
Actual income tax benefit 0% 0%
--- ---
--- ---
</TABLE>
The sources of differences between the financial accounting and tax
bases of assets and liabilities which gave rise to the net deferred tax asset
are as follows:
<TABLE>
<CAPTION>
December 31, December 31,
1998 1997
------------------------------
<S> <C> <C>
Deferred assets:
Net operating loss carryforwards $8,166,000 $4,662,000
Unearned Revenue 964,000 624,000
Accrued expenses 385,000 1,244,000
Accounts Receivable 333,000 422,000
Other 97,000 106,000
------------ -----------
9,945,000 7,058,000
------------ -----------
Deferred liabilities
Depreciation (405,000) (236,000)
------------ -----------
Net Deferred Tax Asset Before Valuation
Allowance 9,540,000 6,822,000
Valuation Allowance (9,540,000) (6,822,000)
------------ -----------
Net Deferred Tax Asset $ 0 $ 0
============ ===========
</TABLE>
F-24
<PAGE>
The Tax Reform Act of 1986 provided for certain limitations on the
utilization of net operating loss carryforwards ("NOLs") if certain events
occur, such as a 50% change in ownership. The Company has had changes in
ownership and accordingly, the Company's ability to utilize the carryforwards is
limited. Also, the NOLs used to affect any taxes calculated as alternative
minimum tax could be significantly less than the regular tax NOLs. The NOLs
will be utilized to offset taxable income generated in future years, subject to
the applicable limitations and their expiration between 2006 and 2018. Since it
currently cannot be determined that it is not more likely than not that the net
deferred tax assets resulting from the NOLs and other temporary items will be
realized, a valuation allowance for the full amount of the net deferred tax
asset has been provided in the accompanying consolidated financial statements.
11. COMMITMENTS AND CONTINGENCIES
LEASES
During 1998, the Company entered into approximately $6.2 million in capital
leases related to the acquisition of machinery and equipment, see Note 4 for a
discussion of the transactions as well as a table of future minimum lease
payments related to the leases. Lease expenses primarily relate to the lease of
office space and equipment and include leases with affiliates. Rents charged to
expense were approximately $832,000 and $680,000 for the years ended December
31, 1998 and 1997, respectively.
At December 31, 1998, future minimum lease payments under non-cancelable
operating leases with initial remaining terms of more than one year are as
follows for the years ended December 31:
1999 $1,155,653
2000 876,015
2001 463,791
2002 206,344
2003 & Thereafter 768,914
----------
Total $3,470,717
==========
During 1997, the Company entered into an agreement to sublease the office
space formerly utilized by Worldlink at a price equal to the scheduled lease
payments ($8,369 per month) exclusive of the escalation provisions of the
original lease. During 1998, the Company entered into an agreement to sublease a
portion of its office space in Atlanta for an amount equal to its current lease
payment ($6,021 per month).
F-25
<PAGE>
During 1998, the Company entered into approximately $6.2 million in capital
leases related to the acquisition of machinery and equipment, see Note 4 for a
discussion of the transactions as well as a table of future minimum lease
payments related to the leases.
LITIGATION
The Company is subject to litigation related to matters arising in the
normal course of business. Management is not aware of any asserted or pending
litigation or claims against the Company that would have a material adverse
effect on the results of operations or liquidity.
12. TRANSACTIONS WITH AFFILIATES
During 1998, the Company entered into various equity and debt private
placements with officers and directors. During the first quarter, the Chairman
of the Board of Directors and another Director, purchased 3,400,000 and 600,000
shares of stock for $1,700,000 and $300,000, respectively. During the second
quarter, the Company issued a promissory note to a Director for $750,000, which
is non-interest bearing and matures June 1, 1999. In conjunction with the
promissory note, the Company issued 545,455 warrants to purchase common stock at
$1.375 for a period of one year from issuance. During the third quarter, the
Company issued a promissory note to Peachtree Capital Corporation, a company
affiliated with the Chairman, and a Director, for $150,000 payable on demand.
The note was repaid on March 15, 1999. During the fourth quarter, the Company
issued a $1 million promissory note to Cordova Capital Partners LP - Enhanced
Appreciation, which is an entity affiliated with a Director. In conjunction
with the notes, the Company issued 380,000 warrants to purchase common stock at
$1.00 per share.
During 1998, the Chairman of the Company's Board of Directors and its Chief
Financial Officer pledged shares of their Company common stock as collateral for
the $2.0 million bridge loans entered into during the fourth quarter. Also
during the year, the Company provided loans to certain of its officers and key
employees in the amount of $215,337.
The Company had a consulting agreement with Charter Trading Corporation
("CTC"), an unaffiliated company whose president and principal stockholder is a
former director. The Company compensated CTC $100,000 per annum for consulting
services through December 31, 1997.
As discussed in Note 4, the Company's lines of credit and certain notes
payable have been guaranteed by a stockholder, the Chairman of the Company's
Board of Directors and its Chief Financial Officer. 100,000, 30,000, and 30,000
warrants to purchase shares of Common Stock at $1 per share have been granted to
this group and individuals, respectively.
During 1997, the Company entered into a five year operating lease of earth
station equipment located in Panama, Costa Rica and Nicaragua. There are two
lessors, one of which is a company whose principal shareholder is the Chairman
of the Company's Board of Directors, and the other is a director. The lease
obligations total approximately $70,000 per annum payable quarterly in arrears.
In conjunction with the lease, the Company issued 195,000 warrants, which grant
the holders the right to purchase shares of the Company's common stock at a
price of $3.00 per share. The Company has reflected the fair value of these
warrants (computed using the Black-Scholes model) in the accompanying financial
statements.
F-26
<PAGE>
Accounts payable-affiliate at December 31, 1998, represents payables to
the Company's President for the unpaid portion of the Pointe Communications
Corporation acquisition price.
13. QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The following table summarizes the Company's quarterly results of
operations for 1998 and 1997:
<TABLE>
<CAPTION>
1998 Quarters FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Revenues $4,098,866 $5,275,304 $ 9,008,987 $9,237,045
Operating Loss (2,061,633) (1,360,892) (1,521,831) (4,067,121)
Net Loss (2,322,700) 7,975 (1,835,418) (4,997,339)
Net Loss Per Share ($0.06) $ 0.00 ($0.04) ($0.11)
</TABLE>
<TABLE>
<CAPTION>
1997 Quarters FIRST SECOND THIRD FOURTH
<S> <C> <C> <C> <C>
Revenues $2,749,355 $3,321,055 $3,197,172 $3,683,840
Operating Loss (2,156,847) (1,778,036) (1,516,171) (5,802,095)
Net Loss (2,540,621) (1,857,555) (1,405,009) (6,172,673)
Net Loss Per Share ($0.09) ($0.06) ($0.04) ($0.18)
</TABLE>
14. SUBSEQUENT EVENTS
Subsequent to year end, the Company entered into short-term bridge loans of
$2.0 million, $2.0 million and $5.0 million, due May, June and July 1999
respectively, and redeemed a $1.0 million bridge loan outstanding at December
31, 1998. In conjunction with the loans, the Company issued 760,000, 760,000
and 5.0 million warrants to purchase common stock at $1.00 for 3 years, 3 years
and 8 months from issuance, respectively. These notes are secured by a blanket
interest in all personal property in which the Company has an interest as well
as shares of Company stock owned by officers of the Company. The first $2.0
million loan was issued to a Company affiliated with the Chairman of the
Company.
Also, subsequent to year end, the Company obtained letters of intent from
investors to purchase $30 million of the Conpany's convertible preferred stock
in a private offering. The Company anticipates completion of this offering
early in the second quarter of 1999. A portion of the proceeds from the offering
will be used to repay the interim borrowings. Additionally, the Company entered
into a capital lease facility with a major equipment vendor to purchase $25.0
million of equipment and to provide a $3.0 million working capital line of
credit.
F-27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS AS TO SCHEDULE
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of POINTE COMMUNICATIONS CORPORATION and
its subsidiaries as of and for the year ended December 31, 1998 included in this
Form 10-KSB and have issued our report thereon dated March 31, 1999. Our audit
was made for the purpose of forming an opinion on the basic financial statements
taken as a whole. The schedule listed in the index is the responsibility of the
Company's management, and is presented for purposes of complying with the
Securities and Exchange Commission's rules, and is not part of the basic
financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
March 31, 1999
F-28
<PAGE>
<TABLE>
<CAPTION>
POINTE COMMUNICATIONS CORPORATION AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
Column A Column B Column C Column D Column E
- ------------------------------------ ---------- --------- ------------ ----------
Balance at Write-offs, Balance at
Beginning Net of End of
Classification of Period Additions Recoveries Period
- ------------------------------------ ---------- --------- ------------ ----------
<S> <C> <C> <C> <C>
For the Year Ended December 31, 1998
Allowance for Doubtful Accounts 650,000 883,462 (633,462) 900,000
Allowance for Obsolete Inventory 320,000 0 (13,000) 307,000
---------- --------- ------------ ----------
970,000 883,462 (646,462) 1,207,000
---------- --------- ------------ ----------
For the Year Ended December 31, 1997
Allowance for Doubtful Accounts 435,000 715,737 (507,737) 650,000
Allowance for Obsolete Inventory 70,000 250,000 0 320,000
---------- --------- ------------ ----------
505,000 965,737 (507,737) 970,000
---------- --------- ------------ ----------
</TABLE>
F-29
<PAGE>
CERTICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATED
CHARTER COMMNICATIONS INTERNATIOANL, INC.
We the undersigned Gary D. Morgan, President, and Charles M. Cushing,
Secretary of Charter Communications International, Inc., do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 7th day of August, 1998, adopted a resolution to amend the original
articles of incorporation as follows:
Article I is hereby amended to read as follows:
"Article I
"Name
The name of the corporation is Pointe Communications Corporation
(hereinafter referred to as the "Corporation")".
Article V is hereby amended as follows:
"Article V
"Capital
"The aggregated number of shares which the Corporation shall have the
authority to issue is one hundred million (100,000,000) shares of a par value
of one one-thousandth of one cent ($0.00001), which shares shall designed
"Common Stock," and one hundred thousand (100,000) shares of a par value of
one cent ($0.01), which shares shall be designated "Preferred Stock." Both
the Common Stock and the Preferred Stock may be subdivided and issued in series
pursuant to resolutions of the Board of Directors, in its discretion, may
determine to be appropriate."
The rest of Article V remains uncharged.
The number of shares of shares of the corporation outstanding and entitled
to vote on an amendment to the Articles of Incorporation is 44,008,960, the said
change(s) and amendment have been consented to and approved by a majority vote
of the stockholders at a duly constituted meeting of the stockholders held on
August 31, 1998.
Gary D. Morgan, President
Charles M. Cushing, Secretary
State of Texas
County of Harris
Signature of Notary
On September 14, 1998, personally appeared before me, a Notary Public, Gary
D. Morgan, President of Charter Communications International, Inc., who
acknowledged before me that he executed the above instrument.
State of Georgia
County of Fulton
On September 15, 1998, personally appeared before me, a Notary Public,
Charles M. Cushing, Secretary of Charter Communications International, Inc., who
acknowledged before me that he executed the above instrument.
Signature of Notary
<PAGE>
NOTE AND WARRANT
PURCHASE AGREEMENT
DATED DECEMBER 17, 1998
BETWEEN
CORDOVA CAPITAL PARTNERS, L.P. - ENHANCED APPRECIATION
AND POINTE COMMUNICATIONS CORPORATION
<PAGE>
TABLE OF CONTENTS
-------------------
Page
----
1. Authorization and Closing 1
1A. Authorization of the Note and Warrant 1
1B. Issuance of the Note and the Warrant 1
1C. The Closing 1
2. Covenants 1
2A. Financial Statements and Other Information 1
2B. Inspection of Property 2
2C. Attendance at Board Meetings 2
2D. Current Public Information 3
2E. SBIC Regulatory Provisions 3
2F. Piggyback Registrations 4
2G. Reservation of Common Stock 5
2H. Public Disclosures 5
3. Representations and Warranties of the Company 6
3A. Organization, Corporate Power and Licenses 6
3B. Authorization; No Breach 6
3C. No Material Adverse Change 7
3D. Small Business Matters 7
3E. Disclosure 7
4. Definitions 8
4A. Definitions 8
5. Miscellaneous 9
5A. Expenses 9
5B. Remedies 9
5C. Survival of Representations and Warranties 9
5D. Successors and Assigns 10
5E. Severability 10
5F. Counterparts 10
5G. Descriptive Headings; Interpretation 10
5H. Governing Law 10
Schedules and Exhibits
- ------------------------
Schedule of Purchasers
List of Exhibits
List of Disclosure Schedules
<PAGE>
POINTE COMMUNICATIONS CORPORATION
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of December 17, 1998, between Pointe
Communications Corporation, a Nevada corporation (the "Company"), CORDOVA
CAPITAL PARTNERS, L.P. - ENHANCED APPRECIATION, a Georgia limited partnership
(the "Purchaser"). Except as otherwise indicated herein, capitalized terms used
herein are defined in Section 4 hereof.
On the date hereof, the Company has loaned $1 million (the "Loan") for
which the Company issued a note ("Note") and granted a security interest to the
Purchaser. The Note is secured by all the assets of the Company. It is also
guaranteed by a non-recourse Guaranty of Star Insurance Company, secured by a
pledge of his stock. In connection therewith and in partial consideration
therefor, the parties are entering into this Agreement.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
---------------------------
1A. Authorization of the Note and Warrant. The Company shall authorize
-------------------------------------
the issuance of the Note and the warrant to the Purchaser (the "Warrant") to
purchase 380,000 shares of its Common Stock, par value $.00001 per share (the
"Common Stock").
1B. Issuance of the Note and the Warrant. At the Closing, the Company
-------------------------------------
shall issue to Purchaser and, subject to the terms and conditions set forth
herein, each Purchaser shall purchase from the Company the Note and Warrant in
consideration of Purchaser's agreement to make the Loan to the Company pursuant
to the Note.
1C. The Closing. The closing of the Loan and the issuance of the Note
------------
and Warrant (the "Closing") shall take place at the offices of the Purchaser at
2:00 p.m. on December 17, 1998, or at such other place or on such other date as
may be mutually agreeable to the Company and each Purchaser. At the Closing,
the Company shall deliver to Purchaser the Note and Warrant to be issued to such
Purchaser, registered in such Purchaser's or its nominee's name, and Purchaser
shall make the Loan.
1D. Payments at Closing. At the Closing, the Company shall pay to
---------------------
Cordova Capital II, LLC, the general partner of Purchaser, by check payable to
the order of Cordova Capital, II, LLC, a transaction fee in the amount of Ten
Thousand Dollars ($10,000.00) and shall also pay to counsel for Purchaser the
legal expenses of the Purchaser in connection with the closing of the
transactions contemplated by this Agreement.
<PAGE>
Section 2. Covenants.
---------
2A. Financial Statements and Other Information. The Company shall
----------------------------------------------
deliver to Purchaser so long as such Purchaser holds the Note, any Underlying
Common Stock or any other security of the Company:
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated state-ments of income and cash flows of the
Company and its Subsid-iaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Com-pany's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied
subject to the absence of footnote disclosures and to normal year-end
adjustments for recurring accruals and shall be certified by the Com-pany's
chief financial officer;
(ii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or (to its knowledge) any of its officers or direc-tors file with respect
to the Company, with the Securi-ties and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and copies
of all press releases and other statements made available gen-erally by the
Company to the public concerning material developments in the Company's and its
Subsidiaries' businesses; and
(iii) with reasonable promptness, such other infor-mation and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably request.
To the best of the Company's knowledge, each of the financial statements
referred to in subparagraph (i) shall be true and correct in all material
respects as of the dates and for the periods stated therein, subject in the case
of the unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals none of which would, alone or in the
aggregate, be materially adverse to the financial condition, operating results,
assets, operations or business prospects of the Company and its Subsidiaries
taken as a whole.
<PAGE>
2B. Inspection of Property. The Company shall permit any
------------------------
representatives designated by Purchaser (so long as such Purchaser holds any
Underlying Common Stock), upon reasonable notice and during normal business
hours, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
dis-cuss the affairs, finances and accounts of any such corpora-tions with the
directors, officers, key employees and inde-pen-dent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
Purchaser or any holder of Underlying Common Stock to the Company's independent
accountants shall constitute the Company's permission to its independent
accountants to participate in discussions with such Persons.
2C. Attendance at Board Meetings. The Company shall give Purchaser (so
----------------------------
long as such Purchaser holds any Underlying Common Stock) written notice of each
quarterly meeting of its board of directors and each regularly scheduled
committee meeting thereof at the same time and in the same manner as notice is
given to the directors (which notice shall be promptly confirmed in writing to
each such Person), and the Company shall permit a representative of each such
Person to attend as an observer all quarterly meetings of its board of directors
and all committees thereof; provided, however, that in the event the board of
directors or any committee thereof reasonably determines that an executive
session is appropriate under the circumstances, the board of directors or such
committee may excuse the observer from any such executive session. Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the direc-tors. If the Company pro-poses to take any
action by written consent in lieu of a meeting of its board of directors or of
any committee thereof, the Company shall give written notice thereof to each
such Person prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action.
2D. Current Public Information. The Company shall file all reports
----------------------------
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to Rule
144 adopted by the Securities and Exchange Commission under the Securities Act
(as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission. Upon
request, the Company shall deliver to any holder of Restricted Securities a
written statement as to whether it has complied with such requirements.
2E. SBIC Regulatory Provisions.
----------------------------
(i) Within 75 days after the Closing and each subsequent Financing
hereunder by each holder of the Note or Underlying Common Stock which is an SBIC
(an "SBIC Holder") and at the end of each month thereafter until all of the
proceeds from the Loan and the exercise of the Warrants have been used by the
Company and its Subsidiaries, the Company shall deliver to each SBIC Holder a
written statement certified by the Company's president or chief financial
officer describing in reasonable detail the use of the proceeds of the loan
reflected by the Note by the Company and its Subsidiaries. In addition to any
other rights granted hereunder, the Company shall grant each SBIC Holder and the
United States Small Business Administration (the "SBA") access to the Company's
records for the purpose of verifying the use of such proceeds.
<PAGE>
(ii) Upon the occurrence of a Regulatory Violation or in the event
that any SBIC Holder determines in its reasonable good faith judgment that a
Regulatory Violation has occurred, in addition to any other rights and remedies
to which it may be entitled as a holder of the Note or the Underlying Common
Stock (whether under this Agreement, the Certificate of Incorporation or
otherwise), each SBIC Holder shall have the right to the extent required under
the SBIC Regulations to demand the immediate repayment of the Loan and
repurchase of all Underlying Common Stock owned by such SBIC Holder at a price
equal to the purchase price paid for such securities hereunder (plus accrued but
unpaid interest on the Note) by delivering written notice of such demand to the
Company. The Company shall pay the purchase price for such stock by a cashier's
or certified check or by wire transfer of immediately available funds to each
SBIC Holder demanding repurchase within 30 days after the Company's receipt of
the demand notice, and upon such payment, each such SBIC Holder shall deliver
the certificates evidencing the Underlying Common Stock to be repurchased duly
endorsed for transfer or accompanied by duly executed forms of assignment.
(iii) For purposes of this paragraph, "Regulatory Violation"
---------------------
means, with respect to any SBIC Holder providing Financing under this Agreement,
(a) a diversion of the proceeds of such Financing from the reported use thereof
on the use of proceeds statement delivered by the Company on SBA Form 1031
delivered at the Closing, if such diversion was effected without obtaining the
prior written consent of the SBIC Holders (which may be withheld in their sole
discretion) or (b) a change in the principal business activity of the Company
and its Subsidiaries to an ineligible business activity (within the meaning of
the SBIC Regulations) if such change occurs within one year after the date of
the initial Financing hereunder; "SBIC Regulations" means the Small Business
----------------
Investment Act of 1958 and the regulations issued thereunder as set forth in 13
CFR 107 and 121, as amended; and the term "Financing" shall have the meaning set
---------
forth in the SBIC Regulations.
2F. Piggyback Registrations.
------------------------
(a) Right to Piggyback. Whenever the Company proposes to
--------------------
register any of its securities under the Securities Act and the registration
form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
----------------------
holders of Registrable Securities of its intention to effect such a registration
and shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
20 days after the receipt of the Company=s notice.
(b) Piggyback Expenses. The registration expenses of the
-------------------
holders of Registrable Securities (not including broker=s commissions) shall be
paid by the Company in all Piggyback Registrations.
<PAGE>
(c) Priority on Registrations. If a Piggyback Registration
---------------------------
is an underwritten registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company shall include in such registration (i) first, the
-----
securities the Company proposes to sell, (ii) second, the Registrable Securities
------
and other securities held by other third parties requested to be included in
such registration, pro rata among the holders thereof on the basis of the number
of shares owned by each such holder, and (iii) third, other securities requested
-----
to be included in such registration.
(d) Other Registrations. If the Company has previously filed
-------------------
a registration statement with respect to Registrable Securities pursuant to this
paragraph 2, and if such previous registration has not been withdrawn or
abandoned, the Company shall not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least 180 days have elapsed from the effective date of such previous
registration.
2G. Reservation of Common Stock. The Company shall at all times
------------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon exercise of the Warrant, such
number of shares of Common Stock issuable upon the exercise of all outstanding
Warrants. All shares of Common Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
2H. Public Disclosures. The Company shall not, nor shall it permit any
------------------
Subsidiary to, disclose Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of such Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent juris-diction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reason-able detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
2I. Preemptive Rights.
------------------
<PAGE>
(a) Until the Note is paid in full, Purchaser shall have the following
preemptive rights: except for issuances of Common Stock (i) to the Company's
employees, (ii) upon the conversion of the Warrant or other warrants or options
outstanding as of the date hereof, or granted within the next 90 days as a part
of similar bridge financings or as a part of the contemplated CS First
Boston/Breckenridge financing, (iii) in connection with the acquisition of
another company or business, (iv) pursuant to a public offering registered under
the Securities Act, if the Company authorizes the issuance or sale of any shares
of Common Stock, preferred stock or any securities (other than those described
in (i) through (iv) above) containing options or rights to acquire any shares of
Common Stock or preferred stock (other than as a dividend on the outstanding
Common Stock), the Company shall first offer to sell to each holder of
Underlying Common Stock a portion of such stock or securities equal to the
quotient determined by dividing (1) the number of shares of Under-lying Common
Stock held by such holder by (2) the sum of the total number of shares of
Underlying Common Stock and the number of shares of Common Stock outstanding
which are not shares of Under-lying Common Stock. Each holder of Underlying
Common Stock shall be entitled to purchase such stock or securities at the most
favorable price and on the most favorable terms as such stock or securities are
to be offered to any other Persons The purchase price for all stock and
securities offered to the holders of the Underlying Common Stock shall be
payable in cash or, to the extent otherwise required hereunder, notes issued by
such holders.
(b) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock must within 15 days after receipt of written notice from
the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder, together with payment of the purchase price therefor and
such subscription and other documents as are a part of such offering.
(c) Upon the expiration of the offering period described above, the
Company shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be reoffered to the
holders of Underlying Common Stock pursuant to the terms of this paragraph.
Section 3A Representations and Warranties of the Company. As a
--------------------------------------------------
material inducement to the Purchaser to enter into this Agreement to make the
loan reflected by the Note and purchase the Warrant hereunder, the Company
hereby represents and warrants that:
3A. Organization, Corporate Power and Licenses. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Nevada and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets, operations
or business prospects of the Company and its Subsidiaries taken as a whole. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to issue the Note and carry out the other transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
<PAGE>
3B. Authorization; No Breach. The execution, delivery and performance
-------------------------
of this Agreement, the Warrant, the Note, the Security Agreement and all other
agree-ments contemplated hereby to which the Company is a party, have been duly
authorized by the Company. This Agreement, the Warrant, the Note, the Security
Agreement and all other agreements contemplated hereby to which the Company is a
party each constitutes a valid and binding obliga-tion of the Company,
enforceable in accordance with its terms. The execution and delivery by the
Company of this Agreement, the Warrant, the Note, the Security Agreement and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and issuance of the Note and the Warrant hereunder, the issuance
of the Common Stock upon exer-cise of Warrant, and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon the Company's or any
Subsidi-ary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authoriza-tion, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company or any Subsidiary, or any law, statute, rule or regulation to
which the Company or any Subsidiary is sub-ject, or any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject.
3C. No Material Adverse Change. Since the date of the Company's last
----------------------------
Form 10-Q filed with the SEC, there has been no material adverse change in the
financial condition, operating results, assets, operations, business prospects,
value, employee relations or customer or supplier relations of the Company and
its Subsidiaries taken as a whole.
3D. Small Business Matters. The Company, together with its
------------------------
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
'121.103), is a "small busi-ness concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, '121.105. The information regarding the
Company and its affiliates set forth in the Small Business Administration Form
480, Form 652 and Part A of Form 1031 delivered at the Closing is accurate and
complete. Copies of such forms shall have been completed and executed by the
Company and delivered to Purchaser at the Closing together with a written
statement of the Company regarding its planned use of the proceeds from the loan
made by Purchaser reflected by the Note and the Warrants. Neither the Company
nor any Subsidiary presently engages in, and it shall not hereafter engage in,
any activities, nor shall the Company or any Subsidiary use directly or
indirectly the proceeds from the loan made by Purchaser reflected by the Note or
the exercise of Warrant hereunder for any purpose, for which a Small Business
Investment Company is prohibited from providing funds by the Small Business
Investment Act of 1958 and the regulations thereunder (including Title 13, Code
of Federal Regulations, '107.720).
3E. Disclosure. There is no fact which the Company has not disclosed
----------
to the Purchaser in writing and of which any of its officers, directors or
executive employees is aware and which has had or would reasonably be expected
to have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer or supplier relations, employee
relations or business prospects of the Company and its Subsidiaries taken as a
whole.
<PAGE>
3F. Reports with the Securities and Exchange Commission. The Company
-----------------------------------------------------
has furnished the Purchaser with complete and accurate copies of its annual
report on Form 10-K for its most recent fiscal year, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its stockholders. Such
reports and filings do not contain any material false statements or any
misstatement of any material fact and do not omit to state any fact necessary to
make the statements set forth therein not misleading. The Company has made all
filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph.
Section 4A Definitions.
-----------
4A. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person controlling,
---------
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
"Registrable Securities" means (i) any Common Stock issued upon the
-----------------------
exercise of any Warrants issued pursuant to this Agreement, (ii) any Common
-
Stock pledged pursuant to the Securities Pledge Agreement between the Company
and Patrick E. Delaney, and (iii) any Common Stock issued or issuable with
respect to the securities referred to in clauses (i) and (ii) above by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to
particular Registrable Securities, such securities shall cease to be Registrable
Securities when they have been distributed to the public pursuant to a offering
registered under the Securities Act or sold to the public through a broker,
dealer or market maker in compliance with Rule 144 under the Securities Act (or
any similar rule then in force) or repurchased by the Company. For the purposes
of this Agreement, a Person shall be deemed a holder of Registrable Securities,
and the Registrable Securities shall be deemed to be in existence, whenever such
Person has the right to acquire directly or indirectly such Registrable
Securities (upon conversion or exercise in connection with a transfer of
securities or otherwise, but disregarding any restrictions or limitations upon
the exercise of such right), whether or not such acquisition has actually been
effected, and such Person shall be entitled to exercise the rights of a holder
of Registrable Securities hereunder.
"SBIC" means a small business investment company licensed under the Small
----
Business Investment Act of 1958, as amended.
"SBIC Regulations" means the Small Business Investment Company Act of 1958,
----------------
as amended, and the regulations issued by the Small Business Administration
thereunder, 13 CFR 107 and 121, as amended.
"Securities Act" means the Securities Act of 1933, as amended, or any
---------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
-------------------------------------
agency succeeding to the functions thereof.
<PAGE>
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended, or any similar federal law then in force.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
-------------------------
upon exercise of the Warrants and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes
of this Agreement, any Person who holds the Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon exercise of the Warrants
in connection with the transfer thereof or otherwise regardless of any
restric-tion or limitation on the exercise of the Warrant, such Underlying
Common Stock shall be deemed to be in existence, and such Person shall be
entitled to exercise the rights of a holder of Underlying Common Stock
here-under. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registra-tion statement covering them, (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) or (c) repurchased by the Company or any
Subsidiary.
Section 5A Miscellaneous.
-------------
5A. Expenses. The Company shall pay, and hold Purchaser and all
--------
holders of Under-lying Common Stock harmless against liability for the payment
of, (i) the reasonable fees and expenses of their special counsel arising in
connection with the negotiation and execution of this Agreement and the
consummation of the transac-tions contemplated by this Agreement which shall be
payable at the Closing or, if the Closing does not occur, payable upon demand,
(ii) the reasonable fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effec-tive) under or in respect of this
Agreement, the agreements contemplated hereby or the warrants, (iii) stamp and
other taxes which may be payable in respect of the execution and delivery of
this Agreement or the issuance, delivery or acquisition of any shares of Common
Stock issuable upon exercise of the Warrants, (iv) the reason-able fees and
expenses incurred with respect to the enforcement of the rights granted under
this Agreement, the agreements contem-plated hereby or the Warrants and (v) the
reasonable fees and expenses incurred by each such Person in any filing with any
governmental agency with respect to its investment in the Company or in any
other filing with any governmental agency with respect to the Company which
mentions such Person, and (vi) the reasonable fees and expenses incurred by any
such Person in connection with any transaction, claim or event which such Person
believes affects the Company and as to which such Person seeks advice of
coun-sel.
5B. Remedies. Each holder of Under-lying Common Stock shall have all
--------
rights and remedies set forth in this Agreement, and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any
Person having any rights under any provision of this Agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights granted by law.
<PAGE>
5C. Survival of Representations and Warranties. All repre-sentations
--------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
5D. Successors and Assigns. Except as otherwise expressly provided
------------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's bene-fit as a
purchaser or holder of the Warrants or Underlying Common Stock are also for the
benefit of, and enforceable by, any subsequent holder of such Warrants or such
Underlying Common Stock.
5E. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effec-tive and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
5F. Counterparts. This Agreement may be executed simul-tane-ously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counter-parts taken together shall constitute
one and the same Agreement.
5G. Descriptive Headings; Interpretation. The descrip-tive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
5H. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF NEVADA SHALL
--------------
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS
OF THE COMPANY AND ITS STOCK-HOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING
THE CONSTRUC-TION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF
GEORGIA OR ANY OTHER JURIS-DICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF GEORGIA.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the date
first written above.
POINTE COMMUNICATIONS CORPORATION
By
Its
CORDOVA CAPITAL PARTNERS, L.P. -
ENHANCED APPRECIATION
By
Its
<PAGE>
PROMISSORY NOTE
---------------
$1,000,000.00 December 17, 1998
For value received, Pointe Communications Corporation, a Nevada corporation
(the "Maker") promises to pay to the order of Cordova Capital Partners, L.P. -
-----
Enhanced Appreciation, a Georgia limited partnership ("Cordova") at such place
-------
as is designated in writing by the holder of this Note, the aggregate principal
sum of One Million Dollars and no cents ($1,000,000.00) together with interest
thereon calculated from the date hereof in accordance with the provisions of
this Note. The Maker=s obligations under this Note shall be senior to all of
Maker=s obligations under any of its unsecured indebtedness (or guarantees of
indebtedness).
1. Payment of Interest. Interest shall accrue on the outstanding
---------------------
principal amount of this Note at a rate equal to 10%. All accrued interest
shall be due and payable on the date on which the final principal amount on this
Note is payable. Interest will accrue on any principal payment due under this
Note and, to the extent permitted by applicable law, on any interest which has
not been paid on the date on which it is payable until such time as payment
therefor is actually delivered to the holder hereof.
2. Payment of Principal. The Maker shall repay the principal amount of
--------------------
$1,000,000.00 (or such lesser amount as may then be outstanding), together with
all accrued and unpaid interest thereon, to the holder hereof on the earliest of
(i) April 16, 1999, or (ii) the date on which the Maker obtains permanent (i.e.
repayment or redemption of which is not required within one year) equity
financing of at least Five Million Dollars ($5,000,000.00) ("Permanent
---------
Financing") or (iii) the date on which an Event of Default occurs, as defined in
the Security Agreement, dated as of December 18, 1998, between the Maker and
Cordova (the ASecurity Agreement@). The Maker shall give written notice ten
-------------------
(10) business days prior to consummating such Permanent Financing.
3. Prepayments. The Maker may, at any time and from time to time
-----------
without premium or penalty, prepay all or any portion of the outstanding
principal amount of this Note; provided that the Maker simultaneously pays all
interest on this Note accrued and unpaid through the date of such prepayment.
4. Security. This note and any renewals and extensions hereof and any
--------
other liabilities and obligations of the undersigned to Cordova are guaranteed
pursuant to a certain non-recourse Guaranty of Stephen E. Raville, dated as of
the date hereof, and Securities Pledge Agreement relating thereto, also dated as
of the date hereof, as such agreement may be amended, modified or restated from
time to time hereafter, and are secured pursuant to a certain Security
Agreement, between the Maker and Cordova, as such agreement may be amended,
modified or restated from time to time hereafter.
<PAGE>
5. Option. Upon receiving notice, Cordova can elect by delivery of
------
written notice to the Maker to convert all or any portion of the principal or
accrued but unpaid interest of this Note into securities issued in connection
with a Permanent Financing or an independent equity financing by Maker; it being
understood that Cordova shall have the right to participate in any such
Permanent Financing and shall have the right to purchase each class of
securities offered in such Permanent Financing pro rata according to the amount
invested in each such class.
6. Default Interest Rate. If the Maker fails to repay the principal
-----------------------
amount, and accrued but unpaid interest thereon, due hereunder in accordance
with the terms hereof, in addition to all of Cordova=s rights and remedies under
the Security Agreement, the Securities Pledge Agreement or under applicable
law, the interest rate on the Note shall increase immediately by an increment of
two (2) percentage points.
7. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to the
Maker for cancellation and shall not be reissued.
8. Costs of Collection. In the event the Maker fails to pay any
---------------------
amounts due hereunder when due, the Maker shall pay to the holder hereof, in
addition to such amounts due, all costs of collection, including reasonable
attorneys' fees.
9. Waivers. The Maker, or its successors and assigns, hereby waives
-------
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Maker hereunder. In any
action on this Note, the holder hereof need not produce or file the original of
this Note, but need only file a photocopy of this Note certified by the holder
hereof to be a true and correct copy of this Note.
10. Remedies. All rights and remedies of Cordova, whether provided for
--------
herein or conferred by law, are cumulative and concurrent and the exercise of
any one or more of them shall not preclude the simultaneous or later exercise by
Cordova of any or all other rights, powers or remedies.
11. Notice. All notices, demands or other communications to be given
------
or delivered under or by reason of the provisions of this Note shall be in
writing and shall be deemed to have been given if (i) delivered personally to
the recipient, (ii) mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or (iii) sent to the recipient by
reputable overnight courier services (charges prepaid).
If to Cordova:
---------------
Cordova Capital Partners, L.P. - Enhanced Appreciation
2500 NorthWinds Parkway
Suite 475
Alpharetta, GA 30004
Attn: Jerry F. Schmidt
Fax Number (678) 942-0301
<PAGE>
Confirm Number (678) 942-0300
with a copy, which will not constitute notice to Cordova, to:
- -----------------------------------------------------------------------
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Road
Suite 400
Atlanta, GA 30305
Attn: Robert B. Goldberg, Esq.
Fax Number (404) 233-2188
Confirm Number (404) 233-2800
If to Pointe Communications Corporation:
--------------------------------------------
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
With a copy to
- -----------------
Charles M. Cushing, Jr.
229 Peachtree Street, Suite 2110
Atlanta, GA 30303
Fax Number: (404) 658-9865
Confirm Number: (404) 521-2323
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
All such notices, request, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified or registered mail, on the seventh business day
after the mailing thereof and (iii) if by next-day or overnight mail or
delivery, on the day delivered.
12. Usury Laws. It is the intention of the Maker and the holder of
-----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated or
this Note is prepaid, whether by reason of an Event of Default as defined in
paragraph 4 of the Security Agreement, voluntary prepayment by the Maker or
otherwise, then earned interest may never include more than the maximum amount
permitted by law, computed from the date hereof until payment. If such interest
does exceed the maximum legal rate, it shall be deemed a mistake and such excess
shall be canceled automatically and, if theretofore paid, rebated to the Maker
or credited on the principal amount of this Note, or if this Note has been
repaid, then such excess shall be rebated to the Maker.
<PAGE>
13. Governing Law. All questions concerning the construction, validity
-------------
and interpretation of this Note will be governed by and construed in accordance
with the domestic laws of the State of Georgia, without giving effect to any
choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Georgia.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
POINTE COMMUNICATIONS CORPORATION
By:_________________________
Its:_________________________
<PAGE>
This Warrant was originally issued on December 17, 1998 and such issuance was
not registered under the Securities Act of 1933, as amended, or the securities
laws of any state. If reasonably requested by Company counsel, no transfer of
this Warrant shall be made except in connection with an opinion from Registered
Holder=s counsel, acceptable to counsel for the Company, that such transfer is
exempt from federal and state registration.
POINTE COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: December 17, 1998 Certificate No. W-2
FOR VALUE RECEIVED, Pointe Communications Corporation, a Nevada corporation
(the "Company"), hereby grants to Cordova Capital Partners, L.P. - Enhanced
Appreciation, a Georgia limited partnership, or its registered assigns (the
"Registered Holder") the right to purchase from the Company 380,000 shares of
the Company's Common Stock at a price per share of $1.00 (as adjusted from time
to time hereunder, the "Exercise Price"). This Warrant is being granted to the
Registered Holder in connection with and, in consideration for the $1 million
loan the Registered Holder is making to the Company contemporaneously with the
issuance of this Warrant. Certain capitalized terms used herein are defined in
Section 5 hereof. The amount and kind of securities obtainable pursuant to the
rights granted hereunder and the purchase price for such securities are subject
to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
---------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
----------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time until the third
anniversary of the Date of Issuance (the "Exercise Period").
1B. Exercise Procedure.
-------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
<PAGE>
(a) a completed Exercise Agreement, as described in paragraph 1C below,
executed by the Person exercising all or part of the purchase rights represented
by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit II hereto evidencing
----------
the assignment of this Warrant to the Purchaser, in which case the Registered
Holder shall have complied with the provisions set forth in Section 7 hereof;
and
(d) either (1) a check payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price"), (2) the
surrender to the Company of debt or equity securities of the Company or any of
its wholly-owned Subsidiaries having a Market Price equal to the Aggregate
Exercise Price of the Common Stock being purchased upon such exercise (provided
that for purposes of this subparagraph, the Market Price of any note or other
debt security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid dividends
thereon) or (3) a written notice to the Company that the Purchaser is exercising
the Warrant (or a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such exercise of the
Warrant which when multiplied by the Market Price of the Common Stock is equal
to the Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a registered
public offering or the sale of the Company, the exercise of any portion of this
Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange (except for Arestricted stock@ rules and requirements) upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such issuance).
The Company shall not take any action which would cause the number of
autho-rized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
-------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
<PAGE>
1D. Fractional Shares. If a fractional share of Common Stock would,
------------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the Market
Price of such fractional share as of the date of the Exercise Time .
Section 2. Adjustment of Exercise Price and Number of Shares. In order to
-------------------------------------------------
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
-------------------------------------------------------------------
Common Stock. If and whenever the Company issues or sells (except pursuant to
- -------------
exercised options, warrants or similar instruments outstanding as of the date
hereof), or in accordance with paragraph 2B is deemed to have issued or sold,
any share of Common Stock for a consideration per share less than the Exercise
Price in effect immediately prior to such time, then immediately upon such issue
or sale the Exercise Price shall be reduced to the lowest net price per share at
which such share of Common Stock has been issued or sold or is deemed to have
been issued or sold. Upon each such adjustment of the Exercise Price hereunder,
the number of shares of Common Stock acquirable upon exercise of this Warrant
shall be adjusted to the number of shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
2B. Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------------
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If subsequent to the date
---------------------------------
hereof the Company in any manner grants or sells any Options and the lowest
price per share for which any one share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Exercise Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
<PAGE>
(ii) Issuance of Convertible Securities. If subsequent to the
-------------------------------------
date hereof the Company in any manner issues or sells any Convertible Security
and the lowest price per share for which any one share of Common Stock is
issuable upon conversion or exchange thereof is less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then such share or
shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
------------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
issuable hereunder shall be correspondingly adjusted. For purposes of this
paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
-------------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that no such change shall at any time cause the Exercise
Price hereunder to be increased.
<PAGE>
(v) Calculation of Consideration Received. If any Common Stock,
---------------------------------------
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by the
Company and the Registered Holders of Warrants representing a majority of the
shares of Common Stock obtainable upon exercise of such Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of such Warrants. The determination of
such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.
(vi) Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders
------------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any
-------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
<PAGE>
2D. Reorganization, Reclassification, Consolidation, Merger or Sale.
------------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to insure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision with respect to such holders=
rights and interests to insure that the provisions of this Section 2 and
Sections 3 and 4 hereof shall thereafter be applicable to the Warrants. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by appropriate written instrument the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by
---------------
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment shall increase the Exercise Price or decrease
the number of shares of Common Stock obtainable as otherwise determined pursuant
to this Section 2.
2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Registered Holder of this Warrant
=
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
<PAGE>
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means the Company's Common Stock, .00001 par value, and
-------------
except for purposes of the shares obtainable upon exercise of this Warrant, any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Convertible Securities" means any stock or securities (directly or
-----------------------
indirectly) convertible into or exchangeable for Common Stock.
-
"Market Price" means as to any security the average of the closing prices
-------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of Warrants representing a majority of the Common
Stock purchasable upon exercise of all the Warrants then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of Warrants representing a majority of
the Common Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase Common
-------
Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"The Warrant" means this Warrant and any other warrants exchanged directly
------------
or indirectly for all or a portion of this Warrant.
<PAGE>
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Purchase Agreement, dated December 18, 1998,
between the Company and the Registered Holder.
Section 5. No Voting Rights; Limitations of Liability. This Warrant shall
------------------------------------------
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6. Warrant Transferable. Subject to the transfer conditions
---------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
-----------
Section 7. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 8. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided herein, all
-------
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
<PAGE>
Section 10. Amendment and Waiver. Except as otherwise provided herein,
----------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its Stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Georgia without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Georgia.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
POINTE COMMUNICATIONS CORPORATION
By:
Its:
[Corporate Seal]
Attest:
______________________________
Title: ________________________
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
Address
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
----------------- ------- -------------
Signature
Witness
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT is made the December 17, 1998, by Pointe
Communications Corporation (the "Borrower"), a Nevada corporation, and Cordova
--------
Capital Partners, L.P. - Enhanced Appreciation, (the "Secured Party").
--------------
On the date hereof, the Secured Party has loaned $1 million for which the
Borrower has issued a note ("Note"). This Note is guaranteed by a non-recourse
Guaranty of Stephen E. Raville, (the "Guarantor") (who together with the
Borrower are the "Loan Party"), secured by a pledge of his stock. It was a
condition of the Secured Party's $1 million loan that the Borrower enter into
this Security Agreement and grant to the Secured Party the security interests
described below.
NOW, THEREFORE, in consideration of the premises herein contained, and
certain other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Secured Party hereby agree
as follows:
1. Grant of Security Interest. As security for the payment and
-----------------------------
performance of the Secured Obligations (as defined in Section 6(g)), the
Borrower hereby gives, grants and assigns to the Secured Party a lien and
security interest in and against (i) those items described in Exhibit A attached
---------
hereto and incorporated herein and (ii) any and all additions and accessions to,
and substitutions, replacements and exchanges for, any and all of the foregoing
items in each case whether now owned, hereafter acquired and wherever located,
and all proceeds thereof (all of the foregoing being hereinafter referred to as
the "Collateral").
----------
2. Representations of the Borrower. The Borrower hereby represents and
-------------------------------
warrants as follows:
(a) The Borrower is the owner of all of the Collateral and, except to
the extent described on the Security Interests Schedule attached hereto, there
is no lien or security interest in or against any of such Collateral except the
lien of the Secured Party pursuant to this Security Agreement.
(b) The Borrower presently has in effect, or will have in effect as
each item of Collateral is acquired, all insurance required hereunder.
(c) The Borrower has full power and authority to execute and deliver
this Agreement and to perform its obligations hereunder and this Agreement has
been duly executed and delivered by the Borrower.
<PAGE>
(d) The execution and delivery of this Agreement, the consummation of
the transactions contemplated hereby and the performance of its obligations
hereunder by the Borrower will not conflict with, or result in any violation of
or default under, any provision of any governing instrument applicable to the
Borrower, or any agreement or other instrument to which the Borrower is a party
or by which the Borrower or any of its properties are bound, or any decree,
order, statute, rule or regulation applicable to the Borrower or its business or
properties. This Agreement constitutes a valid and binding obligation of the
Borrower, enforceable in accordance with its terms.
3. Covenants of the Borrower. The Borrower covenants and agrees as
----------------------------
follows:
(a) (i) The Borrower shall keep the Collateral hereunder insured for
full replacement value against fire, theft, casualty and other loss and extended
coverage at all times throughout the term of this Security Agreement and furnish
to the Secured Party evidence of such insurance for the full replacement cost of
such Collateral. Secured Party shall be named as a loss payee, as its interests
may appear, on each such policy of insurance.
(ii) The Borrower shall provide and keep in full force and effect, or
cause to be provided and kept in full force and effect, during the term of this
Security Agreement, for its benefit and for the benefit of the Secured Party, as
an additional insured, comprehensive general liability insurance. Such
insurance shall include at least the hazards arising from the ownership and
possession of the Collateral hereunder and the hazards of any operations being
carried on by the Borrower with respect to such Collateral.
(iii) All policies of insurance required under this Security Agreement
shall contain provisions complying with the requirements hereof and shall be
issued by a nationally recognized insurance company or companies qualified to
write such policies under the laws of the State of Georgia. All insurance as to
form, amount, coverage and insurance companies shall be satisfactory to the
Secured Party. All policies shall require that no less than thirty (30) days
written notice of cancellation will be given to the Secured Party. All costs of
insurance shall be borne by the Borrower. Renewal binders, certificates or
policies, together with evidence of payment of premiums, shall be deposited with
the Secured Party at least fifteen (15) days before the expiration of the prior
existing policies. All insurance is required commencing from the date hereof
and is to be continued throughout the term of the Security Agreement. The
Borrower shall not violate or cause to be violated any of the conditions of the
policies of insurance to be maintained hereunder.
(b) The Borrower shall, at the Borrower's cost and upon request of the
Secured Party, furnish to the Secured Party such further information, execute
and deliver to the Secured Party such documents showing the Secured Party as
having a security interest in the Collateral, and do such other acts and things,
all as the Secured Party may at any time reasonably request relating to the
perfection or protection of the security interests created by this Security
Agreement or for the purpose of carrying out the intent of this Security
Agreement. Without limiting the generality of the foregoing, Borrower shall
promptly notify Secured Party in writing if the location of any item of
Collateral changes and will in a timely manner execute and convey to Secured
Party any forms necessary to assure Secured Party's security interest in the
Collateral remains at all times, perfected.
<PAGE>
(c) The Borrower agrees to pay promptly when due all taxes, assessments
or governmental charges with respect to the Collateral hereunder or operations
of the Borrower with respect to such Collateral, in each case before the same
become delinquent and before penalties accrue thereon.
(d) The Borrower will maintain, protect, preserve and repair the
Collateral and keep the same in good working order, subject only to normal wear
and tear. The Borrower will make the Collateral hereunder available to the
Secured Party for its inspection at any time during the term of this Security
Agreement.
(e) Without the Secured Party's prior written consent, the Borrower
will not create or permit any other lien on, or security interest in, any
portion of the Collateral hereunder other than liens in favor of the Secured
Party and other liens referenced herein or on schedules hereto.
(f) The Borrower shall pay all Secured Obligations when due. Without
limiting the foregoing, the Borrower shall immediately and without demand (i)
pay all amounts due under the Note when due and (ii) reimburse Secured Party for
all amounts incurred and described in the following clause 3(g) or in clauses
(ii) and (iii) of the definition of Secured Obligations. Any amounts not so
repaid, and all other Secured Obligations not repaid when due (including, to the
extent permitted by applicable law, unpaid interest) shall bear interest from
the date due until repaid at the rate of interest then applicable under the
Note, but in no event greater than the maximum rate permitted by applicable law.
(g) If the Borrower fails to maintain any required insurance or to
maintain, protect, preserve and repair the Collateral, or pay the amounts
contemplated in preceding clause 3(c), or otherwise perform its obligations
hereunder, Secured Party may (but shall have no obligation to) take any and all
such actions, and all amounts incurred by Secured Party in doing so shall
constitute additional Secured Obligations.
<PAGE>
4. Events of Default. It shall be an "Event of Default" (herein so
------------------- ----------------
called) if the Loan Party shall (i) fail to repay when due any of the Secured
Obligations or shall otherwise breach any of its obligations under the Note, the
Security Agreement or under any other document, instrument or agreement
evidencing, documenting or securing any of the Secured Obligations (collectively
the "Loan Documents") or if any representation of warranty made by or on behalf
of the Loan Party in the Loan Documents shall have been false in any material
respect when made, (ii) if the Loan Party shall commence any case, proceeding or
other action (A) under any existing or future law of any jurisdiction, domestic
or foreign, relating to bankruptcy, insolvency, reorganization or relief of
debtors, seeking to have an order for relief entered with respect to it, or
seeking to adjudicate it bankrupt or insolvent , or seeking reorganization,
arrangement, adjustment, winding-up, liquidation, dissolution, composition or
other relief with respect to its debts, or (B) seeking appointment of a
receiver, trustee, custodian, conservator or other similar official for it or
for all or any substantial part of its assets, or the Loan Party shall make a
general assignment for the benefit of its creditors, (iii) there shall be
commenced against the Loan Party any case, proceeding or other action of a
nature referred to in clause (ii) above which (A) results in the entry of an
order for relief or any such adjudication or appointment or (B) remains
undismissed, undischarged or unbonded for a period of 15 days, (iv) there shall
be commenced against the Loan Party any case, proceeding or other action seeking
issuance of a warrant of attachment, execution, distraint or similar process
against all or any substantial part of its assets which results in the entry of
an order for any such relief which shall not have been vacated, discharged, or
stayed or bonded pending appeal within 15 days from entry thereof, (v) the Loan
Party shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the acts set forth in clause (ii), (iii)
or (iv) above, or (vi) the Loan Party shall generally not, or shall be unable
to, or shall admit in writing its inability to, pay its debts as they become
due.
5. Remedies on Default. Upon the occurrence of any Event of Default,
---------------------
the Secured Party shall have all of the rights and remedies of a secured party
under the Georgia Uniform Commercial Code and under any other applicable law, as
the same may from time to time be in effect. Upon demand of the Secured Party
after the occurrence of any Event of Default, the Borrower shall deliver, or
cause to be delivered, all Collateral covered hereby to the Secured Party at the
Borrower's expense. Any notice which the Secured Party is required to give to
the Borrower under the Georgia Uniform Commercial Code of a time and place of
any public sale or the time after which any private sale or other intended
disposition of collateral hereunder is to be made shall be deemed to constitute
reasonable notice if such notice is mailed by registered or certified mail at
least five (5) days prior to such action.
6. Miscellaneous Provisions.
-------------------------
(a) The Secured Party's rights and remedies hereunder are cumulative.
Neither the failure nor the delay on the part of the Secured Party to exercise
any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege.
(b) All notices given pursuant to any provision of this Security
Agreement shall be in writing and hand delivered, with a receipt being obtained
therefor, or sent by United States registered or certified mail, return receipt
requested, postage prepaid, at the following address or such other address as to
which the parties hereto may be notified in writing from time to time:
Borrower:
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
<PAGE>
Copy to:
Charles M. Cushing, Jr.
229 Peachtree Street N.E. Suite 2110
Atlanta, Georgia 30303
Fax Number (404) 658-9865
Confirm Number (404) 521-2323
and
Secured Party:
Cordova Capital Partners, L.P. - Enhanced Appreciation
2500 NorthWinds Parkway
Suite 475
Alpharetta, GA 30004
Attn: Jerry F. Schmidt
Fax Number (678) 942-0301
Confirm Number (678) 942-0300
with a copy, which will not constitute notice to the Secured Party, to:
---------------------------------------------------------------------------
Ellis, Funk, Goldberg, Labovitz & Dokson, P.C.
3490 Piedmont Road
Suite 400
Atlanta, Georgia 30305
Attn: Robert B. Goldberg, Esq.
Fax Number (404) 233-2188
Confirm Number (404) 233-2800
All such notices shall be deemed to have been given when received (if hand
delivered) or two (2) days after deposit in the mails (if mailed).
(c) All amendments and modifications of this Security Agreement or any
schedules hereto must be in writing and signed by the party against whom the
same is sought to be enforced.
(d) If any term or provision of this Security Agreement or the
application thereof shall, to any extent, be invalid or unenforceable, the
remainder of this Security Agreement, or the application of such term or
provision, shall be valid and may be enforced to the fullest extent permitted by
law.
(e) This Security Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, all rights and remedies being
governed by such laws.
<PAGE>
(f) This Security Agreement secures not only Secured Obligations that
are presently outstanding but also Secured Obligations that may arise in the
future, and there may be times during the term of this Security Agreement when
no Secured Obligations are actually outstanding. Nevertheless, this Security
Agreement shall continue in full force and effect until terminated in writing by
Borrower and Secured Party.
(g) The "Secured Obligations", as defined herein, shall mean,
--------------------
collectively, (i) all liabilities, obligations and indebtedness (whether actual
or contingent, whether owed jointly or severally, whether for the payment of
money, and if for the payment of money, whether for principal, interest, fees,
expenses or otherwise, and including without limitation interest accruing after
the maturity of such principal and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) of Borrower
to Secured Party now existing or hereafter arising, including without limitation
(but not limited to) those incurred under or in connection with the Note or this
Security Agreement, as all of the foregoing may be amended, modified or
supplemented from time to time, together with any and all extensions, renewals,
refinancings or refundings thereof in whole or in part, (ii) all costs and
expenses (including, without limitation, to the extent permitted by law,
reasonable attorneys' fees and other legal expenses) incurred by Secured Party
in the enforcement and collection of any of the liabilities, obligations and
indebtedness referred to in clause (i) above, and (iii) all payments and
advances made by Secured Party for the maintenance, preservation, protection or
enforcement of, or realization upon, any property or assets now or hereafter
made subject to any lien granted pursuant to this Security Agreement or pursuant
to any other agreement, instrument or note relating to the Secured Obligations
(including, without limitation, advances for taxes, insurance, storage,
transportation, repairs and the like).
(h) Promptly upon satisfaction of the Secured Obligations, Secured
Party shall execute and deliver to Borrower such evidence of termination of
Secured Party's security interest in the collateral as Borrower may reasonably
request.
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Secured Party, intending to be
legally bound hereby, have duly executed this Security Agreement under seal and
caused it to be dated the day and year first above written.
POINTE COMMUNICATIONS CORPORATION
By:________________________________
Title:_______________________________
CORDOVA CAPITAL PARTNERS, L.P.
- ENHANCED APPRECIATION
By:_________________________________
Title:_______________________________
<PAGE>
EXHIBIT A TO SECURITY AGREEMENT
DESCRIPTION OF COLLATERAL
"Collateral" means all personal property wherever located, in which the
----------
Borrower now has or hereafter acquires any right or interest (including, without
limitation, all Accounts, Chattel Paper, Contract Rights, Documents, Equipment,
Fixtures, General Intangibles, Instruments, Inventory, Stock Rights, cash, bank
accounts, special collateral accounts, "uncertificated securities" and
"securities entitlements" and other "investment property" (each as defined in
the Code), insurance policies and all books and records (in whatever form or
medium), customer lists, credit files, computer files, programs, printouts,
source codes, software and other computer materials (and records related to any
of the foregoing), and the proceeds (including, without limitation, all
"proceeds" as defined in the Code), insurance proceeds, unearned premiums, tax
refunds, rents, profits, offspring and products thereof (all of the foregoing is
collectively referred to as the "Collateral").
As used herein the following capitalized terms shall have the following
meanings:
"Accounts" shall mean all accounts as that term is defined in the UCC and
--------
all rights of Borrower now existing and hereafter acquired to payment for goods
sold or leased or for services rendered which are not evidenced by an Instrument
or Chattel Paper, whether or not earned by performance, together with (i) all
security interests or other security held by or granted to Borrower to secure
such rights to payment, (ii) all other rights related thereto (including rights
of stoppage in transit) and (iii) all rights in any of such sold or leased goods
which are returned or repossessed.
"Chattel Paper" shall mean all chattel paper as that term is defined in the
-------------
UCC and any document or documents which evidence both a monetary obligation and
a security interest in, or a lease or consignment of, specific goods; provided
that when a transaction is evidenced both by a security agreement or a lease and
by an Instrument or series of Instruments, the group of documents taken together
constitute Chattel Paper.
"Contract Rights" shall mean any right to payment under a contract not yet
----------------
earned by performance and not evidenced by an Instrument or Chattel Paper.
"Documents" shall mean all documents as that term is defined in the UCC and
---------
all documents of title and goods evidenced thereby (including, without
limitation, all bills of lading, dock warrants, dock receipts, warehouse
receipts and orders for the delivery of goods), together with any other document
which in the regular course of business or financing is treated as adequately
evidencing that the Person in possession of it is entitled to receive, hold and
dispose of such document and the goods it covers.
<PAGE>
"Equipment" shall mean all equipment as that term is defined in the UCC and
---------
all equipment (including, without limitation, all machinery, vehicles, tractors,
trailers, office equipment, communications systems, computers, furniture, tools,
molds and goods) owned, used or bought for use in Borrower's business whether
now owned, used or bought for use or hereafter acquired, used or bought for use
and wherever located, together with all accessories, accessions, attachments,
parts and appurtenances thereto.
"Fixtures" shall mean all fixtures as that term is defined in the UCC and
--------
all goods which are or are to be attached to real property in such a manner that
their removal would cause damage to the real property and which have therefore
taken on the character of real property.
"General Intangibles" shall mean all general intangibles as that term is
--------------------
defined in the UCC and all intangible personal property of every kind and nature
other than Accounts (including, without limitation, all Contract Rights, other
rights to receive payments of money, choses in action, security interests,
indemnification claims, judgments, tax refunds and tax refund claims, royalty
and product rights, inventions, work in progress, patents, patent applications,
trademarks, trademark applications, trade names, copyrights, copyright
applications, permits, licenses, franchises, leasehold interests in real or
personal property, rights to receive rentals of real or personal property or
payments under letters of credit, insurance proceeds, know-how, trade secrets,
other items of Intellectual Property and proprietary rights, goodwill (whether
or not associated with any of the foregoing), computer software and guarantee
claims).
"Instruments" shall mean all negotiable instruments (as that term is
-----------
defined in the UCC), certificated securities (as that term is defined in the
UCC) and any replacements therefor and Stock Rights related thereto, and other
writings which evidence rights to the payment of money (whether absolute or
contingent) and which are not themselves security agreements or leases and are
of a type which in the ordinary course of business are transferred by delivery
with any necessary endorsement or assignment (including, without limitation, all
checks, drafts, notes, bonds, debentures, government securities, certificates of
deposit, letters of credit, preferred and common stocks, options and warrants).
"Intellectual Property" means all (i) patents, patent applications, patent
----------------------
disclosures and inventions, (ii) trademarks, service marks, trade dress, trade
names, logos and company and corporate names and registrations and applications
for registration thereof, together with the goodwill of the business connected
with the use of, and symbolized by, the foregoing of this term, (iii) copyrights
and registrations and applications for registration thereof, (iv) mask works and
registrations and applications for registration thereof, (v) computer software,
data, data bases and documentation, (vi) trade secrets and other confidential
information (including, without limitation, ideas, formulas, compositions,
inventions (whether patentable or unpatentable and whether or not reduced to
practice), know-how, manufacturing and production processes and techniques,
research and development information, drawings, specifications, designs, plans,
proposals, technical data, copyrightable works, financial and marketing plans
and customer and supplier lists and information), (vii) other intellectual
property rights and (viii) copies and tangible embodiments thereof (in whatever
form or medium).
<PAGE>
"Inventory" shall mean all inventory as that term is defined in the UCC and
---------
all goods (as that term is defined in the UCC) other than Equipment and Fixtures
(including, without limitation, goods in transit, goods held for sale or lease
or furnished or to be furnished under contracts for service, raw materials, work
in process and materials used or consumed in the Borrower's business, finished
goods, returned or repossessed goods and goods released to the Borrower or to
third parties under trust receipts or similar Documents).
"Proceeds" shall mean all proceeds (as that term is defined in the UCC) and
--------
any and all amounts or items of property received when any Collateral or
proceeds thereof are sold, exchanged, collected or otherwise disposed of, both
cash and non-cash, including proceeds of insurance, indemnity, warranty or
guarantee paid or payable on or in connection with any Collateral.
"Receivables" shall mean all Accounts, Chattel Paper and Contract Rights
-----------
and all Instruments representing rights to receive payments.
"Stock Rights" shall mean all "investment property" as that term is defined
------------
in the UCC, and including, without limitation, any stock, security (whether
certificated or uncertificated) or securities entitlement, any dividend or other
distribution and any other right or property which Borrower shall receive or
shall become entitled to receive for any reason whatsoever with respect to, in
substitution for or in exchange for any and all shares of stock and other
Instruments and certificated or uncertificated securities or securities
entitlement, any right to receive or acquire any Instrument and certificated or
uncertificated security or securities entitlement and any right to receive
earnings, in which Borrower now has or hereafter acquires any right.
"UCC" shall mean the Uniform Commercial Code as in effect in any applicable
---
jurisdiction.
POINTE COMMUNICATIONS CORPORATION
NOTE AND WARRANT
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of January 4, 1999, between Pointe Communications
Corporation, a Nevada corporation (the "Company") and First Southeastern Corp.,
a Florida corporation (the "Purchaser"). Except as otherwise indicated herein,
capitalized terms used herein are defined in Section 4 hereof.
On the date hereof, the Purchaser has loaned the Company $2 million (the
"Loan") for which the Company issued a note ("Note") and granted a security
interest to the Purchaser. The Note is secured by all the assets of the
company. It is also secured by a pledge of the Companys equity interest in
TeleCommute Solutions, Inc. In connection therewith and in partial
consideration therefor, the parties are entering into this Agreement.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
---------------------------
1A. Authorization of the Note and Warrant. The Company shall authorize
-------------------------------------
the issuance of the Note and the warrant to the Purchaser (the "Warrant") to
purchase 760,000 shares of its Common Stock, par value $.00001 per share (the
"Common Stock").
1B. Issuance of the Note and the Warrant. At the Closing, the Company
-------------------------------------
shall issue to Purchaser and, subject to the terms and conditions set forth
herein, the Purchaser shall purchase from the Company the Note and Warrant in
consideration of Purchaser's agreement to make the Loan to the Company pursuant
to the Note.
1C. The Closing. The closing of the Loan and the issuance of the Note
------------
and Warrant (the "Closing") shall take place at the offices of the Purchaser at
10:00 a.m. on December 31, 1998, or at such other place or on such other date as
may be mutually agreeable to the Company and each Purchaser. At the Closing,
the Company shall deliver to Purchaser the Note and Warrant to be issued to such
Purchaser, registered in such Purchaser's or its nominee's name, and Purchaser
shall make the Loan.
Section 2. Covenants.
---------
2A. Financial Statements and Other Information. The Company shall
----------------------------------------------
deliver to Purchaser so long as such Purchaser holds the Note, any Underlying
Common Stock or any other security of the Company:
<PAGE>
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated state-ments of income and cash flows of the
Company and its Subsid-iaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Com-pany's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied
subject to the absence of footnote disclosures and to normal year-end
adjustments for recurring accruals and shall be certified by the Com-pany's
chief financial officer;
(ii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or (to its knowledge) any of its officers or direc-tors file with respect
to the Company, with the Securi-ties and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and copies
of all press releases and other statements made available gen-erally by the
Company to the public concerning material developments in the Company's and its
Subsidiaries' businesses; and
(iii) with reasonable promptness, such other infor-mation and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 3A may reasonably request.
To the best of the Company's knowledge, each of the financial statements
referred to in subparagraph (i) shall be true and correct in all material
respects as of the dates and for the periods stated therein, subject in the case
of the unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals none of which would, alone or in the
aggregate, be materially adverse to the financial condition, operating results,
assets, operations or business prospects of the Company and its Subsidiaries
taken as a whole).
2B. Inspection of Property. The Company shall permit any
------------------------
representatives designated by Purchaser (so long as such Purchaser holds any
Underlying Common Stock), upon reasonable notice and during normal business
hours, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
dis-cuss the affairs, finances and accounts of any such corpora-tions with the
directors, officers, key employees and inde-pen-dent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
Purchaser or any holder of Underlying Common Stock to the Company's independent
accountants shall constitute the Company's permission to its independent
accountants to participate in discussions with such Persons.
<PAGE>
2C. Attendance at Board Meetings. The Company shall give Purchaser (so
----------------------------
long as such Purchaser holds any Underlying Common Stock) written notice of each
quarterly meeting of its board of directors and each regularly scheduled
committee meeting thereof at the same time and in the same manner as notice is
given to the directors (which notice shall be promptly confirmed in writing to
each such Person), and the Company shall permit a representative of each such
Person to attend as an observer all quarterly meetings of its board of directors
and all committees thereof; provided, however, that in the event the board of
directors or any committee thereof reasonably determines that an executive
session is appropriate under the circumstances, the board of directors or such
committee may excuse the observer from any such executive session. Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the direc-tors. If the Company pro-poses to take any
action by written consent in lieu of a meeting of its board of directors or of
any committee thereof, the Company shall give written notice thereof to each
such Person prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action.
2D. Current Public Information. The Company shall file all reports
----------------------------
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to Rule
144 adopted by the Securities and Exchange Commission under the Securities Act
(as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission. Upon
request, the Company shall deliver to any holder of Restricted Securities a
written statement as to whether it has complied with such requirements.
2E. SBIC Regulatory Provisions. [Intentionally Omitted].
----------------------------
2F. Piggyback Registrations.
------------------------
(a) Right to Piggyback. Whenever the Company proposes to
--------------------
register any of its securities under the Securities Act and the registration
form to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
-----------------------
holders of Registrable Securities of its intention to effect such a registration
and shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
20 days after the receipt of the Companys notice.
(b) Piggyback Expenses. The registration expenses of the
-------------------
holders of Registrable Securities (not including brokers commissions) shall be
paid by the Company in all Piggyback Registrations.
(c) Priority on Registrations. If a Piggyback Registration
---------------------------
is an underwritten registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their opinion the number of
securities requested to be included in such registration exceeds the number
which can be sold in such offering without adversely affecting the marketability
of the offering, the Company shall include in such registration (i) first, the
-----
securities the Company proposes to sell, (ii) second, the Registrable Securities
------
and other securities held by other third parties requested to be included in
such registration, pro rata among the holders thereof on the basis of the number
of shares owned by each such holder, and (iii) third, other securities requested
-----
to be included in such registration.
<PAGE>
(d) Other Registrations. If the Company has previously filed
-------------------
a registration statement with respect to Registrable Securities pursuant to this
paragraph 2, and if such previous registration has not been withdrawn or
abandoned, the Company shall not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least 180 days have elapsed from the effective date of such previous
registration.
2G. Reservation of Common Stock. The Company shall at all times
------------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon exercise of the Warrant, such
number of shares of Common Stock issuable upon the exercise of all outstanding
Warrants. All shares of Common Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
2H. Public Disclosures. The Company shall not, nor shall it permit any
------------------
Subsidiary to, disclose Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of such Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent juris-diction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reason-able detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
2I. Preemptive Rights.
------------------
(a) Until the Note is paid in full, Purchaser shall have the following
preemptive rights: except for issuances of Common Stock (i) to the Company's
employees, (ii) upon the conversion of the Warrant or other warrants or options
outstanding as of the date hereof, or granted within the next 90 days as a part
of similar bridge financings or as a part of the contemplated CS First
Boston/Breckenridge financing, (iii) in connection with the acquisition of
another company or business, (iv) pursuant to a public offering registered under
the Securities Act, if the Company authorizes the issuance or sale of any shares
of Common Stock, preferred stock or any securities (other than those described
in (i) through (iv) above) containing options or rights to acquire any shares of
Common Stock or preferred stock (other than as a dividend on the outstanding
Common Stock), the Company shall first offer to sell to each holder of
Underlying Common Stock a portion of such stock or securities equal to the
quotient determined by dividing (1) the number of shares of Under-lying Common
Stock held by such holder by (2) the sum of the total number of shares of
Underlying Common Stock and the number of shares of Common Stock outstanding
which are not shares of Under-lying Common Stock. Each holder of Underlying
Common Stock shall be entitled to purchase such stock or securities at the most
favorable price and on the most favorable terms as such stock or securities are
to be offered to any other Persons The purchase price for all stock and
securities offered to the holders of the Underlying Common Stock shall be
payable in cash or, to the extent otherwise required hereunder, notes issued by
such holders.
<PAGE>
(b) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock must within 15 days after receipt of written notice from
the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder, together with payment of the purchase price therefor and
such subscription and other documents as are a part of such offering.
(c) Upon the expiration of the offering period described above, the
Company shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be reoffered to the
holders of Underlying Common Stock pursuant to the terms of this paragraph.
Section 3 Representations and Warranties of the Company. As a material
---------------------------------------------
inducement to the Purchaser to enter into this Agreement to make the loan
reflected by the Note and purchase the Warrant hereunder, the Company hereby
represents and warrants that:
3A. Organization, Corporate Power and Licenses. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Nevada and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets, operations
or business prospects of the Company and its Subsidiaries taken as a whole. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to issue the Note and carry out the other transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
<PAGE>
3B. Authorization; No Breach. The execution, delivery and performance
-------------------------
of this Agreement, the Warrant, the Note, the Security Agreement and all other
agree-ments contemplated hereby to which the Company is a party, have been duly
authorized by the Company. This Agreement, the Warrant, the Note, the Security
Agreement and all other agreements contemplated hereby to which the Company is a
party each constitutes a valid and binding obliga-tion of the Company,
enforceable in accordance with its terms. The execution and delivery by the
Company of this Agreement, the Warrant, the Note, the Security Agreement and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and issuance of the Note and the Warrant hereunder, the issuance
of the Common Stock upon exer-cise of Warrant, and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon the Company's or any
Subsidi-ary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authoriza-tion, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company or any Subsidiary, or any law, statute, rule or regulation to
which the Company or any Subsidiary is sub-ject, or any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject.
3C. No Material Adverse Change. Since the date of the Company's last
----------------------------
Form 10-Q filed with the SEC, there has been no material adverse change in the
financial condition, operating results, assets, operations, business prospects,
value, employee relations or customer or supplier relations of the Company and
its Subsidiaries taken as a whole.
3D. Small Business Matters. [Intentionally Omitted].
------------------------
3E. Disclosure. There is no fact which the Company has not disclosed
----------
to the Purchaser in writing and of which any of its officers, directors or
executive employees is aware and which has had or would reasonably be expected
to have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer or supplier relations, employee
relations or business prospects of the Company and its Subsidiaries taken as a
whole.
3F. Reports with the Securities and Exchange Com-mis-sion. The Company
-----------------------------------------------------
has furnished the Purchaser with complete and accurate copies of its annual
report on Form 10-K for its most recent fiscal year, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its stockholders. Such
reports and filings do not contain any material false statements or any
misstatement of any material fact and do not omit to state any fact necessary to
make the statements set forth therein not misleading. The Company has made all
filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph.
Section 4 Definitions.
-----------
4A. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person controlling,
---------
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
<PAGE>
"Registrable Securities" means (i) any Common Stock issued upon the
-----------------------
exercise of any Warrants issued pursuant to this Agreement, (ii) any Common
Stock issued or issuable with respect to the securities referred to in clause
(i) above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization. As to particular Registrable Securities, such securities shall
cease to be Registrable Securities when they have been distributed to the public
pursuant to a offering registered under the Securities Act or sold to the public
through a broker, dealer or market maker in compliance with Rule 144 under the
Securities Act (or any similar rule then in force) or repurchased by the
Company. For the purposes of this Agreement, a Person shall be deemed a holder
of Registrable Securities, and the Registrable Securities shall be deemed to be
in existence, whenever such Person has the right to acquire directly or
indirectly such Registrable Securities (upon conversion or exercise in
connection with a transfer of securities or otherwise, but disregarding any
restrictions or limitations upon the exercise of such right), whether or not
such acquisition has actually been effected, and such Person shall be entitled
to exercise the rights of a holder of Registrable Securities hereunder.
"Securities Act" means the Securities Act of 1933, as amended, or any
---------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
-------------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended, or any similar federal law then in force.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
-------------------------
upon exercise of the Warrants and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes
of this Agreement, any Person who holds the Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon exercise of the Warrants
in connection with the transfer thereof or otherwise regardless of any
restric-tion or limitation on the exercise of the Warrant, such Underlying
Common Stock shall be deemed to be in existence, and such Person shall be
entitled to exercise the rights of a holder of Underlying Common Stock
here-under. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registra-tion statement covering them, (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) or (c) repurchased by the Company or any
Subsidiary.
Section 5 Miscellaneous.
-------------
<PAGE>
5A. Expenses. The Company shall pay, and hold Purchaser and all
--------
holders of Under-lying Common Stock harmless against liability for the payment
of, (i) the reasonable fees and expenses of their special counsel arising in
connection with the negotiation and execution of this Agreement and the
consummation of the transac-tions contemplated by this Agreement which shall be
payable at the Closing or, if the Closing does not occur, payable upon demand,
(ii) the reasonable fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effec-tive) under or in respect of this
Agreement, the agreements contemplated hereby, (iii) stamp and other taxes which
may be payable in respect of the execution and delivery of this Agreement or the
issuance, delivery or acquisition of any shares of Common Stock issuable upon
exercise of the Warrants, (iv) the reason-able fees and expenses incurred with
respect to the enforcement of the rights granted under this Agreement, the
agreements contem-plated hereby, the Warrants and (v) the reasonable fees and
expenses incurred by each such Person in any filing with any governmental agency
with respect to its investment in the Company or in any other filing with any
governmental agency with respect to the Company which mentions such Person, and
(vi) the reasonable fees and expenses incurred by any such Person in connection
with any transaction, claim or event which such Person believes affects the
Company and as to which such Person seeks advice of coun-sel.
5B. Remedies. Each holder of Under-lying Common Stock shall have all
--------
rights and remedies set forth in this Agreement, and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any
Person having any rights under any provision of this Agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights granted by law.
5C. Survival of Representations and Warranties. All repre-sentations
--------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
5D. Successors and Assigns. Except as otherwise expressly provided
------------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's bene-fit as a
purchaser or holder of the Warrants or Underlying Common Stock are also for the
benefit of, and enforceable by, any subsequent holder of such Warrants or such
Underlying Common Stock.
5E. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effec-tive and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
5F. Counterparts. This Agreement may be executed simul-tane-ously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counter-parts taken together shall constitute
one and the same Agreement.
5G. Descriptive Headings; Interpretation. The descrip-tive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
<PAGE>
5H. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF NEVADA SHALL
--------------
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS
OF THE COMPANY AND ITS STOCK-HOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING
THE CONSTRUC-TION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF
GEORGIA OR ANY OTHER JURIS-DICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF GEORGIA.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
POINTE COMMUNICATIONS CORPORATION
By
Its
FIRST SOUTHEASTERN CORP.
By
Its
<PAGE>
PROMISSORY NOTE
---------------
$2,000,000.00 January 4, 1999
For value received, Pointe Communications Corporation, a Nevada
corporation (the "Maker") promises to pay to the order of First Southeastern
-----
Corp., a Florida corporation ("First Southeastern") at such place as is
designated in writing by the holder of this Note, the aggregate principal sum of
Two Million Dollars and no cents ($2,000,000.00) together with interest thereon
calculated from the date hereof in accordance with the provisions of this Note.
The Maker's obligations under this Note shall be senior to all of Maker's
obligations under any of its unsecured indebtedness (or guarantees of
indebtedness).
1. Payment of Interest. Interest shall accrue on the outstanding
--------------------
principal amount of this Note at a rate equal to 10%. All accrued interest
shall be due and payable on the date on which the final principal amount on this
Note is payable. Interest will accrue on any principal payment due under this
Note and, to the extent permitted by applicable law, on any interest which has
not been paid on the date on which it is payable until such time as payment
therefor is actually delivered to the holder hereof.
2. Payment of Principal. The Maker shall repay the principal
----------------------
amount of $2,000,000.00 (or such lesser amount as may then be outstanding),
together with all accrued and unpaid interest thereon, to the holder hereof on
the earlier of (i) April 3, 1999, or (ii) the date on which the Maker obtains
permanent (i.e. repayment or redemption of which is not required within one
year) equity financing of at least Five Million Dollars ($5,000,000.00)
("Permanent Financing") or (iii) the date on which an Event of Default occurs,
--------------------
as defined in the Security Agreement or Securities Pledge Agreement, both dated
as of December 31, 1998, between the Maker and First Southeastern (the "Security
--------
Agreement" and "Securities Pledge Agreement" respectively). The Maker shall
- ---------
give written notice ten (10) business days prior to consummating such Permanent
Financing.
3. Prepayments. The Maker may, at any time and from time to time
-----------
without premium or penalty, prepay all or any portion of the outstanding
principal amount of this Note; provided that the Maker simultaneously pays all
interest on this Note accrued and unpaid through the date of such prepayment.
4. Security. This note and any renewals and extensions hereof and
--------
any other liabilities and obligations of the Maker to First Southeastern are
secured pursuant to a certain Securities Pledge Agreement relating thereto, also
dated as of the date hereof, as such agreement may be amended, modified or
restated from time to time hereafter, and are secured pursuant to a certain
Security Agreement, between the Maker and First Southeastern, as such agreement
may be amended, modified or restated from time to time hereafter.
5. Option. Upon receiving notice, First Southeastern can elect by
------
delivery of written notice to the Maker to convert all or any portion of the
principal or accrued but unpaid interest of this Note into securities issued in
connection with a Permanent Financing or an independent equity financing by
First Southeastern; it being understood that First Southeastern shall have the
right to participate in any such Permanent Financing and shall have the right to
purchase each class of securities offered in such Permanent Financing pro rata
according to the amount invested in each such class.
6. Default Interest Rate. If the Maker fails to repay the
-----------------------
principal amount, and accrued but unpaid interest thereon, due hereunder in
accordance with the terms hereof, in addition to all of First Southeastern's
rights and remedies under the Security Agreement, the Securities Pledge
Agreement or under applicable law, the interest rate on the Note shall increase
immediately by an increment of two (2) percentage points.
7. Cancellation. After all principal and accrued interest at any
------------
time owed on this Note has been paid in full, this Note shall be surrendered to
the Maker for cancellation and shall not be reissued.
8. Costs of Collection. In the event the Maker fails to pay any
---------------------
amounts due hereunder when due, the Maker shall pay to the holder hereof, in
addition to such amounts due, all costs of collection, including reasonable
attorneys' fees.
9. Waivers. The Maker, or its successors and assigns, hereby
-------
waives diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Maker hereunder. In any
action on this Note, the holder hereof need not produce or file the original of
this Note, but need only file a photocopy of this Note certified by the holder
hereof to be a true and correct copy of this Note.
10. Remedies. All rights and remedies of First Southeastern,
--------
whether provided for herein or conferred by law, are cumulative and concurrent
and the exercise of any one or more of them shall not preclude the simultaneous
or later exercise by First Southeastern of any or all other rights, powers or
remedies.
11. Notice. All notices, demands or other communications to be
------
given or delivered under or by reason of the provisions of this Note shall be in
writing and shall be deemed to have been given if (i) delivered personally to
the recipient, (ii) mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or (iii) sent to the recipient by
reputable overnight courier services (charges prepaid).
If to First Southeastern:
---------------------------
Mr. Stephen E. Raville
1951 Airport Road
Suite 120
Atlanta, Georgia 30341
Fax No: (770) 458-1161
If to Pointe Communications Corporation:
--------------------------------------------
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax No: (770) 319-2834
or to such other address or to the
attention of such other person as the
recipient party has specified by prior
written notice to the sending party.
All such notices, request, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified or registered mail, on the seventh business day
after the mailing thereof and (iii) if by next-day or overnight mail or
delivery, on the day delivered.
12. Usury Laws. It is the intention of the Maker and the holder
-----------
of this Note to conform strictly to all applicable usury laws now or hereafter
in force, and any interest payable under this Note shall be subject to reduction
to the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated or
this Note is prepaid, whether by reason of failure of timely payment or an Event
of Default as defined in the Security Agreement or Securities Pledge Agreement,
voluntary prepayment by the Maker or otherwise, then earned interest may never
include more than the maximum amount permitted by law, computed from the date
hereof until payment. If such interest does exceed the maximum legal rate, it
shall be deemed a mistake and such excess shall be canceled automatically and,
if theretofore paid, rebated to the Maker or credited on the principal amount of
this Note, or if this Note has been repaid, then such excess shall be rebated to
the Maker.
13. Governing Law. All questions concerning the construction,
--------------
validity and interpretation of this Note will be governed by and construed in
accordance with the domestic laws of the State of Georgia, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Georgia or any other jurisdiction) that would cause the application of the
laws of any jurisdiction other than the State of Georgia.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
POINTE COMMUNICATIONS CORPORATION
By:_________________________
Its:_________________________
<PAGE>
This Warrant was originally issued on January 4, 1999 and such issuance was not
- --------------------------------------------------------------------------------
registered under the Securities Act of 1933, as amended, or the securities laws
- --------------------------------------------------------------------------------
of any state. If reasonably requested by Company counsel, no transfer of this
- --------------------------------------------------------------------------------
Warrant shall be made except in connection with an opinion from Registered
- --------------------------------------------------------------------------------
Holder's counsel, acceptable to counsel for the Company, that such transfer is
- --------------------------------------------------------------------------------
exempt from federal and state registration.
- ------------------------------------------------
POINTE COMMUNICATIONS CORPORATION
---------------------------------
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: January 4, 1999 Certificate No. W-1
FOR VALUE RECEIVED, Pointe Communications Corporation, a Nevada
corporation (the "Company"), hereby grants to First Southeastern Corp., a
Florida corporation, or its registered assigns (the "Registered Holder") the
right to purchase from the Company 760,000 shares of the Company's Common Stock
at a price per share of $1.00 (as adjusted from time to time hereunder, the
"Exercise Price"). This Warrant is being granted to the Registered Holder in
connection with and, in consideration for the $2 million loan the Registered
Holder is making to the Company contemporaneously with the issuance of this
Warrant. Certain capitalized terms used herein are defined in Section 5 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
I. Section Exercise of Warrant.
---------------------
A. Exercise Period. The Registered Holder may exercise, in
----------------
whole or in part (but not as to a fractional share of Common Stock), the
purchase rights represented by this Warrant at any time and from time to time
until the third anniversary of the Date of Issuance (the "Exercise Period").
B. Exercise Procedure.
-------------------
1. This Warrant shall be deemed to have been exercised when
the Company has received all of the following items (the "Exercise Time"):
a) a completed Exercise Agreement, as described in paragraph 1C
below, executed by the Person exercising all or part of the purchase rights
represented by this Warrant (the "Purchaser");
a) this Warrant;
a) if this Warrant is not registered in the name of the Purchaser,
an Assignment or Assignments in the form set forth in Exhibit II hereto
----------
evidencing the assignment of this Warrant to the Purchaser, in which case the
Registered Holder shall have complied with the provisions set forth in Section 7
hereof; and
a) either (1) a check payable to the Company in an amount equal to
the product of the Exercise Price multiplied by the number of shares of Common
Stock being purchased upon such exercise (the "Aggregate Exercise Price"), (2)
the surrender to the Company of debt or equity securities of the Company or any
of its wholly-owned Subsidiaries having a Market Price equal to the Aggregate
Exercise Price of the Common Stock being purchased upon such exercise (provided
that for purposes of this subparagraph, the Market Price of any note or other
debt security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid dividends
thereon) or (3) a written notice to the Company that the Purchaser is exercising
the Warrant (or a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such exercise of the
Warrant which when multiplied by the Market Price of the Common Stock is equal
to the Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
1. Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
1. The Common Stock issuable upon the exercise of this
Warrant shall be deemed to have been issued to the Purchaser at the Exercise
Time, and the Purchaser shall be deemed for all purposes to have become the
record holder of such Common Stock at the Exercise Time.
1. The issuance of certificates for shares of Common Stock
upon exercise of this Warrant shall be made without charge to the Registered
Holder or the Purchaser for any issuance tax in respect thereof or other cost
incurred by the Company in connection with such exercise and the related
issuance of shares of Common Stock. Each share of Common Stock issuable upon
exercise of this Warrant shall upon payment of the Exercise Price therefor, be
fully paid and nonassessable and free from all liens and charges with respect to
the issuance thereof.
1. The Company shall not close its books against the transfer
of this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
1. The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
1. Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a registered
public offering or the sale of the Company, the exercise of any portion of this
Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
1. The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange (except for "restricted stock" rules and requirements) upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such issuance).
The Company shall not take any action which would cause the number of
autho-rized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
A. Exercise Agreement. Upon any exercise of this Warrant,
-------------------
the Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
A. Fractional Shares. If a fractional share of Common Stock
------------------
would, but for the provisions of paragraph 1A, be issuable upon exercise of the
rights represented by this Warrant, the Company shall, within five business days
after the date of the Exercise Time, deliver to the Purchaser a check payable to
the Purchaser in lieu of such fractional share in an amount equal to the
difference between Market Price of such fractional share as of the date of the
Exercise Time and the Exercise Price of such fractional share.
I. Section Adjustment of Exercise Price and Number of Shares.
----------------------------------------------------
In order to prevent dilution of the rights granted under this Warrant, the
Exercise Price shall be subject to adjustment from time to time as provided in
this Section 2, and the number of shares of Common Stock obtainable upon
exercise of this Warrant shall be subject to adjustment from time to time as
provided in this Section 2.
A. Adjustment of Exercise Price and Number of Shares upon
----------------------------------------------------------
Issuance of Common Stock. If and whenever the Company issues or sells (except
-----------------------
pursuant to exercised options, warrants or similar instruments outstanding as of
the date hereof), or in accordance with paragraph 2B is deemed to have issued or
sold, any share of Common Stock for a consideration per share less than the
Exercise Price in effect immediately prior to such time, then immediately upon
such issue or sale the Exercise Price shall be reduced to the lowest net price
per share at which such share of Common Stock has been issued or sold or is
deemed to have been issued or sold. Upon each such adjustment of the Exercise
Price hereunder, the number of shares of Common acquirable upon exercise of this
Warrant shall be adjusted to the number of shares determined by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
shares of Common acquirable upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment.
A. Effect on Exercise Price of Certain Events. For purposes
-------------------------------------------
of determining the adjusted Exercise Price under paragraph 2A, the following
shall be applicable:
1. Issuance of Rights or Options. If subsequent to the date
------------------------------
hereof the Company in any manner grants or sells any Options and the lowest
price per share for which any one share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Exercise Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
1. Issuance of Convertible Securities. If subsequent to the
-----------------------------------
date hereof the Company in any manner issues or sells any Convertible Security
and the lowest price per share for which any one share of Common Stock is
issuable upon conversion or exchange thereof is less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then such share or
shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
1. Change in Option Price or Conversion Rate. If the
-----------------------------------------------
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock changes at any time, the Exercise Price in
effect at the time of such change shall be adjusted immediately to the Exercise
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold and the number of shares of Common
Stock issuable hereunder shall be correspondingly adjusted. For purposes of
this paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
1. Treatment of Expired Options and Unexercised Convertible
----------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that no such change shall at any time cause the Exercise
Price hereunder to be increased.
1. Calculation of Consideration Received. If any Common
----------------------------------------
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor shall be
deemed to be the net amount received by the Company therefor. In case any
Common Stock, Options or Convertible Securities are issued or sold for a
consideration other than cash, the amount of the consideration other than cash
received by the Company shall be the fair value of such consideration, except
where such consideration consists of securities, in which case the amount of
consideration received by the Company shall be the Market Price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible
Securities are issued to the owners of the non-surviving entity in connection
with any merger in which the Company is the surviving corporation, the amount of
consideration therefor shall be deemed to be the fair value of such portion of
the net assets and business of the non-surviving entity as is attributable to
such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities shall be
determined jointly by the Company and the Registered Holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of such Warrants. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an appraiser
jointly selected by the Company and the Registered Holders of Warrants
representing a majority of the shares of Common Stock obtainable upon exercise
of such Warrants. The determination of such appraiser shall be final and
binding on the Company and the Registered Holders of the Warrants, and the fees
and expenses of such appraiser shall be paid by the Company.
1. Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
1. Record Date. If the Company takes a record of the holders
-----------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
A. Subdivision or Combination of Common Stock. If the
-----------------------------------------------
Company at any time subdivides (by any stock split, stock dividend,
recapitalization or otherwise) one or more classes of its outstanding shares of
Common Stock into a greater number of shares, the Exercise Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of shares of Common Stock obtainable upon exercise of this Warrant shall
be proportionately increased. If the Company at any time combines (by reverse
stock split or otherwise) one or more classes of its outstanding shares of
Common Stock into a smaller number of shares, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased and the
number of shares of Common Stock obtainable upon exercise of this Warrant shall
be proportionately decreased.
A. Reorganization, Reclassification, Consolidation, Merger or
----------------------------------------------------------
Sale. Any recapitalization, reorganization, reclassification, consolidation,
- ----
merger, sale of all or substantially all of the Company's assets or other
transaction, in each case which is effected in such a way that the holders of
Common Stock are entitled to receive (either directly or upon subsequent
liquidation) stock, securities or assets with respect to or in exchange for
Common Stock is referred to herein as "Organic Change." Prior to the
consummation of any Organic Change, the Company shall make appropriate provision
to insure that each of the Registered Holders of the Warrants shall thereafter
have the right to acquire and receive, in lieu of or addition to (as the case
may be) the shares of Common Stock immediately theretofore acquirable and
receivable upon the exercise of such holder's Warrant, such shares of stock,
securities or assets as may be issued or payable with respect to or in exchange
for the number of shares of Common Stock immediately theretofore acquirable and
receivable upon exercise of such holder's Warrant had such Organic Change not
taken place. In any such case, the Company shall make appropriate provision
with respect to such holders' rights and interests to insure that the provisions
of this Section 2 and Sections 3 and 4 hereof shall thereafter be applicable to
the Warrants. The Company shall not effect any such consolidation, merger or
sale, unless prior to the consummation thereof, the successor entity (if other
than the Company) resulting from consolidation or merger or the entity
purchasing such assets assumes by appropriate written instrument the obligation
to deliver to each such holder such shares of stock, securities or assets as, in
accordance with the foregoing provisions, such holder may be entitled to
acquire.
A. Certain Events. If any event occurs of the type
---------------
contemplated by the provisions of this Section 2 but not expressly provided for
by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's board of directors shall make an appropriate adjustment in
the Exercise Price and the number of shares of Common Stock obtainable upon
exercise of this Warrant so as to protect the rights of the holders of the
Warrants; provided that no such adjustment shall increase the Exercise Price or
decrease the number of shares of Common Stock obtainable as otherwise determined
pursuant to this Section 2.
A. Notices.
-------
1. Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
1. The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
1. The Company shall also give written notice to the
Registered Holders at least 20 days prior to the date on which any Organic
Change, dissolution or liquidation shall take place.
I. Section Purchase Rights. If at any time the Company grants,
----------------
issues or sells any Options, Convertible Securities or rights to purchase stock,
warrants, securities or other property pro rata to the record holders of any
class of Common Stock (the "Purchase Rights"), then the Registered holder of
this Warrant shall be entitled to acquire, upon the terms applicable to such
Purchase Rights, the aggregate Purchase Rights which such holder could have
acquired if such holder had held the number of shares of Common Stock acquirable
upon complete exercise of this Warrant immediately before the date on which a
record is taken for the grant, issuance or sale of such Purchase Rights, or, if
no such record is taken, the date as of which the record holders of Common Stock
are to be determined for the grant, issue or sale of such Purchase Rights.
I. Section Definitions. The following terms have meanings set
-----------
forth below:
"Common Stock" means the Company's Common Stock, .00001 par value, and
------------
except for purposes of the shares obtainable upon exercise of this Warrant, any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Convertible Securities" means any stock or securities (directly or
-----------------------
indirectly) convertible into or exchangeable for Common Stock.
"Market Price" means as to any security the average of the closing
-------------
prices of such security's sales on all domestic securities exchanges on which
such security may at the time be listed, or, if there have been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of Warrants representing a majority of the Common
Stock purchasable upon exercise of all the Warrants then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of Warrants representing a majority of
the Common Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase
-------
Common Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"The Warrant" means this Warrant and any other warrants exchanged
------------
directly or indirectly for all or a portion of this Warrant.
Other capitalized terms used in this Warrant but not defined herein
shall have the meanings set forth in the Purchase Agreement, dated December 2,
1998, between the Company and the Registered Holder.
I. Section No Voting Rights; Limitations of Liability. This
----------------------------------------------
Warrant shall not entitle the holder hereof to any voting rights or other rights
as a stockholder of the Company. No provision hereof, in the absence of
affirmative action by the Registered Holder to purchase Common Stock, and no
enumeration herein of the rights or privileges of the Registered Holder shall
give rise to any liability of such holder for the Exercise Price of Common Stock
acquirable by exercise hereof or as a stockholder of the Company.
II. Section Warrant Transferable. Subject to the transfer
---------------------
conditions referred to in the legend endorsed hereon, this Warrant and all
rights hereunder are transferable, in whole or in part, without charge to the
Registered Holder, upon surrender of this Warrant with a properly executed
Assignment (in the form of Exhibit II hereto) at the principal office of the
----------
Company.
I. Section Warrant Exchangeable for Different Denominations.
----------------------------------------------------
This Warrant is exchangeable, upon the surrender hereof by the Registered Holder
at the principal office of the Company, for new Warrants of like tenor
representing in the aggregate the purchase rights hereunder, and each of such
new Warrants shall represent such portion of such rights as is designated by the
Registered Holder at the time of such surrender. The date the Company initially
issues this Warrant shall be deemed to be the "Date of Issuance" hereof
regardless of the number of times new certificates representing the unexpired
and unexercised rights formerly represented by this Warrant shall be issued.
All Warrants representing portions of the rights hereunder are referred to
herein as the "Warrants."
I. Section Replacement. Upon receipt of evidence reasonably
-----------
satisfactory to the Company (an affidavit of the Registered Holder shall be
satisfactory) of the ownership and the loss, theft, destruction or mutilation of
any certificate evidencing this Warrant, and in the case of any such loss, theft
or destruction, upon receipt of indemnity reasonably satisfactory to the Company
(provided that if the holder is a financial institution or other institutional
investor its own agreement shall be satisfactory), or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
I. Section Notices. Except as otherwise expressly provided
-------
herein, all notices referred to in this Warrant shall be in writing and shall be
delivered personally, sent by reputable overnight courier service (charges
prepaid) or sent by registered or certified mail, return receipt requested,
postage prepaid and shall be deemed to have been given when so delivered, sent
or deposited in the U.S. Mail (i) to the Company, at its principal executive
offices and (ii) to the Registered Holder of this Warrant, at such holder's
address as it appears in the records of the Company (unless otherwise indicated
by any such holder).
I. Section Amendment and Waiver. Except as otherwise provided
----------------------
herein, the provisions of the Warrants may be amended and the Company may take
any action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of the Warrants.
I. Section Descriptive Headings; Governing Law. The descriptive
-----------------------------------
headings of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its Stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Georgia without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Georgia.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
POINTE COMMUNICATIONS CORPORATION
By:
Its:
[Corporate Seal]
Attest:
_________________________________
Title: ________________________
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
Address
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. W-_____) with respect to the number of shares of the
Common Stock covered thereby set forth below, unto:
<TABLE>
<CAPTION>
<S> <C> <C>
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
</TABLE>
Signature
Witness
<PAGE>
SECURITIES PLEDGE AGREEMENT
---------------------------
THIS PLEDGE AGREEMENT is made as of January 4, 1999, between Pointe
Communications Corporation ("Pledgor") and First Southeastern Corp., a Florida
corporation ("First Southeastern").
Pointe Communications Corporation ("Pointe") has issued a promissory
note payable to the order of First Southeastern for the sum of $2,000,000.00
(the "Note") and has granted a security interest in its assets pursuant to a
Security Agreement (the "Security Agreement"), each dated as of the date hereof.
This Pledge Agreement is meant to secure Pointe's Note. The Pledgor has pledged
2,550,000 shares of the capital common stock of TeleCommute Solutions, Inc., a
Texas corporation (the "Pledged Interests").
NOW, THEREFORE, in consideration of the premises contained herein and
other good and valuable consideration the receipt and sufficiency of which are
hereby acknowledged, and in order to induce First Southeastern to fund the Note,
Pledgor and First Southeastern hereby agree as follows:
I. Pledge. Pledgor hereby pledges to First Southeastern, and
------
grants to First Southeastern a security interest in, the Pledged Interests as
security for the prompt and complete payment when due of the unpaid principal of
and interest on the Note and full payment and performance of the obligations and
liabilities of Pledgor hereun-der and under the Note.
I. Delivery of Pledged Securities. Upon the execution of
---------------------------------
this Pledge Agreement, Pledgor shall deliver to First Southeastern the
certificate(s) representing the Pledged Interests, together with duly executed
forms of assignment sufficient to transfer title thereto to First Southeastern.
First Southeastern shall hold such Pledged Interests for itself as security for
the obligations referenced in paragraph 1 above.
I. Voting Rights; Cash Distribution. Notwithstanding
-----------------------------------
anything to the contrary contained herein, during the term of this Pledge
Agreement until such time as there exists a default in the payment of principal
or interest on the Note or any other default under the Note or hereunder,
Pledgor shall be entitled to all voting rights with respect to the Pledged
Interests, but shall not be entitled to receive any cash distributions paid in
respect of the Pledged Interests, which distributions shall be held by First
Southeastern as additional security hereunder. Upon the occurrence of and
during the continuance of any such default, Pledgor shall no longer be able to
vote the Pledged Interests, such voting rights with respect thereto shall be
exercisable by First Southeastern at its option and First Southeastern shall
take title to all such cash distributions payable on the Pledged Interests as
additional security hereunder. In furtherance of First Southeastern's rights
under this Section, the Pledgor shall execute and deliver to First Southeastern,
or cause to be executed and delivered to First Southeastern, all such proxies,
powers of attorney, and other instruments as First Southeastern may reasonably
request for the purpose of enabling First Southeastern to exercise the voting
rights which it is entitled to exercise or refrain from exercising pursuant to
this Section.
I. Other Distributions, etc. If, while this Pledge Agreement
------------------------
is in effect, Pledgor becomes entitled to receive or receives any securities or
other property in addition to, in substitution of, or in exchange for any of the
Pledged Interests (whether as a distribution in connection with any
recapitalization, reorganization or reclassification), Pledgor shall accept such
securities or other property on behalf of and for the benefit of First
Southeastern as additional security for Pledgor's obligations under the Note and
shall promptly deliver such additional security to First Southeastern together
with duly executed forms of assignment, and such additional security shall be
deemed to be part of the Pledged Interests hereunder.
I. Default. If Pointe defaults in the payment of the
-------
principal or interest under the Note when it becomes due (whether upon demand,
acceleration or otherwise) or any other event of default under the Note, the
Security Agreement or this Pledge Agreement occurs (including the bankruptcy or
insolvency of Pledgor) and such default is not cured within five (5) business
days after receipt of written notice from First Southeastern, First Southeastern
may exercise any and all the rights, powers and remedies of any owner of the
Pledged Interests (including the right to vote the Interests and receive any
distributions with respect to such Interests) and shall have and may exercise
without demand any and all the rights and remedies granted to a secured party
upon default under the Uniform Commercial Code of Georgia or otherwise available
to First Southeastern under applicable law. Without limiting the foregoing,
after the occurrence of a default and the passage of such cure period without
such default being cured, First Southeastern is authorized to retain, sell,
assign and deliver at its discretion, from time to time, all or any part of the
Pledged Interests on the open market or at any private sale or public auction,
on not less than two (2) business days written notice to Pledgor, at such price
or prices and upon such terms as First Southeastern may deem advisable. Pledgor
shall have no right to redeem the Pledged Interests after any such sale or
assignment. At any such sale or auction, First Southeastern may bid for, and
become the purchaser of, the whole or any part of the Pledged Interests offered
for sale. In the event TeleCommute Solutions, Inc. becomes a public company,
First Southeastern shall be able to retain all or any portion of the Pledged
Interests the Market Price of which is sufficient to satisfy Pledgor's
obligations under the Note. "Market Price" of any security means the average of
------------
the closing prices of such security's sales on all securities exchanges on which
such security may at the time be listed, or, if there has been no sales on any
such exchange on any day, the average of the highest bid and lowest asked prices
on all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, or, if on any day such
security is not quoted in the NASDAQ System, the average of the highest bid and
lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day. If at any time such security is
not listed on any securities exchange or quoted in the NASDAQ System or the
over-the-counter market, the "Market Price" shall be the fair value thereof
determined jointly by First Southeastern and the holder of the Note. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by First
<PAGE>
Southeastern and the holder of the Note. The determination of such appraiser
shall be final and binding upon the parties, and the fees and expenses of such
appraiser shall be borne by First Southeastern. In case of any such sale, after
deducting the costs, attorneys' fees and other expenses of sale and delivery,
the remaining proceeds of such sale shall be applied to the principal of and
accrued interest on the Note; provided that after payment in full of the
indebted-ness evidenced by the Note, the balance of the proceeds of sale then
remaining shall be paid to Pledgor and Pledgor shall be entitled to the return
of any of the Pledged Interests remaining in the hands of First Southeastern.
I. Costs and Attorneys' Fees. All costs and expenses
----------------------------
(including reasonable attorneys' fees) incurred in exercising any right, power
or remedy conferred by this Pledge Agreement or in the enforcement thereof,
shall become part of the indebtedness secured hereunder and shall be paid by
Pledgor or repaid from the proceeds of the sale of the Pledged Interests
hereunder.
I. Payment of Indebtedness and Release of Pledged Interests.
---------------------------------------------------------
Upon payment in full of the indebtedness evidenced by the Note, First
Southeastern shall take all necessary action to release any security interests
First Southeastern has with respect to the Pledged Interests together with all
forms of assignment to Pledgor.
I. No Other Liens; No Sales or Transfers. Pledgor hereby
-----------------------------------------
represents and warrants that it has good and valid title to all of the Pledged
Interests, free and clear of all liens, security interests and other
encumbrances, and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on the Note has been repaid, Pledgor shall
not (i) create, incur, assume or suffer to exist any pledge, security interest,
encum-brance, lien or charge of any kind against the Pledged Interests or
Pledgor's rights or a holder thereof, other than pursuant to this Agreement, or
(ii) sell or otherwise transfer any Pledged Interests or any interest therein.
I. Further Assurances. Pledgor agrees that at any time and
-------------------
from time to time upon the written request of First Southeastern, Pledgor shall
execute and deliver such further documents (including UCC financing statements)
and do such further acts and things as First Southeastern may reasonably request
in order to effect the purposes of this Pledge Agreement.
I. Severability. Any provision of this Pledge Agreement
------------
which is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof, and any
such prohibition or unenforce-ability in any jurisdiction shall not invalidate
or render unenforceable such provision in any other jurisdiction.
I. No Waiver; Cumulative Remedies. First Southeastern shall
-------------------------------
not by any act, delay, omission or otherwise be deemed to have waived any of its
rights or remedies hereunder, and no waiver shall be valid unless in writing,
signed by First Southeastern, and then only to the extent therein set forth. A
waiver by First Southeastern of any right or remedy hereunder on any one
occasion shall not be construed as a bar to any right or remedy which First
Southeastern would otherwise have on any future occasion. No failure to
exercise nor any delay in exercising on the part of First Southeastern, any
right, power or privilege hereunder shall preclude any other or further exercise
thereof or the exercise of any other right, power or privilege. The rights and
remedies herein provided are cumulative and may be exercised singly or
concurrently, and are not exclusive of any rights or remedies provided by law.
I. Waivers, Amendments; Applicable Law. None of the terms or
-----------------------------------
provisions of this Pledge Agreement may be waived, altered, modified or amended
except by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Pledgor hereunder shall together with the
rights and remedies of First Southeastern hereunder, inure to the benefit of
First Southeastern and its successors and assigns. This Pledge Agreement shall
be governed by, and be construed and interpreted in accor-dance with, the laws
of the State of Georgia, without giving effect to any applicable principles of
conflicts of laws.
* * * * *
<PAGE>
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the
date first above written.
FIRST SOUTHEASTERN CORP.
By____________________________
Its____________________________
POINTE COMMUNICATIONS CORPORATION
By:____________________________
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT is made as of January 4, 1999, by Pointe
Communications Corporation (the "Borrower"), a Nevada corporation, and First
--------
Southeastern Corp. (the "Secured Party").
--------------
On the date hereof, the Secured Party has loaned $2 million for which
the Borrower has issued a note ("Note"). This Note is secured by a pledge of
Borrower's equity interest in TeleCommute Solutions, Inc. as well as the
security interest granted herein. It was a condition of the Secured Party's $2
million loan that the Borrower enter into this Security Agreement and grant to
the Secured Party the security interests described below.
NOW, THEREFORE, in consideration of the premises herein contained, and
certain other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Secured Party hereby agree
as follows:
I. Grant of Security Interest. As security for the payment
----------------------------
and performance of the Secured Obligations (as defined in Section 6(g)), the
Borrower hereby gives, grants and assigns to the Secured Party a lien and
security interest in and against (i) those items described in Exhibit A attached
---------
hereto and incorporated herein and (ii) any and all additions and accessions to,
and substitutions, replacements and exchanges for, any and all of the foregoing
items in each case whether now owned, hereafter acquired and wherever located,
and all proceeds thereof (all of the foregoing being hereinafter referred to as
the "Collateral").
----------
I. Representations of the Borrower. The Borrower hereby
----------------------------------
represents and warrants as follows:
(a) The Borrower is the owner of all of the Collateral and,
except to the extent described on the Security Interests Schedule attached
hereto, there is no lien or security interest in or against any of such
Collateral except the lien of the Secured Party pursuant to this Security
Agreement.
(b) The Borrower presently has in effect, or will have in
effect as each item of Collateral is acquired, all insurance required hereunder.
(c) The Borrower has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and this
Agreement has been duly executed and delivered by the Borrower.
(d) The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance of its
obligations hereunder by the Borrower will not conflict with, or result in any
violation of or default under, any provision of any governing instrument
applicable to the Borrower, or any agreement or other instrument to which the
<PAGE>
Borrower is a party or by which the Borrower or any of its properties are bound,
or any decree, order, statute, rule or regulation applicable to the Borrower or
its business or properties. This Agreement constitutes a valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
I. Covenants of the Borrower. The Borrower covenants and
----------------------------
agrees as follows:
(a) (i) The Borrower shall keep the Collateral hereunder insured
for full replacement value against fire, theft, casualty and other loss and
extended coverage at all times throughout the term of this Security Agreement
and furnish to the Secured Party evidence of such insurance for the full
replacement cost of such Collateral. Secured Party shall be named as a loss
payee, as its interests may appear, on each such policy of insurance.
(ii) The Borrower shall provide and keep in full force and
effect, or cause to be provided and kept in full force and effect, during the
term of this Security Agreement, for its benefit and for the benefit of the
Secured Party, as an additional insured, comprehensive general liability
insurance. Such insurance shall include at least the hazards arising from the
ownership and possession of the Collateral hereunder and the hazards of any
operations being carried on by the Borrower with respect to such Collateral.
(iii) All policies of insurance required under this Security
Agreement shall contain provisions complying with the requirements hereof and
shall be issued by a nationally recognized insurance company or companies
qualified to write such policies under the laws of the State of Georgia. All
insurance as to form, amount, coverage and insurance companies shall be
satisfactory to the Secured Party. All policies shall require that no less than
thirty (30) days written notice of cancellation will be given to the Secured
Party. All costs of insurance shall be borne by the Borrower. Renewal binders,
certificates or policies, together with evidence of payment of premiums, shall
be deposited with the Secured Party at least fifteen (15) days before the
expiration of the prior existing policies. All insurance is required commencing
from the date hereof and is to be continued throughout the term of the Security
Agreement. The Borrower shall not violate or cause to be violated any of the
conditions of the policies of insurance to be maintained hereunder.
(b) The Borrower shall, at the Borrower's cost and upon request of
the Secured Party, furnish to the Secured Party such further information,
execute and deliver to the Secured Party such documents showing the Secured
Party as having a security interest in the Collateral, and do such other acts
and things, all as the Secured Party may at any time reasonably request relating
to the perfection or protection of the security interests created by this
Security Agreement or for the purpose of carrying out the intent of this
Security Agreement. Without limiting the generality of the foregoing, Borrower
shall promptly notify Secured Party in writing if the location of any item of
Collateral changes and will in a timely manner execute and convey to Secured
Party any forms necessary to assure Secured Party's security interest in the
Collateral remains at all times, perfected.
(c) The Borrower agrees to pay promptly when due all taxes,
assessments or governmental charges with respect to the Collateral hereunder or
operations of the Borrower with respect to such Collateral, in each case before
the same become delinquent and before penalties accrue thereon.
(d) The Borrower will maintain, protect, preserve and repair the
Collateral and keep the same in good working order, subject only to normal wear
and tear. The Borrower will make the Collateral hereunder available to the
Secured Party for its inspection at any time during the term of this Security
Agreement.
(e) Without the Secured Party's prior written consent, the
Borrower will not create or permit any other lien on, or security interest in,
any portion of the Collateral hereunder other than liens in favor of the Secured
Party and other liens referenced herein or on schedules hereto.
(f) The Borrower shall pay all Secured Obligations when due.
Without limiting the foregoing, the Borrower shall immediately and without
demand (i) pay all amounts due under the Note when due and (ii) reimburse
Secured Party for all amounts incurred and described in the following clause
3(g) or in clauses (ii) and (iii) of the definition of Secured Obligations. Any
amounts not so repaid, and all other Secured Obligations not repaid when due
(including, to the extent permitted by applicable law, unpaid interest) shall
bear interest from the date due until repaid at the rate of interest then
applicable under the Note, but in no event greater than the maximum rate
permitted by applicable law.
(g) If the Borrower fails to maintain any required insurance or to
maintain, protect, preserve and repair the Collateral, or pay the amounts
contemplated in preceding clause 3(c), or otherwise perform its obligations
hereunder, Secured Party may (but shall have no obligation to) take any and all
such actions, and all amounts incurred by Secured Party in doing so shall
constitute additional Secured Obligations.
I. Events of Default. It shall be an "Event of Default"
------------------- ----------------
(herein so called) if the Borrower shall (i) fail to repay when due any of the
Secured Obligations or shall otherwise breach any of its obligations under the
Note, the Security Agreement, the Securities Pledge Agreement or under any other
document, instrument or agreement evidencing, documenting or securing any of the
Secured Obligations (collectively the "Loan Documents") or if any representation
of warranty made by or on behalf of the Borrower in the Loan Documents shall
have been false in any material respect when made, (ii) if the Borrower shall
commence any case, proceeding or other action (A) under any existing or future
law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it bankrupt or
insolvent , or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its assets,
or the Borrower shall make a general assignment for the benefit of its
creditors, (iii) there shall be commenced against the Borrower any case,
proceeding or other action of a nature referred to in clause (ii) above which
(A) results in the entry of an order for relief or any such adjudication or
appointment or (B) remains undismissed, undischarged or unbonded for a period of
15 days, (iv) there shall be commenced against the Borrower any case, proceeding
or other action seeking issuance of a warrant of attachment, execution,
distraint or similar process against all or any substantial part of its assets
which results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 15 days from
entry thereof, (v) the Borrower shall take any action in furtherance of, or
indicating its consent to, approval of, or acquiescence in, any of the acts set
forth in clause (ii), (iii) or (iv) above, or (vi) the Borrower shall generally
not, or shall be unable to, or shall admit in writing its inability to, pay its
debts as they become due.
I. Remedies on Default. Upon the occurrence of any Event of
--------------------
Default, the Secured Party shall have all of the rights and remedies of a
secured party under the Georgia Uniform Commercial Code and under any other
applicable law, as the same may from time to time be in effect. Upon demand of
the Secured Party after the occurrence of any Event of Default, the Borrower
shall deliver, or cause to be delivered, all Collateral covered hereby to the
Secured Party at the Borrower's expense, and upon such demand, the Borrower
shall deliver, or cause to be delivered, the Collateral covered hereby to the
Secured Party. Any notice which the Secured Party is required to give to the
Borrower under the Georgia Uniform Commercial Code of a time and place of any
public sale or the time after which any private sale or other intended
disposition of collateral hereunder is to be made shall be deemed to constitute
reasonable notice if such notice is mailed by registered or certified mail at
least five (5) days prior to such action.
I. Miscellaneous Provisions.
-------------------------
(a) The Secured Party's rights and remedies hereunder are
cumulative. Neither the failure nor the delay on the part of the Secured Party
to exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
(b) All notices given pursuant to any provision of this Security
Agreement shall be in writing and hand delivered, with a receipt being obtained
therefor, or sent by United States registered or certified mail, return receipt
requested, postage prepaid, at the following address or such other address as to
which the parties hereto may be notified in writing from time to time:
Borrower:
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
Copy to:
Charles M. Cushing, Jr.
229 Peachtree Street N.E. Suite 2110
Atlanta, Georgia 30303
Fax Number (404) 658-9865
Confirm Number (404) 521-2323
and
Secured Party:
First Southeastern Corp.
1951 Airport Road
Suite 120
Atlanta, Georgia 30341
Attn: Mr. Stephen E. Raville
Fax No. (770) 458-1161
All such notices shall be deemed to have been given when received (if hand
delivered) or two (2) days after deposit in the mails (if mailed).
(c) All amendments and modifications of this Security Agreement or
any schedules hereto must be in writing and signed by the party against whom the
same is sought to be enforced.
(d) If any term or provision of this Security Agreement or the
application thereof shall, to any extent, be invalid or unenforceable, the
remainder of this Security Agreement, or the application of such term or
provision, shall be valid and may be enforced to the fullest extent permitted by
law.
(e) This Security Agreement shall be governed by and construed in
accordance with the laws of the State of Georgia, all rights and remedies being
governed by such laws.
(f) This Security Agreement secures not only Secured Obligations
that are presently outstanding but also Secured Obligations that may arise in
the future, and there may be times during the term of this Security Agreement
when no Secured Obligations are actually outstanding. Nevertheless, this
Security Agreement shall continue in full force and effect until terminated in
writing by Borrower and Secured Party.
(g) The "Secured Obligations", as defined herein, shall mean,
--------------------
collectively, (i) all liabilities, obligations and indebtedness (whether actual
or contingent, whether owed jointly or severally, whether for the payment of
money, and if for the payment of money, whether for principal, interest, fees,
expenses or otherwise, and including without limitation interest accruing after
the maturity of such principal and interest accruing after the filing of any
petition in bankruptcy, or the commencement of any insolvency, reorganization
or like proceeding, relating to the Borrower, whether or not a claim for
post-filing or post-petition interest is allowed in such proceeding) of Borrower
to Secured Party now existing or hereafter arising, including without limitation
(but not limited to) those incurred under or in connection with the Note or this
Security Agreement, as all of the foregoing may be amended, modified or
supplemented from time to time, together with any and all extensions, renewals,
refinancings or refundings thereof in whole or in part, (ii) all costs and
expenses (including, without limitation, to the extent permitted by law,
reasonable attorneys' fees and other legal expenses) incurred by Secured Party
in the enforcement and collection of any of the liabilities, obligations and
indebtedness referred to in clause (i) above, and (iii) all payments and
advances made by Secured Party for the maintenance, preservation, protection or
enforcement of, or realization upon, any property or assets now or hereafter
made subject to any lien granted pursuant to this Security Agreement or pursuant
to any other agreement, instrument or note relating to the Secured Obligations
(including, without limitation, advances for taxes, insurance, storage,
transportation, repairs and the like).
(h) Promptly upon satisfaction of the Secured Obligations, Secured
Party shall execute and deliver to Borrower such evidence of termination of
Secured Party's security interest in the collateral as Borrower may reasonably
request.
* * * *
<PAGE>
IN WITNESS WHEREOF, the Borrower and the Secured Party, intending to
be legally bound hereby, have duly executed this Security Agreement under seal
and caused it to be dated the day and year first above written.
POINTE COMMUNICATIONS CORPORATION
By:________________________________
Title:_______________________________
FIRST SOUTHEASTERN CORP.
By:_________________________________
Title:_______________________________
<PAGE>
EXHIBIT A TO SECURITY AGREEMENT
DESCRIPTION OF COLLATERAL
"Collateral" means all personal property wherever located, in which
----------
the Borrower now has or hereafter acquires any right or interest (including,
without limitation, all Accounts, Chattel Paper, Contract Rights, Documents,
Equipment, Fixtures, General Intangibles, Instruments, Inventory, Stock Rights,
cash, bank accounts, special collateral accounts, "uncertificated securities"
and "securities entitlements" and other "investment property" (each as defined
in the Code), insurance policies and all books and records (in whatever form or
medium), customer lists, credit files, computer files, programs, printouts,
source codes, software and other computer materials (and records related to any
of the foregoing), and the proceeds (including, without limitation, all
"proceeds" as defined in the Code), insurance proceeds, unearned premiums, tax
refunds, rents, profits, offspring and products thereof (all of the foregoing is
collectively referred to as the "Collateral").
As used herein the following capitalized terms shall have the
following meanings:
"Accounts" shall mean all accounts as that term is defined in the UCC
--------
and all rights of Borrower now existing and hereafter acquired to payment for
goods sold or leased or for services rendered which are not evidenced by an
Instrument or Chattel Paper, whether or not earned by performance, together with
(i) all security interests or other security held by or granted to Borrower to
secure such rights to payment, (ii) all other rights related thereto (including
rights of stoppage in transit) and (iii) all rights in any of such sold or
leased goods which are returned or repossessed.
"Chattel Paper" shall mean all chattel paper as that term is defined
--------------
in the UCC and any document or documents which evidence both a monetary
obligation and a security interest in, or a lease or consignment of, specific
goods; provided that when a transaction is evidenced both by a security
agreement or a lease and by an Instrument or series of Instruments, the group of
documents taken together constitute Chattel Paper.
"Contract Rights" shall mean any right to payment under a contract not
---------------
yet earned by performance and not evidenced by an Instrument or Chattel Paper.
"Documents" shall mean all documents as that term is defined in the
---------
UCC and all documents of title and goods evidenced thereby (including, without
limitation, all bills of lading, dock warrants, dock receipts, warehouse
receipts and orders for the delivery of goods), together with any other document
which in the regular course of business or financing is treated as adequately
evidencing that the Person in possession of it is entitled to receive, hold and
dispose of such document and the goods it covers.
"Equipment" shall mean all equipment as that term is defined in the
---------
UCC and all equipment (including, without limitation, all machinery, vehicles,
tractors, trailers, office equipment, communications systems, computers,
furniture, tools, molds and goods) owned, used or bought for use in Borrower's
business whether now owned, used or bought for use or hereafter acquired, used
or bought for use and wherever located, together with all accessories,
accessions, attachments, parts and appurtenances thereto.
"Fixtures" shall mean all fixtures as that term is defined in the UCC
--------
and all goods which are or are to be attached to real property in such a manner
that their removal would cause damage to the real property and which have
therefore taken on the character of real property.
"General Intangibles" shall mean all general intangibles as that term
--------------------
is defined in the UCC and all intangible personal property of every kind and
nature other than Accounts (including, without limitation, all Contract Rights,
other rights to receive payments of money, choses in action, security interests,
indemnification claims, judgments, tax refunds and tax refund claims, royalty
and product rights, inventions, work in progress, patents, patent applications,
trademarks, trademark applications, trade names, copyrights, copyright
applications, permits, licenses, franchises, leasehold interests in real or
personal property, rights to receive rentals of real or personal property or
payments under letters of credit, insurance proceeds, know-how, trade secrets,
other items of Intellectual Property and proprietary rights, goodwill (whether
or not associated with any of the foregoing), computer software and guarantee
claims).
"Instruments" shall mean all negotiable instruments (as that term is
-----------
defined in the UCC), certificated securities (as that term is defined in the
UCC) and any replacements therefor and Stock Rights related thereto, and other
writings which evidence rights to the payment of money (whether absolute or
contingent) and which are not themselves security agreements or leases and are
of a type which in the ordinary course of business are transferred by delivery
with any necessary endorsement or assignment (including, without limitation, all
checks, drafts, notes, bonds, debentures, government securities, certificates of
deposit, letters of credit, preferred and common stocks, options and warrants).
"Intellectual Property" means all (i) patents, patent applications,
----------------------
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names, logos and company and corporate names and registrations and
applications for registration thereof, together with the goodwill of the
business connected with the use of, and symbolized by, the foregoing of this
term, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Inventory" shall mean all inventory as that term is defined in the
---------
UCC and all goods (as that term is defined in the UCC) other than Equipment and
Fixtures (including, without limitation, goods in transit, goods held for sale
or lease or furnished or to be furnished under contracts for service, raw
materials, work in process and materials used or consumed in the Borrower's
business, finished goods, returned or repossessed goods and goods released to
the Borrower or to third parties under trust receipts or similar Documents).
"Proceeds" shall mean all proceeds (as that term is defined in the
--------
UCC) and any and all amounts or items of property received when any Collateral
or proceeds thereof are sold, exchanged, collected or otherwise disposed of,
both cash and non-cash, including proceeds of insurance, indemnity, warranty or
guarantee paid or payable on or in connection with any Collateral.
"Receivables" shall mean all Accounts, Chattel Paper and Contract
-----------
Rights and all Instruments representing rights to receive payments.
"Stock Rights" shall mean all "investment property" as that term is
-------------
defined in the UCC, and including, without limitation, any stock, security
(whether certificated or uncertificated) or securities entitlement, any dividend
or other distribution and any other right or property which Borrower shall
receive or shall become entitled to receive for any reason whatsoever with
respect to, in substitution for or in exchange for any and all shares of stock
and other Instruments and certificated or uncertificated securities or
securities entitlement, any right to receive or acquire any Instrument and
certificated or uncertificated security or securities entitlement and any right
to receive earnings, in which Borrower now has or hereafter acquires any right.
"UCC" shall mean the Uniform Commercial Code as in effect in any
---
applicable jurisdiction.
<PAGE>
POINTE COMMUNICATIONS CORPORATION
NOTE AND WARRANT
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of February 2, 1999, between Pointe
Communications Corporation, a Nevada corporation (the "Company") and Gibralt US,
Inc., a Colorado corporation (the "Purchaser"). Except as otherwise indicated
herein, capitalized terms used herein are defined in Section 4 hereof.
On the date hereof, the Purchaser has loaned the Company $2 million (the
"Loan") for which the Company issued a note ("Note") and granted a security
interest to the Purchaser. The Note is secured by all the assets of the
company. It is also secured by a third party pledge of shares of the Companys
common stock. In connection therewith and in partial consideration therefor,
the parties are entering into this Agreement.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
---------------------------
1A. Authorization of the Note and Warrant. The Company shall authorize
-------------------------------------
the issuance of the Note and the warrant to the Purchaser (the "Warrant") to
purchase 760,000 shares of its Common Stock, par value $.00001 per share (the
"Common Stock").
1B. Issuance of the Note and the Warrant; Fee. At the Closing, the
---------------------------------------------
Company shall issue to Purchaser and, subject to the terms and conditions set
forth herein, the Purchaser shall purchase from the Company the Note and Warrant
in consideration of Purchaser's agreement to make the Loan to the Company
pursuant to the Note. The Company shall pay Purchaser at Closing a Loan fee in
the amount of $80,000.00.
1C. The Closing. The closing of the Loan and the issuance of the Note
------------
and Warrant (the "Closing") shall take place at the offices of Cushing, Morris,
Armbruster & Jones, LLP at 10:00 a.m. on the date hereof, or at such other place
or on such other date as may be mutually agreeable to the Company and each
Purchaser. At the Closing, the Company shall deliver to Purchaser the Note and
Warrant to be issued to such Purchaser, registered in such Purchaser's or its
nominee's name, and Purchaser shall make the Loan.
Section 2. Covenants.
---------
2A. Financial Statements and Other Information. The Company shall
----------------------------------------------
deliver to Purchaser so long as such Purchaser holds the Note, any Underlying
Common Stock or any other security of the Company:
<PAGE>
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated state-ments of income and cash flows of the
Company and its Subsid-iaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Com-pany's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied
subject to the absence of footnote disclosures and to normal year-end
adjustments for recurring accruals and shall be certified by the Com-pany's
chief financial officer;
(ii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or any of its officers or direc-tors file with respect to the Company,
with the Securi-ties and Exchange Commission or with any securities exchange on
which any of its securities are then listed, and copies of all press releases
and other statements made available gen-erally by the Company to the public
concerning material developments in the Company's and its Subsidiaries'
businesses; and
(iii) with reasonable promptness, such other infor-mation and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 2A may reasonably request.
Each of the financial statements referred to above shall be true and correct in
all material respects as of the dates and for the periods stated therein,
subject in the case of the unaudited financial statements to changes resulting
from normal year-end adjustments for recurring accruals none of which would,
alone or in the aggregate, be materially adverse to the financial condition,
operating results, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole.
2B. Inspection of Property. The Company shall permit any
------------------------
representatives designated by Purchaser (so long as such Purchaser holds any
Underlying Common Stock), upon reasonable notice and during normal business
hours, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
dis-cuss the affairs, finances and accounts of any such corpora-tions with the
directors, officers, key employees and inde-pen-dent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
Purchaser or any holder of Underlying Common Stock to the Company's independent
accountants shall constitute the Company's permission to its independent
accountants to participate in discussions with such Persons.
<PAGE>
2C. Attendance at Board Meetings. The Company shall give Purchaser (so
----------------------------
long as such Purchaser holds any Underlying Common Stock) written notice of each
quarterly meeting of its board of directors and each regularly scheduled
committee meeting thereof at the same time and in the same manner as notice is
given to the directors (which notice shall be promptly confirmed in writing to
each such Person), and the Company shall permit a representative of each such
Person to attend as an observer all quarterly meetings of its board of directors
and all committees thereof; provided, however, that in the event the board of
directors or any committee thereof reasonably determines that an executive
session is appropriate under the circumstances, the board of directors or such
committee may excuse the observer from any such executive session. Each
representative shall be entitled to receive all written materials and other
information (including, without limitation, copies of meeting minutes) given to
directors in connection with such meetings at the same time such materials and
information are given to the direc-tors. If the Company pro-poses to take any
action by written consent in lieu of a meeting of its board of directors or of
any committee thereof, the Company shall give written notice thereof to each
such Person prior to the effective date of such consent describing in reasonable
detail the nature and substance of such action.
2D. Current Public Information. The Company shall file all reports
----------------------------
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities may reasonably request, all to the extent
required to enable such holders to sell Restricted Securities pursuant to Rule
144 adopted by the Securities and Exchange Commission under the Securities Act
(as such rule may be amended from time to time) or any similar rule or
regulation hereafter adopted by the Securities and Exchange Commission. Upon
request, the Company shall deliver to any holder of Restricted Securities a
written statement as to whether it has complied with such requirements.
2E. SBIC Regulatory Provisions.
----------------------------
(i) Within 75 days after the date hereof and at the end of each month
thereafter until all of the proceeds from the Loan and the exercise of the
Warrants have been used by the Company and its Subsidiaries, the Company shall
deliver to Purchaser a written statement certified by the Company's president or
chief financial officer describing in reasonable detail the use of the proceeds
of the loan reflected by the Note by the Company and its Subsidiaries. In
addition to any other rights granted hereunder, the Company shall grant
Purchaser and the United States Small Business Administration (the "SBA") access
to the Company's records for the purpose of verifying the use of such proceeds.
(ii) Upon the occurrence of a Regulatory Violation or in the event
that Purchaser determines in its reasonable good faith judgment that a
Regulatory Violation has occurred, in addition to any other rights and remedies
to which it may be entitled as a holder of the Note or the Underlying Common
Stock (whether under this Agreement, the Certificate of Incorporation or
otherwise), Purchaser shall have the right to the extent required under the SBIC
Regulations to demand the immediate repayment of the Loan and repurchase of all
Underlying Common Stock owned by Purchaser at a price equal to the purchase
price paid for such securities hereunder (plus accrued but unpaid interest on
the Note) by delivering written notice of such demand to the Company. The
Company shall pay the purchase price for such stock by a cashier's or certified
check or by wire transfer of immediately available funds to Purchaser demanding
repurchase within 30 days after the Company's receipt of the demand notice, and
upon such payment, Purchaser shall deliver the certificates evidencing the
Underlying Common Stock to be repurchased duly endorsed for transfer or
accompanied by duly executed forms of assignment.
(iii) For purposes of this paragraph, "Regulatory Violation" means,
--------------------
with respect to Purchaser providing Financing under this Agreement, (a) a
diversion of the proceeds of such Financing from the reported use thereof on the
use of proceeds statement delivered by the Company on SBA Form 1031 delivered at
the Closing, if such diversion was effected without obtaining the prior written
consent of Purchaser (which may be withheld in its sole discretion) or (b) a
change in the principal business activity of the Company and its Subsidiaries to
an ineligible business activity (within the meaning of the SBIC Regulations) if
such change occurs within one year after the date of the initial Financing
hereunder; "SBIC Regulations" means the Small business Investment Act of 1958
-----------------
and the regulations issued thereunder as set forth in 13 CFR 107 and 121, as
amended; and the term "Financing" shall have the meaning set forth in the SBIC
---------
Regulations.
2F. Piggyback Registrations.
------------------------
(a) Right to Piggyback. Whenever the Company proposes to
--------------------
register any of its securities (either as a primary issuance or an S-3 or
similar secondary offering) under the Securities Act and the registration form
to be used may be used for the registration of Registrable Securities (a
"Piggyback Registration"), the Company shall give prompt written notice to all
-----------------------
holders of Registrable Securities of its intention to effect such a registration
and shall include in such registration all Registrable Securities with respect
to which the Company has received written requests for inclusion therein within
20 days after the receipt of the Companys notice.
(b) Piggyback Expenses. The registration expenses of the
-------------------
holders of Registrable Securities (not including brokers commissions) shall be
paid by the Company in all Piggyback Registrations.
(c) Priority on Registrations. If a Piggyback Registration
---------------------------
is an underwritten registration on behalf of the Company, and the managing
underwriters advise the Company in writing that in their reasonable opinion the
number of securities requested to be included in such registration exceeds the
number which can be sold in such offering without adversely affecting the
marketability of the offering, the Company shall include in such registration
(i) first, the securities the Company proposes to sell, (ii) second, the
----- ------
Registrable Securities and other securities held by other third parties
requested to be included in such registration, pro rata among the holders
thereof on the basis of the number of shares owned by each such holder, and
(iii) third, other securities requested to be included in such registration.
-----
<PAGE>
(d) Other Registrations. If the Company has previously filed
-------------------
a registration statement with respect to Registrable Securities pursuant to this
paragraph 2, and if such previous registration has not been withdrawn or
abandoned, the Company shall not file or cause to be effected any other
registration of any of its equity securities or securities convertible or
exchangeable into or exercisable for its equity securities under the Securities
Act (except on Form S-8 or any successor form), whether on its own behalf or at
the request of any holder or holders of such securities, until a period of at
least 180 days have elapsed from the effective date of such previous
registration.
2G. Reservation of Common Stock. The Company shall at all times
------------------------------
reserve and keep available out of its authorized but unissued shares of Common
Stock, solely for the purpose of issuance upon exercise of the Warrant, such
number of shares of Common Stock issuable upon the exercise of all outstanding
Warrants. All shares of Common Stock which are so issuable shall, when issued,
be duly and validly issued, fully paid and nonassessable and free from all
taxes, liens and charges. The Company shall take all such actions as may be
necessary to assure that all such shares of Common Stock may be so issued
without violation of any applicable law or governmental regulation or any
requirements of any domestic securities exchange upon which shares of Common
Stock may be listed (except for official notice of issuance which shall be
immediately transmitted by the Company upon issuance).
2H. Public Disclosures. The Company shall not, nor shall it permit any
------------------
Subsidiary to, disclose Purchaser's name or identity as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any governmental entity, without the prior written consent
of such Purchaser, unless such disclosure is required by applicable law or
governmental regulations or by order of a court of competent juris-diction, in
which case prior to making such disclosure the Company shall give written notice
to such Purchaser describing in reason-able detail the proposed content of such
disclosure and shall permit the Purchaser to review and comment upon the form
and substance of such disclosure.
2I. Preemptive Rights.
------------------
(a) Until the Note is paid in full, Purchaser shall have the following
preemptive rights: except for issuances of Common Stock (i) to the Company's
employees pursuant to existing options or warrants, (ii) upon the conversion of
the Warrant or other warrants or options outstanding as of the date hereof, or
granted within the next 90 days or as a part of the contemplated CS First
Boston/Breckenridge financing, (iii) in connection with the acquisition of
another company or business, (iv) pursuant to a public offering registered under
the Securities Act, if the Company authorizes the issuance or sale of any shares
of Common Stock, preferred stock or any securities (other than those described
in (i) through (iii) above) containing options or rights to acquire any shares
of Common Stock or preferred stock (other than as a dividend on the outstanding
Common Stock), the Company shall first offer to sell to each holder of
Underlying Common Stock a portion of such stock or securities equal to the
quotient determined by dividing (1) the number of shares of Under-lying Common
Stock held by such holder by (2) the sum of the total number of shares of
Underlying Common Stock and the number of shares of Common Stock outstanding
which are not shares of Under-lying Common Stock. Each holder of Underlying
Common Stock shall be entitled to purchase such stock or securities at the most
favorable price and on the most favorable terms as such stock or securities are
to be offered to any other Persons. The purchase price for all stock and
securities offered to the holders of the Underlying Common Stock shall be
payable in cash or, to the extent otherwise required hereunder, notes issued by
such holders.
<PAGE>
(b) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock must within 15 days after receipt of written notice from
the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment deliver a written notice to the Company describing its
election hereunder, together with payment of the purchase price therefor and
such subscription and other documents as are a part of such offering.
(c) Upon the expiration of the offering period described above, the
Company shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be reoffered to the
holders of Underlying Common Stock pursuant to the terms of this paragraph.
Section 3 Representations and Warranties of the Company. As a material
---------------------------------------------
inducement to the Purchaser to enter into this Agreement to make the loan
reflected by the Note and purchase the Warrant hereunder, the Company hereby
represents and warrants that:
3A. Organization, Corporate Power and Licenses. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Nevada and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets, operations
or business prospects of the Company and its Subsidiaries taken as a whole. The
Company possesses all requisite corporate power and authority and all material
licenses, permits and authorizations necessary to own and operate its
properties, to carry on its businesses as now conducted and presently proposed
to be conducted and to issue the Note and carry out the other transactions
contemplated by this Agreement. The copies of the Company's and each
Subsidiary's charter documents and bylaws which have been furnished to the
Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
<PAGE>
3B. Authorization; No Breach. The execution, delivery and performance
-------------------------
of this Agreement, the Warrant, the Note, the Security Agreement and all other
agree-ments contemplated hereby to which the Company is a party, have been duly
authorized by the Company. This Agreement, the Warrant, the Note, the Security
Agreement and all other agreements contemplated hereby to which the Company is a
party each constitutes a valid and binding obliga-tion of the Company,
enforceable in accordance with its terms. The execution and delivery by the
Company of this Agreement, the Warrant, the Note, the Security Agreement and all
other agreements contemplated hereby to which the Company is a party, the
offering, sale and issuance of the Note and the Warrant hereunder, the issuance
of the Common Stock upon exer-cise of Warrant, and the fulfillment of and
compliance with the respective terms hereof and thereof by the Company, do not
and shall not (i) conflict with or result in a breach of the terms, conditions
or provisions of, (ii) constitute a default under, (iii) result in the creation
of any lien, security interest, charge or encumbrance upon the Company's or any
Subsidi-ary's capital stock or assets pursuant to, (iv) give any third party the
right to modify, terminate or accelerate any obligation under, (v) result in a
violation of, or (vi) require any authoriza-tion, consent, approval, exemption
or other action by or notice or declaration to, or filing with, any court or
administrative or governmental body or agency pursuant to, the charter or bylaws
of the Company or any Subsidiary, or any law, statute, rule or regulation to
which the Company or any Subsidiary is sub-ject, or any agreement, instrument,
order, judgment or decree to which the Company or any Subsidiary is subject.
3C. No Material Adverse Change. Since the date of the Company's last
----------------------------
Form 10-Q filed with the SEC, there has been no material adverse change in the
financial condition, operating results, assets, operations, business prospects,
value, employee relations or customer or supplier relations of the Company and
its Subsidiaries taken as a whole. The financial statements included with the
Company's last Form 10-Q filed with the SEC are true and correct in all material
respects and have been prepared in accordance with generally accepted accounting
principles consistently applied and, except as set forth or reflected in such
financial statements, the Company has no other liabilities of any material
nature, except those incurred since the date of such financial statements in the
normal course of the Company's business and except as otherwise disclosed to
Purchaser in writing.
3D. Small Business Matters. [Intentionally Omitted].
------------------------
3E. Disclosure. There is no fact which the Company has not disclosed
----------
to the Purchaser in writing and of which any of its officers, directors or
executive employees is aware and which has had or would reasonably be expected
to have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer or supplier relations, employee
relations or business prospects of the Company and its Subsidiaries taken as a
whole.
3F. Reports with the Securities and Exchange Com-mis-sion. The Company
-----------------------------------------------------
has furnished the Purchaser with complete and accurate copies of its annual
report on Form 10-K for its most recent fiscal year, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its stockholders. Such
reports and filings do not contain any material false statements or any
misstatement of any material fact and do not omit to state any fact necessary to
make the statements set forth therein not misleading. The Company has made all
filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph. The Company currently meets and shall continue to
meet all SEC and other regulatory requirements necessary in order to register
the Registrable Securities using Form S-3.
Section 4 Definitions.
-----------
4A. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person controlling,
---------
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
<PAGE>
"Registrable Securities" means (i) any Common Stock issued upon the
-----------------------
exercise of any Warrants issued pursuant to this Agreement and any shares of the
Company's common stock which the Purchaser instructs to be sold as a result of
foreclosure or other enforcement remedies pursuant to the Securities Pledge
Agreement between Star Insurance Company (Cayman) Limited and Purchaser of even
date herewith, (ii) any Common Stock issued or issuable with respect to the
securities referred to in clause (i) above by way of a stock dividend or stock
split or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization. As to particular Registrable Securities,
such securities shall cease to be Registrable Securities when they have been
distributed to the public pursuant to a offering registered under the Securities
Act or sold to the public through a broker, dealer or market maker in compliance
with Rule 144 under the Securities Act (or any similar rule then in force) or
repurchased by the Company. For the purposes of this Agreement, a Person shall
be deemed a holder of Registrable Securities, and the Registrable Securities
shall be deemed to be in existence, whenever such Person has the right to
acquire directly or indirectly such Registrable Securities (upon conversion or
exercise in connection with a transfer of securities or otherwise, but
disregarding any restrictions or limitations upon the exercise of such right),
whether or not such acquisition has actually been effected, and such Person
shall be entitled to exercise the rights of a holder of Registrable Securities
hereunder.
"Securities Act" means the Securities Act of 1933, as amended, or any
---------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
-------------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended, or any similar federal law then in force.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
-------------------------
upon exercise of the Warrants and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes
of this Agreement, any Person who holds the Warrant shall be deemed to be the
holder of the Underlying Common Stock obtainable upon exercise of the Warrants
in connection with the transfer thereof or otherwise regardless of any
restric-tion or limitation on the exercise of the Warrant, such Underlying
Common Stock shall be deemed to be in existence, and such Person shall be
entitled to exercise the rights of a holder of Underlying Common Stock
here-under. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registra-tion statement covering them, (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) or (c) repurchased by the Company or any
Subsidiary.
5 Miscellaneous.
-------------
5A. Expenses. The Company shall pay, and hold Purchaser and
--------
all holders of Under-lying Common Stock harmless against liability for the
payment of, (i) the reasonable fees and expenses of their special counsel
arising in connection with the negotiation and execution of this Agreement and
the consummation of the transac-tions contemplated by this Agreement which shall
be payable at the Closing or, if the Closing does not occur, payable upon
demand, (ii) the reasonable fees and expenses incurred with respect to any
amendments or waivers (whether or not the same become effec-tive) under or in
respect of this Agreement, the agreements contemplated hereby, (iii) stamp and
other taxes which may be payable in respect of the execution and delivery of
this Agreement or the issuance, delivery or acquisition of any shares of Common
Stock issuable upon exercise of the Warrants, (iv) the reason-able fees and
expenses incurred with respect to the enforcement of the rights granted under
this Agreement, the agreements contem-plated hereby, and the Warrants and (v)
the reasonable fees and expenses incurred by each such Person in any filing with
any governmental agency with respect to its investment in the Company or in any
other filing with any governmental agency with respect to the Company which
mentions such Person, and (vi) the reasonable fees and expenses incurred by any
such Person in connection with any transaction, claim or event which such Person
believes affects the Company and as to which such Person seeks advice of
coun-sel.
5B. Remedies. Each holder of the Note or the Under-lying Common Stock
--------
shall have all rights and remedies set forth in this Agreement, and all rights
and remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any Person having any rights under any provision of this Agreement shall
be entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
5C. Survival of Representations and Warranties. All repre-sentations
--------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby, regardless of any
investigation made by any Purchaser or on its behalf.
5D. Successors and Assigns. Except as otherwise expressly provided
------------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. In addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's bene-fit as a
purchaser or holder of the Note, the Warrants or Underlying Common Stock are
also for the benefit of, and enforceable by, any subsequent holder of such Note,
Warrants or such Underlying Common Stock.
5E. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effec-tive and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
5F. Counterparts. This Agreement may be executed simul-tane-ously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counter-parts taken together shall constitute
one and the same Agreement.
5G. Descriptive Headings; Interpretation. The descrip-tive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
5H Registration of Pledged Shares. The Company agrees that, as soon as
---------------------------------
reasonably possible after written demand by Purchaser, the Company shall file an
S-3 registration statement for any shares of Company common stock which
Purchaser may sell or acquire title to resulting from a foreclosure or other
enforcement of that Securities Pledge Agreement of even date herewith between
Purchaser and Star Insurance Company (Cayman) Limited, such S-3 registration to
be in compliance with the Securities Act of 1933, as amended, and the rules and
regulations promulgated pursuant thereto, and the Company shall take such steps
to maintain the effectiveness of such registration for a period of six months.
Purchaser shall cooperate with the Company in providing all information
necessary for such registration and shall indemnify the Company and its
affiliates for any losses, claims, damages or liabilities arising out of or
relating to any false or misleading information furnished by Purchaser for use
in connection with such registration. All expenses incurred by the Company in
connection with such registration including, without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of any special audits
incidental to or required hereby shall be borne by the Company, but Purchaser
shall pay any and all bankers', brokers' or underwriters' discounts, fees,
commissions and stock transfer taxes in connection with such transaction, as
well as all fees and disbursements of counsel and other professionals retained
by Purchaser.
5I Waivers, Amendments, Applicable Law. None of the terms or
--------------------------------------
provisions of this Agreement may be waived, altered, modified or amended except
by an instrument in writing, duly executed by the parties hereto. This
Agreement and all obligations of the Company hereunder shall together with the
rights and remedies of Purchaser hereunder, inure to the benefit of Purchaser
and its successors and assigns. This Agreement shall be governed by, and be
construed and interpreted in accordance with, the laws of the State of Georgia,
without giving effect to any applicable principles of conflicts of laws. THE
COMPANY HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT THE COMPANY MAY HAVE UNDER ANY APPLICABLE LAW TO A TRIAL BY JURY WITH
RESPECT TO ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR AGAINST THE
COMPANY CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY, ENFORCEMENT OR
PERFORMANCE OF THIS AGREEMENT. THE COMPANY HEREBY EXPRESSLY AGREES, CONSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN
FULTON COUNTY, GEORGIA, WITH RESPECT TO ANY SUIT OR LEGAL ACTION WHICH MAY BE
COMMENCED BY OR AGAINST THE COMPANY CONCERNING THE INTERPRETATION, CONSTRUCTION,
VALIDITY OR ENFORCEMENT OR PERFORMANCE OF THIS AGREEMENT, AND THE COMPANY ALSO
EXPRESSLY CONSENTS AND SUBMITS TO AND AGREES THAT VENUE IN ANY SUCH SUIT OR
LEGAL ACTION IS PROPER IN SAID COURTS AND COUNTY AND HEREBY EXPRESSLY WAIVES ANY
AND ALL PERSONAL RIGHTS UNDER APPLICABLE LAW OR IN EQUITY TO OBJECT TO THE
JURISDICTION AND VENUE IN SAID COURTS AND COUNTY. THE JURISDICTION AND VENUE OF
THE COURTS CONSENTED AND SUBMITTED TO AND AGREED TO IN THIS PARAGRAPH ARE NOT
EXCLUSIVE, BUT ARE CUMULATIVE AND IN ADDITION TO THE JURISDICTION AND VENUE OF
ANY OTHER COURT UNDER ANY APPLICABLE LAWS OR IN EQUITY.
<PAGE>
5J. GOVERNING LAW. THE CORPORATE LAW OF THE STATE OF NEVADA SHALL
--------------
GOVERN ALL ISSUES AND QUESTIONS CONCERNING THE RELATIVE RIGHTS AND OBLIGATIONS
OF THE COMPANY AND ITS STOCK-HOLDERS. ALL OTHER ISSUES AND QUESTIONS CONCERNING
THE CONSTRUC-TION, VALIDITY, ENFORCEMENT AND INTERPRETATION OF THIS AGREEMENT
AND THE EXHIBITS AND SCHEDULES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAWS OF THE STATE OF GEORGIA, WITHOUT GIVING EFFECT TO ANY
CHOICE OF LAW OR CONFLICT OF LAW RULES OR PROVISIONS (WHETHER OF THE STATE OF
GEORGIA OR ANY OTHER JURIS-DICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF GEORGIA.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
POINTE COMMUNICATIONS CORPORATION
By
Its
GIBRALT US, INC.
By
Its
<PAGE>
PROMISSORY NOTE
---------------
$2,000,000.00 February 2, 1999
For value received, Pointe Communications Corporation, a Nevada
corporation (the "Maker") promises to pay to the order of Gibralt US, Inc., a
-----
Colorado corporation ("Gibralt US") at such place as is designated in writing by
the holder of this Note, the aggregate principal sum of Two Million Dollars and
no cents ($2,000,000.00) together with interest thereon calculated from the date
hereof in accordance with the provisions of this Note. The Maker's obligations
under this Note shall be senior to all of Maker's obligations under any of its
unsecured indebtedness (or guarantees of indebtedness).
1. Payment of Interest. Interest shall accrue on the outstanding
--------------------
principal amount of this Note at a rate equal to 10%. All accrued interest
shall be due and payable on the date on which the final principal amount on this
Note is payable. Interest will accrue on any principal payment due under this
Note and, to the extent permitted by applicable law, on any interest which has
not been paid on the date on which it is payable until such time as payment
therefor is actually delivered to the holder hereof.
2. Payment of Principal. The Maker shall repay the principal
----------------------
amount of $2,000,000.00 (or such lesser amount as may then be outstanding),
together with all accrued and unpaid interest thereon, to the holder hereof on
the earlier of (i) May 29, 1999, or (ii) the date on which the Maker obtains
permanent (i.e. repayment or redemption of which is not required within one
year) equity (or debt convertible into equity) financing of at least Five
Million Dollars ($5,000,000.00) ("Permanent Financing") or (iii) the date on
which an Event of Default occurs, as defined in the security Agreement or
securities pledge agreement, both dated as of the date hereof, between the
Maker, Gibralt US and a third party with respect to the securities pledge
agreement (the "Security Agreement" and "Securities Pledge Agreement,"
respectively). The Maker shall give the holder written notice ten (10) business
days prior to consummating such Permanent Financing.
3. Prepayments. The Maker may, at any time and from time to time
-----------
without premium or penalty, prepay all or any portion of the outstanding
principal amount of this Note; provided that the Maker simultaneously pays all
interest on this Note accrued and unpaid through the date of such prepayment.
4. Security. This Note and any renewals and extensions hereof and
--------
any other liabilities and obligations of the Maker to Gibralt US are secured
pursuant to the Securities Pledge Agreement and the Security Agreement, as
such agreements may be amended, modified or restated from time to time
hereafter.
5. Option. Upon receiving notice of the Permanent Financing,
------
Gibralt US can elect by delivery of written notice to the Maker to convert all
or any portion of the principal or accrued but unpaid interest of this Note into
securities issued in connection with a Permanent Financing or an independent
equity financing by Gibralt US; it being understood that Gibralt US shall have
the right to participate in any such Permanent Financing and shall have the
right to purchase each class of securities offered in such Permanent Financing
pro rata according to the amount converted by other debt holders.
6. Default Interest Rate. If the Maker fails to repay the
-----------------------
principal amount, and accrued but unpaid interest thereon, due hereunder in
accordance with the terms hereof, in addition to all of Gibralt US's rights and
remedies under the Security Agreement, the Securities Pledge Agreement or under
applicable law, the interest rate on the Note shall increase immediately by an
increment of two (2) percentage points.
7. Cancellation. After all principal and accrued interest at any
------------
time owed on this Note has been paid in full, this Note shall be surrendered to
the Maker for cancellation and shall not be reissued.
8. Costs of Collection. In the event the Maker fails to pay any
---------------------
amounts due hereunder when due, the Maker shall pay to the holder hereof, in
addition to such amounts due, all costs of collection, including reasonable
attorneys' fees.
9. Event of Default. The occurrence of any one or more of the following
------------------
events will constitute a default by Maker hereunder (hereinafter referred to as
an "Event of Default": (i) Maker fails to pay when due any amount payable under
this Note or otherwise fails to perform or breaches a covenant in this
Note; (ii) any statement, representation, or warranty made by Maker, any
guarantor of this Note or any other person directly or indirectly liable for the
repayment of this Note (Maker and all such guarantors and other persons are
herein collectively called the "Obligors") or on any Obligor's behalf in
connection with this Note proves to have been untrue, incorrect, misleading or
incomplete in any material respect as of the date made; (iii) any Obligor is in
default under any other agreement to which Lender (or any of its affiliates) and
such Obligor are parties or under any other instrument executed by any Obligor
in favor of Lender (or any of its affiliates), including without limitation any
loan agreement, lease agreement, security agreement, security deed, pledge
agreement, assignment, note or guaranty; (iv) any Obligor shall fail to pay when
due any other indebtedness for borrowed money owed by it to any other person and
such default shall continue beyond any applicable grace period; (v) any Obligor
becomes insolvent as defined in the Georgia Uniform Commercial Code or makes an
assignment for the benefit of creditors, or an action is brought by any Obligor
seeking such person's dissolution or liquidation of such person's assets or
seeking the appointment of a trustee, interim, trustee, receiver or other
custodian for any of such person's property, or any Obligor commences a
voluntary case under the Federal Bankruptcy Code, or a reorganization or
arrangement proceeding is instituted by any Obligor for the settlement,
readjustment, composition or extension of any of such person's debts upon any
terms, or an action or petition is otherwise brought by any Obligor seeking
similar relief or alleging that such person is insolvent or unable to pay such
person's debts as they mature; (vi) an action is brought against any Obligor
seeking such persons' dissolution or liquidation of any of such person's assets
or seeking the appointment of a trustee, interim trustee, receiver or other
custodian for any of such person's property, and such action is consented to or
acquiesced in by any Obligor or is not dismissed within sixty (60) days of the
date upon which it was instituted, or a proceeding under the Federal Bankruptcy
Code is instituted against any Obligor and an order for relief is entered in
such proceeding or such proceeding is consented to or acquiesced in by such
Obligor or is not dismissed within sixty (60) days of the date upon which it was
instituted, or a reorganization or arrangement proceeding is instituted against
any Obligor for the settlement, readjustment, composition or extension of any of
such person's debts upon any terms and such proceeding is consented to or
acquiesced in by such Obligor or is not dismissed within sixty (60) days of the
date upon which it was instituted, or an action or petition is otherwise brought
against any Obligor seeking similar relief or alleging that such person is
insolvent, unable to pay his debts as they mature or generally not paying his
debts as they become due and such action or petition is consented to or
acquiesced in by such Obligor or is not dismissed within sixty (60) days of the
date upon which it was brought; (vii) any guarantor of this Note terminates or
attempts to terminate such guaranty; (viii) any material adverse change occurs
in Maker's financial condition or means or ability to pay this Note. Upon the
occurrence of an Event of Default, the entire principal amount of this Note, and
all accrued interest thereon, shall without notice be due and payable.
10. Waivers. The Maker, or its successors and assigns,
-------
hereby waives
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Maker hereunder. In any
action on this Note, the holder hereof need not produce or file the original of
this Note, but need only file a photocopy of this Note certified by the holder
hereof to be a true and correct copy of this Note.
11. Remedies. All rights and remedies of Gibralt US, whether
--------
provided for herein or conferred by law, are cumulative and concurrent and the
exercise of any one or more of them shall not preclude the simultaneous or later
exercise by Gibralt US of any or all other rights, powers or remedies.
12. Notice. All notices, demands or other communications to be
------
given or delivered under or by reason of the provisions of this Note shall be in
writing and shall be deemed to have been given if (i) delivered personally to
the recipient, (ii) mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or (iii) sent to the recipient by
reputable overnight courier services (charges prepaid).
If to Gibralt US:
-------------------
Gibralt Capital Corp.
#2000 - 1177 West Hastings Street
Vancouver, British Columbia, Canada V6E-2K3
If to Pointe Communications Corporation:
-
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax No: (770) 319-2834
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
All such notices, request, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified or registered mail, on the seventh business day
after the mailing thereof and (iii) if by next-day or overnight mail or
delivery, on the day delivered.
13. Usury Laws. It is the intention of the Maker and the holder
-----------
of this Note to conform strictly to all applicable usury laws now or hereafter
in force, and any interest payable under this Note shall be subject to reduction
to the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated or
this Note is prepaid, whether by reason of failure of timely payment or an Event
of Default as defined in the Security Agreement or Securities Pledge Agreement,
voluntary prepayment by the Maker or otherwise, then earned interest may never
include more than the maximum amount permitted by law, computed from the date
hereof until payment. If such interest does exceed the maximum legal rate, it
shall be deemed a mistake and such excess shall be canceled automatically and,
if theretofore paid, rebated to the Maker or credited on the principal amount of
this Note, or if this Note has been repaid, then such excess shall be rebated to
the Maker.
14. Governing Law. All questions concerning the construction,
--------------
validity and interpretation of this Note will be governed by and construed in
accordance with the domestic laws of the State of Georgia, without giving effect
to any choice of law or conflict of law provision or rule (whether of the State
of Georgia or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of Georgia.
MAKER HEREBY WAIVES TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW ANY
RIGHT MAKER MAY HAVE UNDER ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT TO
ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR AGAINST MAKER CONCERNING
THE INTERPRETATION, CONSTRUCTION, VALIDITY, ENFORCEMENT OR PERFORMANCE OF THIS
AGREEMENT. MAKER HEREBY EXPRESSLY AGREES, CONSENTS AND SUBMITS TO THE PERSONAL
JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN FULTON COUNTY, GEORGIA,
WITH RESPECT TO ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR AGAINST
MAKER CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY OR ENFORCEMENT OR
PERFORMANCE OF THIS AGREEMENT, AND MAKER AND GIBRALT US ALSO EXPRESSLY CONSENT
AND SUBMIT TO AND AGREE THAT VENUE IN ANY SUCH SUIT OR LEGAL ACTION IS PROPER IN
SAID COURTS AND COUNTY AND HEREBY EXPRESSLY WAIVE ANY AND ALL PERSONAL RIGHTS
UNDER APPLICABLE LAW OR IN EQUITY TO OBJECT TO THE JURISDICTION AND VENUE IN
SAID COURTS AND COUNTY. THE JURISDICTION AND VENUE OF THE COURTS CONSENTED AND
SUBMITTED TO AND AGREED TO IN THIS PARAGRAPH ARE NOT EXCLUSIVE BUT ARE
CUMULATIVE AND IN ADDITION TO THE JURISDICTION AND VENUE OF ANY OTHER COURT
UNDER ANY APPLICABLE LAWS OR IN EQUITY.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
POINTE COMMUNICATIONS
CORPORATION
By:_________________________
Its:_________________________
<PAGE>
This Warrant was originally issued on February 2, 1999 and such issuance was not
registered under the Securities Act of 1933, as amended, or the securities laws
of any state. If reasonably requested by Company counsel, no transfer of this
Warrant shall be made except in connection with an opinion from Registered
Holder's counsel, reasonably acceptable to counsel for the Company, that such
transfer is exempt from federal and state registration.
POINTE COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: February 2, 1999 Certificate No. W-1
FOR VALUE RECEIVED, Pointe Communications Corporation, a Nevada corporation
(the "Company"), hereby grants to Gibralt US, Inc., a Colorado corporation, or
its registered assigns (the "Registered Holder") the right to purchase from the
Company 760,000 shares of the Company's Common Stock at a price per share of
$1.00 (as adjusted from time to time hereunder, the "Exercise Price"). This
Warrant is being granted to the Registered Holder in connection with and in
consideration for the $2 million loan the Registered Holder is making to the
Company contemporaneously with the issuance of this Warrant. Certain
capitalized terms used herein are defined in Section 5 hereof. The amount and
kind of securities obtainable pursuant to the rights granted hereunder and the
purchase price for such securities are subject to adjustment pursuant to the
provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
---------------------
<PAGE>
1A. Exercise Period; Registration. The Registered Holder may exercise,
-----------------------------
in whole or in part (but not as to a fractional share of Common Stock), the
purchase rights represented by this Warrant at any time and from time to time
until the third anniversary of the Date of Issuance (the "Exercise Period").
The Company agrees that, within thirty (30) days of written demand by Registered
Holder, the Company shall file an S-3 registration statement for the Common
Stock to be purchased by Registered Holder pursuant to this Warrant, such S-3
registration to be in compliance with the Securities Act of 1933, as amended,
and the rules and regulations promulgated pursuant thereto, and the Company
shall take such steps to maintain the effectiveness of such registration for a
period of six months; provided, however, in the case of a good faith
determination by the Company that circumstances or market conditions mandate a
delay of registration, the Company will be permitted to delay such registration
for such time period as the Company reasonably determines as appropriate.
Registered Holder shall cooperate with the Company in providing all information
necessary for such registration and shall indemnify the Company and its
affiliates for any losses, claims, damages or liabilities arising out of or
relating to any false or misleading information furnished by Registered Holder
for use in connection with such registration. All expenses incurred by the
Company in connection with such registration including, without limitation, all
registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel for the Company and expenses of any special audits
incidental to or required hereby shall be borne by the Registered Holder, and
Registered Holder shall pay any and all underwriters', bankers' and brokers'
discounts, fees, commissions and stock transfer taxes in connection with such
transaction, as well as all fees and disbursements of counsel and other
professionals retained by Registered Holder.
1B. Exercise Procedure.
-------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in paragraph 1C below,
executed by the Person exercising all or part of the purchase rights represented
by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit II hereto evidencing
----------
the assignment of this Warrant to the Purchaser, in which case the Registered
Holder shall have complied with the provisions set forth in Section 7 hereof;
and
(d) either (1) a check payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price"), (2) the
surrender to the Company of debt or equity securities of the Company or any of
its wholly-owned Subsidiaries having a Market Price equal to the Aggregate
Exercise Price of the Common Stock being purchased upon such exercise (provided
that for purposes of this subparagraph, the Market Price of any note or other
debt security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid dividends
thereon) or (3) a written notice to the Company that the Purchaser is exercising
the Warrant (or a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such exercise of the
Warrant which when multiplied by the Market Price of the Common Stock is equal
to the Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
<PAGE>
(ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a registered
public offering or the sale of the Company, the exercise of any portion of this
Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange (except for "restricted stock" rules and requirements) upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such issuance).
The Company shall not take any action which would cause the number of
autho-rized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
<PAGE>
1C. Exercise Agreement. Upon any exercise of this Warrant, the
-------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
1D. Fractional Shares. If a fractional share of Common Stock would,
------------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In order to
-------------------------------------------------
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
-------------------------------------------------------------------
Common Stock. If and whenever the Company issues or sells (except pursuant to
- -------------
exercised options, warrants or similar instruments outstanding as of the date
hereof), or in accordance with paragraph 2B is deemed to have issued or sold,
any share of Common Stock for a consideration per share less than the Exercise
Price in effect immediately prior to such time, then immediately upon such issue
or sale the Exercise Price shall be reduced to the lowest net price per share at
which such share of Common Stock has been issued or sold or is deemed to have
been issued or sold. Upon each such adjustment of the Exercise Price hereunder,
the number of shares of Common Stock acquirable upon exercise of this Warrant
shall be adjusted to the number of shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common Stock acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
2B. Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------------
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
<PAGE>
(i) Issuance of Rights or Options. If subsequent to the date
---------------------------------
hereof the Company in any manner grants or sells any Options and the lowest
price per share for which any one share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Exercise Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
(ii) Issuance of Convertible Securities. If subsequent to the
-------------------------------------
date hereof the Company in any manner issues or sells any Convertible Security
and the lowest price per share for which any one share of Common Stock is
issuable upon conversion or exchange thereof is less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then such share or
shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
------------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
issuable hereunder shall be correspondingly adjusted. For purposes of this
paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
-------------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that no such change shall at any time cause the Exercise
Price hereunder to be increased.
<PAGE>
(v) Calculation of Consideration Received. If any Common Stock,
---------------------------------------
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by the
Company and the Registered Holders of Warrants representing a majority of the
shares of Common Stock obtainable upon exercise of such Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of such Warrants. The determination of
such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.
(vi) Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders
------------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any
-------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
<PAGE>
2D. Reorganization, Reclassification, Consolidation, Merger or Sale.
------------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "Organic Change." Prior to the consummation of any Organic Change,
the Company shall make appropriate provision to insure that each of the
Registered Holders of the Warrants shall thereafter have the right to acquire
and receive, in lieu of or addition to (as the case may be) the shares of Common
Stock immediately theretofore acquirable and receivable upon the exercise of
such holder's Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of this Section 2 and
Sections 3 and 4 hereof shall thereafter be applicable to the Warrants. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by appropriate written instrument the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by
---------------
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment shall increase the Exercise Price or decrease
the number of shares of Common Stock obtainable as otherwise determined pursuant
to this Section 2.
2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth in reasonable detail and certifying the calculation of such adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Registered holder of this Warrant
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
<PAGE>
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
"Common Stock" means the Company's Common Stock, .00001 par value, and
-------------
except for purposes of the shares obtainable upon exercise of this Warrant, any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Convertible Securities" means any stock or securities (directly or
-----------------------
indirectly) convertible into or exchangeable for Common Stock.
"Market Price" means as to any security the average of the closing prices
-------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of Warrants representing a majority of the Common
Stock purchasable upon exercise of all the Warrants then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of Warrants representing a majority of
the Common Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase Common
-------
Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"The Warrant" means this Warrant and any other warrants exchanged directly
------------
or indirectly for all or a portion of this Warrant.
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Purchase Agreement, dated of even date
herewith, between the Company and the Registered Holder.
<PAGE>
Section 5. No Voting Rights; Limitations of Liability. This Warrant shall
------------------------------------------
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6. Warrant Transferable. Subject to the transfer conditions
---------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
-----------
Section 7. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 8. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided herein, all
-------
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
Section 10. Amendment and Waiver. Except as otherwise provided herein,
----------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of Warrants representing a majority of the shares of Common
Stock obtainable upon exercise of the Warrants; provided that no such action may
change the Exercise Price of the Warrants or the number of shares or class of
stock obtainable upon exercise of each Warrant without the written consent of
the Registered Holders of the Warrants.
<PAGE>
Section 11. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its Stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Georgia without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Georgia.
Section 12. Waivers, Amendments, Applicable Law. None of the terms or
--------------------------------------
provisions of this Stock Purchase Warrant may be waived, altered, modified or
amended except by an instrument in writing, duly executed by the parties hereto.
This Stock Purchase Warrant and all obligations of the Company hereunder shall
together with the rights and remedies of Registered Holder hereunder, inure to
the benefit of Registered Holder and its successors and assigns. This Stock
Purchase Warrant shall be governed by, and be construed and interpreted in
accordance with, the laws of the State of Georgia, without giving effect to any
applicable principles of conflicts of laws. THE COMPANY HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT THE COMPANY MAY HAVE UNDER
ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT OR LEGAL ACTION
WHICH MAY BE COMMENCED BY OR AGAINST THE COMPANY CONCERNING THE INTERPRETATION,
CONSTRUCTION, VALIDITY, ENFORCEMENT OR PERFORMANCE OF THIS STOCK PURCHASE
WARRANT. THE COMPANY HEREBY EXPRESSLY AGREES, CONSENTS AND SUBMITS TO THE
PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN FULTON COUNTY,
GEORGIA, WITH RESPECT TO ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR
AGAINST THE COMPANY CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY OR
ENFORCEMENT OR PERFORMANCE OF THIS STOCK PURCHASE WARRANT, AND THE COMPANY ALSO
EXPRESSLY CONSENTS AND SUBMITS TO AND AGREES THAT VENUE IN ANY SUCH SUIT OR
LEGAL ACTION IS PROPER IN SAID COURTS AND COUNTY AND HEREBY EXPRESSLY WAIVES ANY
AND ALL PERSONAL RIGHTS UNDER APPLICABLE LAW OR IN EQUITY TO OBJECT TO THE
JURISDICTION AND VENUE IN SAID COURTS AND COUNTY. THE JURISDICTION AND VENUE OF
THE COURTS CONSENTED AND SUBMITTED TO AND AGREED TO IN THIS PARAGRAPH ARE NOT
EXCLUSIVE, BUT ARE CUMULATIVE AND IN ADDITION TO THE JURISDICTION AND VENUE OF
ANY OTHER COURT UNDER ANY APPLICABLE LAWS OR IN EQUITY.
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
POINTE COMMUNICATIONS
CORPORATION
By:
Its:
[CORPORATE SEAL]
Attest: ________________________
Title: ________________________
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
Address
<PAGE>
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
<S> <C> <C>
</TABLE>
Signature
Witness
<PAGE>
SECURITIES PLEDGE AGREEMENT
---------------------------
THIS PLEDGE AGREEMENT is made as of _____________, 1999, between Star
Insurance Company (Cayman) Limited ("Pledgor") and Gibralt US, Inc. ("Gibralt
US").
Pointe Communications Corporation ("Pointe") has entered into a Note and
Warrant Purchase Agreement with Gibralt US (the "Purchase Agreement") has issued
a promissory note payable to the order of Gibralt US for the sum of $2,000,000
(the "Note"), has issued a Stock Purchase Warrant to Gibralt US (the "Warrant")
and has granted a security interest in its assets pursuant to a Security
Agreement (the "Security Agreement"), each dated as of the date hereof. Gibralt
US and Pledgor are parties to a non-recourse Guaranty Agreement (the
"Guaranty"), dated as of the date hereof, pursuant to which Pledgor guaranteed,
to the extent of the Pledged Interests only, the Guaranteed Obligations as
defined in the Guaranty; it being understood that this Pledge Agreement is meant
to secure the Guaranty and is the sole recourse for Gibralt US under the
Guaranty. The Pledgor has pledged 2,000,000 shares of Pointe's Common Stock
pursuant to this Agreement, together with any and all certificates, instruments,
documents or general intangibles which may be now or hereafter issued with
respect thereto or which may now or hereafter exist or arise therefrom and all
other now existing or hereafter arising rights of Pledgor as the holder of such
shares, including, without limitation, any voting rights and rights to and
interests in all cash and non-cash dividends on or other distributions with
respect to any of the foregoing, including further, without limitation, any and
all rights of Pledgor under any shareholder, voting trust, registration rights,
sale or other agreement which may now or hereafter exist with respect to any of
the foregoing shares (the "Pledged Interests").
NOW, THEREFORE, in consideration of the premises contained herein and other
good and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, and in order to induce Gibralt US to extend credit to Pointe and
Pledgor and Gibralt US hereby agree as follows:
1. Pledge. Pledgor hereby pledges to Gibralt US, and grants to Gibralt US a
------
security interest in, the Pledged Interests as security for the prompt and
complete payment when due of the unpaid principal of and interest on the Note
and full payment and performance of the obligations and liabilities of Pledgor
hereunder and under the Guaranty and the Guaranteed Obligations as defined in
the Security Agreement between Gibralt US and Pointe of even date herewith.
2. Delivery of Pledged Securities. Upon the execution of this
---------------------------------
Pledge Agreement, Pledgor shall deliver to Gibralt US or its agent the
certificate(s) representing the Pledged Interests, together with duly executed
forms of assignment sufficient to transfer title thereto to Gibralt US. Gibralt
US or its agent shall hold such Pledged Interests for itself as a security for
the obligations referenced in paragraph 1 above. Pledgor agrees that such care
as Gibralt US gives to the safekeeping of its own property of like kind shall
constitute reasonable care of such Pledged Interests when it may be in Gibralt
US's possession.
3. Voting Rights; Cash Distribution. Notwithstanding anything to
---------------------------------
the contrary contained herein, during the term of this Pledge Agreement until
such time as there exists an Event of Default as defined below, Pledgor shall be
entitled to all voting rights with respect to the Pledged Interests, but shall
not be entitled to receive any cash distributions paid in respect of the Pledged
Interests, which distributions shall be held by Gibralt US as additional
security hereunder. Upon the occurrence of and during the continuance of any
such Event of Default, Pledgor shall no longer be able to vote the Pledged
Interests, such voting rights with respect thereto shall be exercisable by
Gibralt US at is option and Gibralt US shall take title to all such cash
distributions payable on the Pledged Interests as additional security hereunder.
In furtherance of Gibralt US's rights under this Section, the Pledgor shall
execute and deliver to Gibralt US, or cause to be executed and delivered to
Gibralt US, all such proxies, powers of attorney, and other instruments as
Gibralt US may reasonably request for the purpose of enabling Gibralt US to
exercise the voting rights which it is entitled to exercise or refrain from
exercising pursuant to this Section.
4. Other Distributions, etc. If, while this Pledge Agreement is
---------------------------
in effect, Pledgor becomes entitled to receive or receives any securities or
other property in addition to, in substitution of, or in exchange for any of the
Pledged Interests (whether as a distribution in connection with any
recapitalization, reorganization or reclassification), Pledgor shall accept such
securities or other property on behalf of and for the benefit of Gibralt US as
additional security for Pledgor's obligations under the Note and shall promptly
deliver such additional security to Gibralt US together with duly executed forms
of assignment, and such additional security shall be deemed to be part of the
Pledged Interests hereunder.
5. Power of Attorney. Pledgor hereby agrees that from time to
-------------------
time, so long as an Event of Default exists, without presentment, notice or
demand, and without affecting or impairing in any way the rights of Gilbralt US
with respect to the Pledged Interests, the obligations of Pledgor hereunder or
the other Guaranteed Obligations, Gibralt US may, but shall not be obligated to
and shall incur no liability to Pledgor or any third party for failing to, take
any action which Pledgor is obligated by this Agreement to take, and Pledgor
also hereby appoints (which appointment is coupled with an interest and shall be
irrevocable so long as this Agreement is in effect) Gibralt US as its
attorney-in-fact with full power and authority at any time to take any of the
following actions during the existence of any Event of Default hereunder in
either Pledgor's or Gibralt US's name (but Gilbralt US shall have no obligation
to and shall incur no liability to Pledgor or any third party for failing to
exercise any such power or authority): (a) to collect by legal proceedings or
otherwise and indorse, receive and receipt for all dividends, interest,
payments, proceeds, and other sums and property now or hereafter payable on or
on account of any of the Pledged Interests; (b) to enter into any extension,
reorganization, deposit, merger, consolidation, or other agreement pertaining
to, or deposit, surrender, accept, hold or apply other property in exchange for,
any of the Pledged Interests; (c) to insure, process, and preserve any of the
Pledged Interests or to take any other action which Pledgor is obligated by this
Agreement to take; (d) to transfer any of the Pledged Interests to its own or
its nominee's name, (e) to make any compromise or settlement, and take any
action it deems advisable, with respect to any of the Pledged Interests; (f) to
prepare, file and sign Pledgor's name to any proof of claim in bankruptcy (or
any similar document) against any account debtor on any of the Pledged
Interests; (g) to receive, open and dispose of Pledgor's mail pertaining to any
of the Pledged Interests consisting of accounts receivables and notify postal
authorities to deliver such mail to such address as Gibralt US may designate;
(h) to indorse Pledgor's name upon any checks or other proceeds of any Pledged
Interests and deposit same to any account of Gibralt US; (i) to indorse
Pledgor's name on any other document, instrument or other agreement relating to
any of the Pledged Interests in connection with a foreclosure or otherwise; (j)
to send verifications of accounts receivable to account debtors thereunder; (k)
to use the software relating to any Pledged Interests; (l) to make, adjust or
enforce claims under any insurance policy relating to any Pledged Interests; (m)
to do all other acts and things necessary, in Gibralt US's judgment, to fulfill
Pledgor's obligations under this Agreement; and (n) to pay any and all taxes,
assessments, charges, encumbrances or liens now or hereafter imposed upon or
affecting any of the Pledged Interests. The foregoing power of attorney may be
exercised by Gilbralt US in its discretion, in its name or Pledgor's name, and
without prior notice to or demand upon Pledgor. Pledgor agrees to reimburse
Gibralt US on demand for any sums advanced or expenses incurred by Gibralt US in
exercising any of the foregoing rights and powers together with interest
accruing thereon daily at the highest rate Pledgor has contracted to pay on any
of the Guaranteed Obligations. Pledgor's reimbursement obligations under this
Section shall constitute part of the Guaranteed Obligations secured hereunder.
6. Events of Default. An event of default under this Agreement shall be
-------------------
deemed to exist upon the occurrence of any of the following event (each such
event being herein called an "Event of Default"):
(a) Failure of Pointe or Pledgor punctually to make payment of any amount
payable, whether principal, interest or otherwise, on any of the Guaranteed
Obligations when and as the same becomes due and payable, whether at maturity,
or at a date fixed for any prepayment or partial prepayment, or by acceleration,
on demand or otherwise.
(b) If any statement, representation, or warranty of Pointe, Pledgor or any
guarantor or any other person liable on any of the Guaranteed Obligations
(Pointe, Pledgor and all such other persons being herein collectively referred
to as the "Obligors") made in this Agreement or in any other document furnished
in connection herewith to Gibralt US proves to have been untrue, incorrect,
misleading or incomplete in any material respect as of the date made or deemed
made;
(c) Failure of Pledgor punctually and fully to perform, observe, discharge
or comply with any of the covenants set forth in this Agreement, which failure
is not cured within thirty (30) days of the giving by Gibralt US to Pledgor of
written notice of same;
(d) Failure of Pledgor punctually or fully to perform, observe, discharge or
comply with any of the other covenants set forth in this Agreement.
(e) The occurrence of any other default, event of default or an Event of
Default under (and after giving effect to any applicable notice and/or cure
rights expressly provided in) any other agreement between Gibralt US and any
Obligor relating to any of the Guaranteed Obligations;
(f) If any Obligor becomes insolvent as defined in the Uniform Commercial
Code as in effect in the State of Georgia or makes an assignment for the benefit
of creditors, or if any action is brought by an Obligor seeking its
dissolution or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver, conservator or other custodian for any of
its property, or if any Obligor commences a voluntary case under the U.S.
Bankruptcy Code, or if any reorganization or arrangement proceeding is
instituted by any Obligor for the settlement, readjustment, composition or
extension of any of its debts upon any terms, or if any action or petition is
otherwise brought by any Obligor seeking similar relief or alleging that it is
insolvent or unable to pay its debts as they mature.
(g) If any action is brought against any Obligor seeking its dissolution or
liquidation of any of its assets or seeking the appointment of a trustee,
interim trustee, receiver, conservator, or other custodian for any of its
property, and such action is consented to or acquiesced in by such Obligor or is
not dismissed within sixty (60) days of the date upon which it was
instituted, or if any proceeding under the U.S. Bankruptcy Code is instituted
against any Obligor, and an order for relief is entered in such proceeding or
such proceeding is consented to or acquiesced in by such Obligor or is not
dismissed within sixty (60) days of the date upon which it was instituted; or if
any reorganization or arrangement proceeding is instituted against any Obligor
for the settlement, readjustment, composition or extension of any of its debts
upon any terms, and such proceeding is consented to or acquiesced in by such
Obligor or is not dismissed within sixty (60) days of the date upon which it was
instituted; or if any action or petition is otherwise brought against any
Obligor seeking similar relief or alleging that it is insolvent, unable to pay
its debts as they mature or generally not paying its debts as they become due,
and such action or petition is consented to or acquiesced in by such Obligor or
is not dismissed within sixty (60) days of the date upon which it was brought.
(h) If Pledgor or any other guarantor of any of the Guaranteed Obligations
terminates or attempts to terminate such guaranty;
(i) If all or any material portion of the Pledged Interests is seized or
levied upon or a receiver or other custodian is appointed for it;
(j) If any material adverse change occurs in Pointe's financial condition or
means or ability to pay the Guaranteed Obligations; or
(k) The occurrence of any other event as a result of which Gibralt US in
good faith believes that the prospect of payment of the Guaranteed Obligations
is impaired.
7. Gilbralt US's Remedies. Upon the occurrence and during the continuation
-----------------------
of any one or more of the foregoing Events of Default, Gibralt US may, at its
option, and without notice to or demand on Pledgor and in addition to all rights
and remedies available to Gibralt US under any other agreement, at law, in
equity, or otherwise, do any one or more of the following:
(a) Gibralt may declare any or all of the Guaranteed Obligations to be
immediately due and payable and foreclose or otherwise enforce Gibralt's
security interest in or other lien hereunder on any or all of the Pledged
Interests in any manner permitted by law or provided for in this Agreement.
(b) Secured Party may vote all or any of the Pledged Interests (and in
connection therewith Pledgor hereby grants to Gibralt US a proxy to vote the
Pledged Interests which proxy shall be irrevocable so long as this Agreement is
in effect); provided, however, that unless and until an Event of Default has
occurred hereunder and Gilbralt US has elected as a result thereof to exercise
its voting right and proxy under this subsection, Pledgor shall be entitled to
vote the Pledged Interests but no vote may be cast by Pledgor which would
violate or be inconsistent with any of the terms of this Agreement or any other
agreement between any of the Obligors and Gibralt US relating to the Pledged
Interests or the Guaranteed Obligations.
(c) Gibralt US may transfer any of the Pledged Interests into its name,
notify any account debtor under or other person obligated on any Pledged
Interests to make payments thereunder directly to Gibralt US, and otherwise
collect or enforce payment of any of the Pledged Interests (but Gilbralt US
shall have no obligation to do any of the foregoing).
(d) Without limiting the foregoing, Gibralt US is authorized to retain,
sell, assign and deliver at its discretion, from time to time, all or any part
of the Pledged Interests on the open market or at any private sale or public
auction, on not less than two (2) business days written notice to Pledgor, at
such price or prices and upon such terms as Gibralt US may deem advisable.
Pledgor shall have no right to redeem the Pledged Interests after any such sale
or assignment. At any such sale or auction, Gibralt US may bid for, and become
the purchaser of, the whole or any part of the Pledged Interests offered for
sale. So long as Pointe is public, Gibralt US shall be able to retain all or
any portion of the Pledged Interests the Market Price of which is sufficient to
satisfy Pledgor's obligations under the Guaranty. "Market Price" of any
security means the average of the closing prices of such security's sales on all
securities as changes on which such security may at the time be listed, or, if
there has been no sales on any such exchange on any day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ System as of 4:00 p.m.,
New York time, or, if on any day such security is not quoted in the NASDAQ
System, the average of the highest bid and lowest asked prices on such day in
the domestic over-the-counter market as reported by the National Quotation
Bureau, Incorporated, or any similar successor organization, in each such case
averaged over a period of 21 days consisting of the day as of which "Market
Price" is being determined and the 20 consecutive business days prior to such
day. If at any time such security is not listed on any securities exchange or
quoted in the NASDAQ System or the over-the-counter market, the "Market Price"
shall be the fair value thereof, determined jointly by Gibralt US and the holder
of the Note. If such parties are unable to reach agreement within a reasonable
period of time, such fair value shall be determined by an appraiser jointly
selected by Gibralt US and the holder of the Note. The determination of such
appraiser shall be final and binding upon the parties, and the fees and expenses
of such appraiser shall be borne by Gibralt US.
(e) Gibralt US may restrict the prospective bidders or purchasers of such
Pledged Interests to those persons or entities (if any) who (i) will represent
and agree that they are purchasing such Pledged Interests for their own account,
for investment, and not with a view to the distribution or sale of any of such
Pledged Interests; and (ii) satisfy the offeree and purchaser requirements for a
valid private placement transaction exempt from registration under the
Securities Act of 1933, as amended (the "Act"), or under any similar federal,
state or other statute, rule or regulation. Pledgor agrees that disposition of
such Pledged Interests pursuant to any private sale made as provided above may
be at prices and on other terms less favorable than if such Pledged Interests
were sold at public sale, and that Gilbralt US has no obligation to delay the
sale of such Pledged Interests for public sale under the Act. Pledgor also
agrees that a private sale or sales made under the forgoing circumstances shall
be deemed to have been made in a commercially reasonable manner. In the event
that Gilbralt US elects to sell such Pledged Interests, or part of them, in a
public sale, Pledgor shall use its best efforts to register and qualify the
securities pursuant to federal and state securities laws required by the
proposed terms of sale, and all expenses thereof shall be payable by Pledgor,
including, but not limited to, all costs of (i) registration or qualification of
any such Pledged Interests under the Act or any state "Blue Sky" or securities
laws or pursuant to any applicable rule or regulation issued pursuant thereto,
and (ii) sale of such Pledged Interests, including, but not limited to, brokers'
or underwriters' commissions, fees or discounts, accounting and legal fees and
disbursements, costs of printing and other expenses of transfer and sale. If
any consent, approval, or authority shall be necessary to effectuate any sale or
other disposition of any such Pledged Interests, or any part thereof, Pledgor
will execute such applications and other instruments as may be required in
connection with securing any such consent, approval, or authorization, and will
otherwise use its best efforts to secure the same, all as Gilbralt US may
require.
8. Application of Proceeds. All monies and other proceeds received by
-------------------------
Gilbralt US upon any collection, sale or other disposition of any Pledged
Interests, together with all other monies and other proceeds received by
Gilbralt US hereunder, shall be applied as follows:
First, to the payment of the reasonable costs and expenses of such sale,
-----
collection or other disposition which may have been incurred by Gibralt US,
including without limitation attorneys' fees as provided in Section 10 and all
other reasonable expenses, liabilities and advances made or incurred by Gilbralt
US in connection therewith;
Second, to the payment of all other Guaranteed Obligations then due in such
------
order as Gilbralt US may elect; and
Third, after payment in full of all Guaranteed Obligations then due, any
-----
surplus then remaining from such proceeds shall be paid to Pledgor.
9. Indemnity. Pledgor hereby agrees to indemnify Gilbralt US and hold
---------
Gibralt US harmless from and against any claim, liability, loss, damage,
expense, suit, action or proceeding which may now or hereafter be suffered or
incurred by Gibralt US as a result of Pledgor's failure to observe, perform or
discharge Pledgor's duties or obligations hereunder or Gilbralt US's holding or
administering this Agreement or any Pledged Interests unless with respect to any
of the above Gibralt US is finally determined to have acted with gross
negligence or to have engaged in willful misconduct. Without limiting the
generality of the foregoing, this indemnity shall extend to any claims asserted
against Gibralt US by any person under any environmental, occupational safety
and hazard, or other similar laws, rules or regulations by reason of Pledgor's
or any other person's failure to comply with any such laws, rules or
regulations. The indemnity obligations of Pledgor under this Section shall
constitute a part of the Guaranteed Obligations secured hereunder and shall
survive the termination of this Agreement.
10. Costs and Attorneys' Fees. All costs and expenses (including
--------------------------
reasonable attorneys' fees) incurred in exercising any right, power or remedy
conferred by this Pledge Agreement or in the enforcement thereof, shall become
part of the indebtedness secured hereunder and shall be paid by Pledgor or
repaid from the proceeds of the sale of the Pledged Interests hereunder.
11. Payment of Indebtedness and Release of Pledged Interests.
-------------------------------------------------------------
Upon payment in full of the indebtedness evidenced by the Note, Gibralt US shall
take all necessary action to release any security interests Gibralt US has with
respect to the Pledged Interests together with all forms of assignment to
Pledgor.
12. No Other Liens; No Sales or Transfers; Authority. Pledgor
----------------------------------------------------
hereby represents and warrants that it has good and valid title to all of the
Pledged Interests, free and clear of all liens, security interests and other
encumbrances, and Pledgor hereby covenants that, until such time as all of the
outstanding principal of and interest on the Note has been repaid, Pledgor shall
not (i) create, incur, assume or suffer to exist any pledge, security interest,
encumbrance, lien or charge of any kind against the Pledged Interests or
Pledgor's rights or a holder thereof, other than pursuant to this Agreement, or
(ii) sell or otherwise transfer any Pledged Interests or any interest therein.
Pledgor has full power and authority to execute and deliver this Agreement and
to perform its obligations hereunder, and this Agreement has been duly executed
and delivered by Pledgor. The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance of its
obligations hereunder by Pledgor will not conflict with or result in any
violation of or any default under any provision of any governing instrument
applicable to Pledgor or any agreement or other instrument to which Pledgor is a
party or by which Pledgor or any of its properties are bound, or any decree,
order, statute, rule or regulation applicable to Pledgor or its business or
properties. This Agreement constitutes a valid and binding obligation of
Pledgor, enforceable in accordance with its terms.
13. Further Assurances. Pledgor agrees that at any time and from
-------------------
time to time upon the written request of Gibralt US, Pledgor shall execute and
deliver such further documents (including UCC financing statements) and do such
further acts and things as Gibralt US may reasonably request in order to effect
the purposes of this Pledge Agreement.
14. Severability. Any provision of this Pledge Agreement which is
------------
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
15. No Waiver; Cumulative Remedies. Gibralt US shall not by any
--------------------------------
act, delay, omission or otherwise be deemed to have waived any of its rights or
remedies hereunder, and no waiver shall be valid unless in writing, signed by
Gibralt US, and then only to the extent therein set forth. A waiver by Gibralt
US of any right or remedy hereunder on any one occasion shall not be construed
as a bar to any rights or remedies provided by law.
16. Waivers, Amendments, Applicable Law. None of the terms or provisions of
-----------------------------------
this Pledge Agreement may be waived, altered, modified or amended except by an
instrument in writing, duly executed by the parties hereto. This Agreement and
all obligations of the Pledgor hereunder shall together with the rights and
remedies of Gibralt US hereunder, inure to the benefit of Gibralt US and its
successors and assigns. This Pledge Agreement shall be governed by, and be
construed and interpreted in accordance with, the laws of the State of Georgia,
without giving effect to any applicable principles of conflicts of laws.
PLEDGOR HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY
RIGHT PLEDGOR MAY HAVE UNDER ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT
TO ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR AGAINST PLEDGOR
CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY, ENFORCEMENT OR
PERFORMANCE OF THIS AGREEMENT. PLEDGOR HEREBY EXPRESSLY AGREES, CONSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY STATE OR FEDERAL COURT SITTING IN
FULTON COUNTY, GEORGIA, WITH RESPECT TO ANY SUIT OR LEGAL ACTION WHICH MAY BE
COMMENCED BY OR AGAINST PLEDGOR CONCERNING THE INTERPRETATION, CONSTRUCTION,
VALIDITY OR ENFORCEMENT OR PERFORMANCE OF THIS AGREEMENT, AND PLEDGOR ALSO
EXPRESSLY CONSENTS AND SUBMITS TO AND AGREES THAT VENUE IN ANY SUCH SUIT OR
LEGAL ACTION IS PROPER IN SAID COURTS AND COUNTY AND HEREBY EXPRESSLY WAIVES ANY
AND ALL PERSONAL RIGHTS UNDER APPLICABLE LAW OR IN EQUITY TO OBJECT TO THE
JURISDICTION AND VENUE IN SAID COURTS AND COUNTY. THE JURISDICTION AND VENUE OF
THE COURTS CONSENTED AND SUBMITTED TO AND AGREED TO IN THIS PARAGRAPH ARE NOT
EXCLUSIVE, BUT ARE CUMULATIVE AND IN ADDITION TO THE JURISDICTION AND VENUE OF
ANY OTHER COURT UNDER ANY APPLICABLE LAWS OR IN EQUITY.
IN WITNESS WHEREOF, this Pledge Agreement has been executed as of the date
first above written.
GIBRALT US, INC.
By:__________________________
Its:___________________________
[CORPORATE SEAL]
STAR INSURANCE COMPANY
(CAYMAN) LIMITED
By:___________________________
Its:___________________________
[CORPORATE SEAL]
<PAGE>
SECURITY AGREEMENT
------------------
THIS SECURITY AGREEMENT is made February 2, 1999, by and between
Pointe Communications Corporation (the "Borrower"), a Nevada corporation, and
--------
Gibralt US, Inc., a Colorado corporation (the "Secured Party").
--------------
On the date hereof, the Secured Party has loaned $2 million for which
the Borrower has issued a note ("Note"). This Note is secured by a third party
pledge of shares of Borrower's common stock as well as the security interest
granted herein. It was a condition of the Secured Party's $2 million loan that
the Borrower enter into this Security Agreement and grant to the Secured Party
the security interests described below.
NOW, THEREFORE, in consideration of the premises herein contained, and
certain other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the Borrower and the Secured Party hereby agree
as follows:
1. Grant of Security Interest. As security for the payment and
-----------------------------
performance of the Secured Obligations (as defined in Section 9(g)), the
Borrower hereby gives, grants and assigns to the Secured Party a lien and
security interest in and against (i) those items described in Exhibit A attached
---------
hereto and incorporated herein and (ii) any and all additions and accessions to,
and substitutions, replacements and exchanges for, any and all of the foregoing
items in each case whether now owned, hereafter acquired and wherever located,
and all proceeds thereof (all of the foregoing being hereinafter referred to as
the "Collateral"). The Collateral is located as set forth on Exhibit A.
----------
2. Representations of the Borrower. The Borrower hereby represents and
-------------------------------
warrants as follows:
(a) The Borrower is the owner of all of the Collateral and,
except to the extent described on the Security Interests Schedule attached
hereto, there is no lien or security interest in or against any of such
Collateral except the lien of the Secured Party pursuant to this Security
Agreement.
(b) The Borrower presently has in effect, or will have in
effect as each item of Collateral is acquired, all insurance required hereunder.
(c) The Borrower has full power and authority to execute and
deliver this Agreement and to perform its obligations hereunder and this
Agreement has been duly executed and delivered by the Borrower.
(d) The execution and delivery of this Agreement, the
consummation of the transactions contemplated hereby and the performance of its
obligations hereunder by the Borrower will not conflict with, or result in any
violation of or default under, any provision of any governing instrument
applicable to the Borrower, or any agreement or other instrument to which the
Borrower is a party or by which the Borrower or any of its properties are bound,
or any decree, order, statute, rule or regulation applicable to the Borrower or
its business or properties. This Agreement constitutes a valid and binding
obligation of the Borrower, enforceable in accordance with its terms.
3. Covenants of the Borrower. The Borrower covenants and agrees as
----------------------------
follows:
(a) (i) The Borrower shall keep the Collateral hereunder
insured for full replacement value against fire, theft, casualty and other loss
and extended coverage at all times throughout the term of this Security
Agreement and furnish to the Secured Party evidence of such insurance for the
full replacement cost of such Collateral. Secured Party shall be named as a
loss payee, as its interests may appear, on each such policy of insurance.
(ii) The Borrower shall provide and keep in full force
and effect, or cause to be provided and kept in full force and effect, during
the term of this Security Agreement, for its benefit and for the benefit of the
Secured Party, as an additional insured, comprehensive general liability
insurance. Such insurance shall include at least the hazards arising from the
ownership and possession of the Collateral hereunder and the hazards of any
operations being carried on by the Borrower with respect to such Collateral.
(iii) All policies of insurance required under this
Security Agreement shall contain provisions complying with the requirements
hereof and shall be issued by a nationally recognized insurance company or
companies qualified to write such policies under the laws of the State of
Georgia. All insurance as to form, amount, coverage and insurance companies
shall be satisfactory to the Secured Party. All policies shall require that no
less than thirty (30) days written notice of cancellation will be given to the
Secured Party. All costs of insurance shall be borne by the Borrower. Renewal
binders, certificates or policies, together with evidence of payment of
premiums, shall be deposited with the Secured Party at least fifteen (15) days
before the expiration of the prior existing policies. All insurance is required
commencing from the date hereof and is to be continued throughout the term of
the Security Agreement. The Borrower shall not violate or cause to be violated
any of the conditions of the policies of insurance to be maintained hereunder.
(b) The Borrower shall, at the Borrower's cost and upon
request of the Secured Party, furnish to the Secured Party such further
information, execute and deliver to the Secured Party such documents showing the
Secured Party as having a security interest in the Collateral, and do such other
acts and things, all as the Secured Party may at any time reasonably request
relating to the perfection or protection of the security interests created by
this Security Agreement or for the purpose of carrying out the intent of this
Security Agreement. Without limiting the generality of the foregoing, Borrower
shall promptly notify Secured Party in writing if the location of any item of
Collateral changes and will in a timely manner execute and convey to Secured
Party any forms necessary to assure Secured Party's security interest in the
Collateral remains at all times, perfected.
(c) The Borrower agrees to pay promptly when due all taxes,
assessments or governmental charges with respect to the Collateral hereunder or
operations of the Borrower with respect to such Collateral, in each case before
the same become delinquent and before penalties accrue thereon.
(d) The Borrower will maintain, protect, preserve and repair
the Collateral and keep the same in good working order, subject only to normal
wear and tear. The Borrower will make the Collateral hereunder available to the
Secured Party for its inspection at any time during the term of this Security
Agreement.
(e) Without the Secured Party's prior written consent, the
Borrower will not create or permit any other lien on, or security interest in,
any portion of the Collateral hereunder other than liens in favor of the Secured
Party and other liens referenced herein or on schedules hereto.
(f) The Borrower shall pay all Secured Obligations when due.
Without limiting the foregoing, the Borrower shall immediately and without
demand (i) pay all amounts due under the Note when due and (ii) reimburse
Secured Party for all amounts incurred and described in the following clause
3(g), incurred by Secured Party in enforcing the Securities Pledge Agreement
between Star Insurance Company (Cayman) Limited and Secured Party of even date
herewith, or in clauses (ii) and (iii) of the definition of Secured Obligations.
Any amounts not so repaid, and all other Secured Obligations not repaid when due
(including, to the extent permitted by applicable law, unpaid interest) shall
bear interest from the date due until repaid at the rate of interest then
applicable under the Note, but in no event greater than the maximum rate
permitted by applicable law.
(g) If the Borrower fails to maintain any required insurance or to maintain,
protect, preserve and repair the Collateral, or pay the amounts
contemplated in preceding clause 3(c), or otherwise perform its obligations
hereunder, Secured Party may (but shall have no obligation to) take any and all
such actions, and all amounts incurred by Secured Party in doing so shall
constitute additional Secured Obligations.
(h) Borrower agrees that such care as Gilbralt US gives to the
safekeeping of its own property of like kind shall constitute reasonable care of
such Pledged Interest when it may be in Gibralt US's possession.
4. Events of Default. An event of default under this Agreement shall
-------------------
be deemed to exist upon the occurrence of any of the following event (each such
event being herein called an "Event of Default"):
(a) Failure of Borrower punctually to make payment of any amount payable,
whether principal, interest or otherwise, on any of the Secured Obligations when
and as the same becomes due and payable, whether at maturity, or at a date
fixed for any prepayment or partial prepayment, or by acceleration, on demand or
otherwise.
(b) If any statement, representation, or warranty of Borrower or any
guarantor or other person liable on any of the Secured Obligations (Borrower and
all such other persons being herein collectively referred to as the
"Obligors") made in this Agreement or in any other document furnished in
connection herewith to Secured Party proves to have been untrue, incorrect,
misleading or incomplete in any material respect as of the date made or deemed
made;
(c) Failure of Borrower punctually and fully to perform, observe, discharge
or comply with any of the covenants set forth this Agreement, which failure is
not cured within thirty (30) days of the giving by Secured Party to Borrower of
written notice of same;
(d) Failure of Borrower punctually or fully to perform, observe, discharge
or comply with any of the other covenants set forth in this Agreement.
(e) The occurrence of any other default, event of default or an Event of
Default under (and after giving effect to any applicable notice and/or cure
rights expressly provided in) any other agreement between Secured Party and any
Obligor relating to any of the Secured Obligations;
(f) If any Obligor becomes insolvent as defined in the Uniform Commercial
Code as in effect in the State of Georgia or makes an assignment for the benefit
of creditors, or if any action is brought by an Obligor seeking its
dissolution or liquidation of its assets or seeking the appointment of a
trustee, interim trustee, receiver, conservator or other custodian for any of
its property, or if any Obligor commences a voluntary case under the U.S.
Bankruptcy Code, or if any reorganization or arrangement proceeding is
instituted by any Obligor for the settlement, readjustment, composition or
extension of any of its debts upon any terms, or if any action or petition is
otherwise brought by any Obligor seeking similar relief or alleging that it is
insolvent or unable to pay its debts as they mature.
(g) If any action is brought against any Obligor seeking its dissolution or
liquidation of any of its assets or seeking the appointment of a trustee,
interim trustee, receiver, conservator, or other custodian for any of its
property, and such action is consented to or acquiesced in by such Obligor or is
not dismissed within sixty (60) days of the date upon which it was
instituted, or if any proceeding under the U.S. Bankruptcy Code is instituted
against any Obligor, and an order for relief is entered in such proceeding or
such proceeding is consented to or acquiesced in by such Obligor or is not
dismissed within sixty (60) days of the date upon which it was instituted; or if
any reorganization or arrangement proceeding is instituted against any Obligor
for the settlement, readjustment, composition or extension of any of its debts
upon any terms, and such proceeding is consented to or acquiesced in by such
Obligor or is not dismissed within sixty (60) days of the date upon which it was
instituted; or if any action or petition is otherwise brought against any
Obligor seeking similar relief or alleging that it is insolvent, unable to pay
its debts as they mature or generally not paying its debts as they become due,
and such action or petition is consented to or acquiesced in by such Obligor or
is not dismissed within sixty (60) days of the date upon which it was brought.
(h) If any guarantor of any of the Secured Obligations terminates or
attempts to terminate such guaranty;
(i) If all or any material portion of the Collateral is seized or levied
upon or a receiver or other custodian is appointed for it;
(j) Any material adverse change occurs in Borrower's financial condition or
means or ability to pay the Secured Obligations; or
(k) The occurrence of any other event as a result of which Secured Party in
good faith believes that the prospect of payment of the Secured Obligations is
impaired.
5. Remedies on Default. Upon the occurrence of any Event of Default, the
---------------------
Secured Party shall have all of the rights and remedies of a secured party under
the Georgia Uniform Commercial Code and under any other applicable law, as the
same may from time to time be in effect. Upon demand of the Secured Party after
the occurrence of any Event of Default, the Borrower shall deliver, or cause to
be delivered, all Collateral covered hereby to the Secured Party at the
Borrower's expense, and upon such demand, the Borrower shall deliver, or cause
to be delivered, the Collateral covered hereby to the Secured Party. Any notice
which the Secured Party is required to give to the Borrower under the Georgia
Uniform Commercial Code of a time and place of any public sale or the time after
which any private sale or other intended disposition of Collateral hereunder is
to be made shall be deemed to constitute reasonable notice if such notice is
mailed by registered or certified mail at least five (5) days prior to such
action.
6. Power of Attorney. Borrower hereby agrees that from time to time, so
-------------------
long as an Event of Default exists, without presentment, notice or demand, and
without affecting or impairing in any way the rights of Secured Party with
respect to the Collateral, the obligations of Borrower hereunder or the other
Secured Obligations, Secured Party may, but shall not be obligated to and shall
incur no liability to Borrower or any third party for failing to, take any
action which Borrower is obligated by this Agreement to take, and Borrower also
hereby appoints (which appointment is coupled with an interest and shall be
irrevocable so long as this Agreement is in effect) Secured Party as its
attorney-in-fact with full power and authority at any time to take any of the
following actions during the existence of any Event of Default hereunder in
either Borrower's or Secured Party's name (but Secured Party shall have no
obligation to and shall incur no liability to Borrower or any third party for
failing to exercise any such power or authority): (a) to collect by legal
proceedings or otherwise and indorse, receive and receipt for all dividends,
interest, payments, proceeds, and other sums and property now or hereafter
payable on or on account of any of the Collateral; (b) to enter into any
extension, reorganization, deposit merger, consolidation, or other agreement
pertaining to, or deposit, surrender, accept, hold or apply other property in
exchange for, any of the Collateral; (c) to insure, process, and preserve any of
the Collateral or to take any other action which Borrower is obligated by
this Agreement to take; (d) to transfer any of the Collateral to its own or its
nominee's name, (e) to make any compromise or settlement, and take any action it
deems advisable, with respect to any of the Collateral; (f) to prepare, file and
sign Borrower's name to any proof of claim in bankruptcy (or any similar
document) against any account debtor on any of the Collateral; (g) to receive,
open and dispose of Borrower's mail pertaining to any of the Collateral
consisting of Accounts Receivables and notify postal authorities to deliver such
mail to such address as Secured Party may designate; (h) to indorse Borrower's
name upon any checks or other proceeds of any Collateral and deposit same to any
account of Secured Party; (i) to indorse Borrower's name on any other document,
instrument or other agreement relating to any of the Collateral; (j) to send
verifications of Accounts Receivable to account debtors thereunder; (k) to use
the software relating to any Collateral; (l) to make, adjust or enforce claims
under any insurance policy relating to any Collateral; (m) to do all other acts
and things necessary, in Secured Party's judgment, to fulfill Borrower's
obligations under this Agreement; and (n) to pay any and all taxes, assessments,
charges, encumbrances or liens now or hereafter imposed upon or affecting any of
the Collateral. The foregoing power of attorney may be exercised by Secured
Party in its discretion, in its name or Borrower's name, and without prior
notice to or demand upon Borrower. Borrower agrees to reimburse Secured Party
on demand for any sums advanced or expenses incurred by Secured Party in
exercising any of the foregoing rights and powers together with interest
accruing thereon daily at the highest rate Borrower has contracted to pay on any
of the Secured Obligations. Borrower's reimbursement obligations under this
Section shall constitute part of the Secured Obligations secured hereunder.
7. Application of Proceeds. (a) All monies and other proceeds received by
-------------------------
Secured Party upon any collection, sale or other disposition of any Collateral,
together with all other monies and other proceeds received by Secured Party
hereunder, shall be applied as follows:
First, to the payment of the reasonable costs and expenses of such sale,
-----
collection or other disposition which may have been incurred by Secured Party,
including without limitation attorneys' fees and all other reasonable expenses,
liabilities and advances made or incurred by Secured Party in connection
therewith;
Second, to the payment of all other Secured Obligations then due in such
------
order as Secured Party may elect; and
Third, after payment in full of all Secured Obligations then due, any
-----
surplus then remaining from such proceeds shall be paid to Debtor; and
(a) Borrower shall remain liable to Secured Party for any deficiency owing
on the Secured Obligations after the application of the proceeds of the
Collateral as provided above.
8. Indemnity. Borrower hereby agrees to indemnify Secured Party and hold
---------
Secured Party harmless from and against any claim, liability, loss, damage,
expense, suit, action or proceeding which may now or hereafter be suffered or
incurred by Secured Party as a result of Borrower's failure to observe, perform
or discharge Borrower's duties or obligations hereunder or Secured Party's
holding or administering this Agreement or any Collateral unless with respect to
any of the above Secured Party is finally determined to have acted with
gross negligence or to have engaged in willful misconduct. Without limiting the
generality of the foregoing, this indemnity shall extend to any claims asserted
against Secured Party by any person under any environmental, occupational safety
and hazard, or other similar laws, rules or regulations by reason of Borrower's
or any other person's failure to comply with any such laws, rules or
regulations. The indemnity obligations of Borrower under this Section shall
constitute a part of the Secured Obligations secured hereunder and shall survive
the termination of this Agreement.
9. Miscellaneous Provisions.
-------------------------
(a) The Secured Party's rights and remedies hereunder are
cumulative. Neither the failure nor the delay on the part of the Secured Party
to exercise any right, power or privilege hereunder shall operate as a waiver
thereof, nor shall any single or partial exercise of any such right, power or
privilege preclude any other or further exercise thereof or the exercise of any
other right, power or privilege.
(b) All notices given pursuant to any provision of this
Security Agreement shall be in writing and hand delivered, with a receipt being
obtained therefor, or sent by United States registered or certified mail, return
receipt requested, postage prepaid, at the following address or such other
address as to which the parties hereto may be notified in writing from time to
time:
Borrower:
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
Copy to:
Charles M. Cushing, Jr.
229 Peachtree Street N.E. Suite 2110
Atlanta, Georgia 30303
Fax Number (404) 658-9865
Confirm Number (404) 521-2323
and
Secured Party:
Gibralt US, Inc.
#2000 - 1177 West Hastings Street
Vancouver, British Columbia, Canada V6E-2K3
Copy to:
W. Craig Smith
Kilpatrick Stockton, LLP
1400 First Union Bank Building
Augusta, Georgia 30903
Fax Number (706) 722-0219
Confirm Number (706) 724-2622
All such notices shall be deemed to have been given when received (if hand
delivered) or two (2) days after deposit in the mails (if mailed).
(c) All amendments and modifications of this Security
Agreement or any schedules hereto must be in writing and signed by the party
against whom the same is sought to be enforced.
(d) If any term or provision of this Security Agreement or
the application thereof shall, to any extent, be invalid or unenforceable, the
remainder of this Security Agreement, or the application of such term or
provision, shall be valid and may be enforced to the fullest extent permitted by
law.
(e) This Security Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia, all rights and
remedies being governed by such laws.
(f) This Security Agreement secures not only Secured Obligations that are
presently outstanding but also Secured Obligations that may arise in the future,
and there may be times during the term of this Security Agreement when no
Secured Obligations are actually outstanding. Nevertheless, this Security
Agreement shall continue in full force and effect until terminated in writing by
Borrower and Secured Party.
(g) The "Secured Obligations", as defined herein, shall mean,
-------------------
collectively, (i) all liabilities, obligations and indebtedness (whether actual
or contingent, whether owed jointly or severally, whether for the payment of
money or for the performance of obligations, and if for the payment of money,
whether for principal, interest, fees, expenses or otherwise, and including
without limitation interest accruing after the maturity of such principal and
interest accruing after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding) of Borrower to Secured Party now existing or
hereafter arising, including without limitation (but not limited to) those
incurred under or in connection with the Note, this Security Agreement, or the
Note and Warrant Purchase Agreement or Promissory Note executed by Borrower in
favor of Secured Party of even date herewith as all of the foregoing may be
amended, modified or supplemented from time to time, together with any and all
extensions, renewals, refinancings or refundings thereof in whole or in part,
(ii) all costs and expenses (including, without limitation, to the extent
permitted by law, reasonable attorneys' fees and other legal expenses) incurred
by Secured Party in the enforcement and collection of any of the liabilities,
obligations and indebtedness referred to in clause (i) above, and (iii) all
payments and advances made by Secured Party for the maintenance, preservation,
protection or enforcement of, or realization upon, any property or assets now or
hereafter made subject to any lien granted pursuant to this Security Agreement
or pursuant to any other agreement, instrument or note relating to the Secured
Obligations (including, without limitation, advances for taxes, insurance,
storage, transportation, repairs and the like).
(h) Promptly upon satisfaction of the Secured Obligations,
Secured Party shall execute and deliver to Borrower such evidence of termination
of Secured Party's security interest in the collateral as Borrower may
reasonably request.
(i) None of the terms or provisions of this Agreement may be
waived, altered, modified or amended except by an instrument in writing, duly
executed by the parties hereto. This Agreement and all obligations of the
Borrower hereunder shall together with the rights and remedies of Secured Party
hereunder, inure to the benefit of Secured Party and its successors and assigns.
This Agreement shall be governed by, and be construed and interpreted in
accordance with, the laws of the State of Georgia, without giving effect to any
applicable principles of conflicts of laws. BORROWER HEREBY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT BORROWER MAY HAVE UNDER
ANY APPLICABLE LAW TO A TRIAL BY JURY WITH RESPECT TO ANY SUIT OR LEGAL ACTION
WHICH MAY BE COMMENCED BY OR AGAINST BORROWER CONCERNING THE INTERPRETATION,
CONSTRUCTION, VALIDITY, ENFORCEMENT OR PERFORMANCE OF THIS AGREEMENT. BORROWER
HEREBY EXPRESSLY AGREES, CONSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF
ANY STATE OR FEDERAL COURT SITTING IN FULTON COUNTY, GEORGIA, WITH RESPECT TO
ANY SUIT OR LEGAL ACTION WHICH MAY BE COMMENCED BY OR AGAINST BORROWER
CONCERNING THE INTERPRETATION, CONSTRUCTION, VALIDITY OR ENFORCEMENT OR
PERFORMANCE OF THIS AGREEMENT, AND BORROWER ALSO EXPRESSLY CONSENTS AND SUBMITS
TO AND AGREES THAT VENUE IN ANY SUCH SUIT OR LEGAL ACTION IS PROPER IN SAID
COURTS AND COUNTY AND HEREBY EXPRESSLY WAIVES ANY AND ALL PERSONAL RIGHTS UNDER
APPLICABLE LAW OR IN EQUITY TO OBJECT TO THE JURISDICTION AND VENUE IN SAID
COURTS AND COUNTY. THE JURISDICTION AND VENUE OF THE COURTS CONSENTED AND
SUBMITTED TO AND AGREED TO IN THIS PARAGRAPH ARE NOT EXCLUSIVE, BUT ARE
CUMULATIVE AND IN ADDITION TO THE JURISDICTION AND VENUE OF ANY OTHER COURT
UNDER ANY APPLICABLE LAWS OR IN EQUITY.
IN WITNESS WHEREOF, the Borrower and the Secured Party, intending to
be legally bound hereby, have duly executed this Security Agreement under seal
and caused it to be dated the day and year first above written.
POINTE COMMUNICATIONS
CORPORATION
By:__________________________
Title:________________________
[CORPORATE SEAL]
GIBRALT US, INC.
By:__________________________
Title:_________________________
[CORPORATE SEAL]
<PAGE>
EXHIBIT A TO SECURITY AGREEMENT
DESCRIPTION OF COLLATERAL
"Collateral" means all personal property wherever located, in which
----------
the Borrower now has or hereafter acquires any right or interest (including,
without limitation, all Accounts, Chattel Paper, Contract Rights, Documents,
Equipment, Fixtures, General Intangibles, Instruments, Inventory, Stock Rights,
cash, bank accounts, special collateral accounts, "uncertificated securities"
and "securities entitlements" and other "investment property" (each as defined
in the Code), insurance policies and all books and records (in whatever form or
medium), customer lists, credit files, computer files, programs, printouts,
source codes, software and other computer materials (and records related to any
of the foregoing), and the proceeds (including, without limitation, all
"proceeds" as defined in the Code), insurance proceeds, unearned premiums, tax
refunds, rents, profits, offspring and products thereof (all of the foregoing is
collectively referred to as the "Collateral").
As used herein the following capitalized terms shall have the
following meanings:
"Accounts" shall mean all accounts as that term is defined in the UCC
--------
and all rights of Borrower now existing and hereafter acquired to payment for
goods sold or leased or for services rendered which are not evidenced by an
Instrument or Chattel Paper, whether or not earned by performance, together with
(i) all security interests or other security held by or granted to Borrower to
secure such rights to payment, (ii) all other rights related thereto (including
rights of stoppage in transit) and (iii) all rights in any of such sold or
leased goods which are returned or repossessed.
"Chattel Paper" shall mean all chattel paper as that term is defined
--------------
in the UCC and any document or documents which evidence both a monetary
obligation and a security interest in, or a lease or consignment of, specific
goods; provided that when a transaction is evidenced both by a security
agreement or a lease and by an Instrument or series of Instruments, the group of
documents taken together constitute Chattel Paper.
"Contract Rights" shall mean any right to payment under a contract not
---------------
yet earned by performance and not evidenced by an Instrument or Chattel Paper.
"Documents" shall mean all documents as that term is defined in the
---------
UCC and all documents of title and goods evidenced thereby (including, without
limitation, all bills of lading, dock warrants, dock receipts, warehouse
receipts and orders for the delivery of goods), together with any other document
which in the regular course of business or financing is treated as adequately
evidencing that the Person in possession of it is entitled to receive, hold and
dispose of such document and the goods it covers.
"Equipment" shall mean all equipment as that term is defined in the
---------
UCC and all equipment (including, without limitation, all machinery, vehicles,
tractors, trailers, office equipment, communications systems, computers,
furniture, tools, molds and goods) owned, used or bought for use in Borrower's
business whether now owned, used or bought for use or hereafter acquired, used
or bought for use and wherever located, together with all accessories,
accessions, attachments, parts and appurtenances thereto.
"Fixtures" shall mean all fixtures as that term is defined in the UCC
--------
and all goods which are or are to be attached to real property in such a manner
that their removal would cause damage to the real property and which have
therefore taken on the character of real property.
"General Intangibles" shall mean all general intangibles as that term
--------------------
is defined in the UCC and all intangible personal property of every kind and
nature other than Accounts (including, without limitation, all Contract Rights,
other rights to receive payments of money, choses in action, security interests,
indemnification claims, judgments, tax refunds and tax refund claims, royalty
and product rights, inventions, work in progress, patents, patent applications,
trademarks, trademark applications, trade names, copyrights, copyright
applications, permits, licenses, franchises, leasehold interests in real or
personal property, rights to receive rentals of real or personal property or
payments under letters of credit, insurance proceeds, know-how, trade secrets,
other items of Intellectual Property and proprietary rights, goodwill (whether
or not associated with any of the foregoing), computer software and guarantee
claims).
"Instruments" shall mean all negotiable instruments (as that term is
-----------
defined in the UCC), certificated securities (as that term is defined in the
UCC) and any replacements therefor and Stock Rights related thereto, and other
writings which evidence rights to the payment of money (whether absolute or
contingent) and which are not themselves security agreements or leases and are
of a type which in the ordinary course of business are transferred by delivery
with any necessary endorsement or assignment (including, without limitation, all
checks, drafts, notes, bonds, debentures, government securities, certificates of
deposit, letters of credit, preferred and common stocks, options and warrants).
"Intellectual Property" means all (i) patents, patent applications,
----------------------
patent disclosures and inventions, (ii) trademarks, service marks, trade dress,
trade names, logos and company and corporate names and registrations and
applications for registration thereof, together with the goodwill of the
business connected with the use of, and symbolized by, the foregoing of this
term, (iii) copyrights and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation, (vi) trade
secrets and other confidential information (including, without limitation,
ideas, formulas, compositions, inventions (whether patentable or unpatentable
and whether or not reduced to practice), know-how, manufacturing and production
processes and techniques, research and development information, drawings,
specifications, designs, plans, proposals, technical data, copyrightable works,
financial and marketing plans and customer and supplier lists and information),
(vii) other intellectual property rights and (viii) copies and tangible
embodiments thereof (in whatever form or medium).
"Inventory" shall mean all inventory as that term is defined in the
---------
UCC and all goods (as that term is defined in the UCC) other than Equipment and
Fixtures (including, without limitation, goods in transit, goods held for sale
or lease or furnished or to be furnished under contracts for service, raw
materials, work in process and materials used or consumed in the Borrower's
business, finished goods, returned or repossessed goods and goods released to
the Borrower or to third parties under trust receipts or similar Documents).
"Proceeds" shall mean all proceeds (as that term is defined in the
--------
UCC) and any and all amounts or items of property received when any Collateral
or proceeds thereof are sold, exchanged, collected or otherwise disposed of,
both cash and non-cash, including proceeds of insurance, indemnity, warranty or
guarantee paid or payable on or in connection with any Collateral.
"Receivables" shall mean all Accounts, Chattel Paper and Contract
-----------
Rights and all Instruments representing rights to receive payments.
"Stock Rights" shall mean all "investment property" as that term is
-------------
defined in the UCC, and including, without limitation, any stock, security
(whether certificated or uncertificated) or securities entitlement, any dividend
or other distribution and any other right or property which Borrower shall
receive or shall become entitled to receive for any reason whatsoever with
respect to, in substitution for or in exchange for any and all shares of stock
and other Instruments and certificated or uncertificated securities or
securities entitlement, any right to receive or acquire any Instrument and
certificated or uncertificated security or securities entitlement and any right
to receive earnings, in which Borrower now has or hereafter acquires any right.
"UCC" shall mean the Uniform Commercial Code as in effect in any
---
applicable jurisdiction.
NOTE AND WARRANT
PURCHASE AGREEMENT
DATED MARCH 8, 1999
BETWEEN
EGL/NATWEST VENTURES USA, L.P.,
EGL EQUITY PARTNERS III, L.P.,
EGL EQUITY OFFSHORE PARTNERS III, L.P.,
AND POINTE COMMUNICATIONS CORPORATION
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
Page
----
<S> <C>
1. Authorization and Closing 1
1A. Authorization of the Notes and Warrants 1
1B. Issuance of the Notes and the Warrants 1
1C. The Closing 1
2. Covenants 1
2A. Financial Statements and Other Information 1
2B. Inspection of Property 2
2C. Board of Directors Representation 3
2D. Current Public Information 3
2E. SBIC Regulatory Provisions 3
2F. Reservation of Common Stock 4
2G. Public Disclosures 4
2H. Preemptive Rights 5
2I. Taxes 5
2J. Licenses 6
2K. Settlement Agreement 6
2L. General Covenants 6
3 Representations and Warranties of the Company 6
3A. Organization, Corporate Power and Licenses 6
3B. Authorization; No Breach 7
3C. No Material Adverse Change 7
3D. Small Business Matters 7
3E. Disclosure 8
3F. Reports with the Securities and Exchange Commission 8
3G. Licenses 8
3H. Use of Proceeds 8
4 Definitions 8
4A. Definitions 8
5 Miscellaneous 9
5A. Expenses 9
5B. Remedies 10
5C. Survival of Representations and Warranties 10
5D. Successors and Assigns 10
5E. Severability 10
5F. Counterparts 11
5G. Descriptive Headings; Interpretation 11
5H. Governing Law 11
</TABLE>
Schedules
- ---------
Schedule of Purchasers
Schedule 3G
Schedule 3H
Schedule 3I
<PAGE>
POINTE COMMUNICATIONS CORPORATION
PURCHASE AGREEMENT
------------------
THIS AGREEMENT is made as of March 8, 1999, between Pointe Communications
Corporation, a Nevada corporation (the "Company"), EGL/Natwest Ventures USA
L.P., a Delaware limited partnership, EGL Equity Partners III, L.P., a Delaware
limited partnership and EGL Equity Offshore Partners III, L.P., a Cayman Islands
Exempted Limited Partnership (collectively, the "Purchasers"). Except as
otherwise indicated herein, capitalized terms used herein are defined in Section
4 hereof.
On the date hereof, each of the Purchasers has agreed to make a loan to the
Company, in the dollar amounts set forth opposite each such Purchaser's name on
Schedule I attached hereto (collectively, the "Loan"), for which the Company
will issue a note to each of the Purchasers (collectively, the "Notes"). In
connection therewith and in partial consideration therefor, the parties are
entering into this Agreement.
The parties hereto agree as follows:
Section 1. Authorization and Closing.
---------------------------
1A. Authorization of the Notes and the Warrants. The Company shall
-----------------------------------------------
authorize the issuance of the Notes and warrants to the Purchasers
(collectively, the "Warrants") to purchase 5,000,000 shares of the Common Stock,
par value $.00001 per share (the "Common Stock").
1B. Issuance of the Notes and the Warrants. At the Closing, the
--------------------------------------------
Company shall issue to the Purchasers and, subject to the terms and conditions
set forth herein, the Purchasers shall obtain from the Company, the Notes and
the Warrants in consideration of each Purchaser's agreement to make their
portion of the Loan to the Company.
1C. The Closing. The closing of the Loan and the issuance of the Notes
-----------
and the Warrants (the "Closing") shall take place at the offices of the
Purchasers at 10:00 a.m. on March 8, 1999, or at such other place or on such
other date as may be mutually agreeable to the Company and the Purchasers. At
the Closing, the Company shall deliver to the Purchasers the Notes and the
Warrants to be issued to each such Purchaser, registered in each such
Purchaser's or its nominee's name, and each such Purchaser shall make their
portion of the Loan.
Section 2. Covenants.
---------
2A. Financial Statements and Other Information. The Company shall
----------------------------------------------
deliver to each Purchaser, so long as each such Purchaser holds a Note, any
Underlying Common Stock or any other security of the Company:
(i) as soon as available but in any event within 30 days after the
end of each monthly accounting period in each fiscal year, unaudited
consolidating and consolidated state-ments of income and cash flows of the
Company and its Subsid-iaries for such monthly period and for the period from
the beginning of the fiscal year to the end of such month, and unaudited
consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such monthly period, setting forth in each case
comparisons to the Com-pany's annual budget and to the corresponding period in
the preceding fiscal year, and all such statements shall be prepared in
accordance with generally accepted accounting principles, consistently applied,
subject to the absence of footnote disclosures and to normal year-end
adjustments for recurring accruals, and shall be certified by the Com-pany's
chief financial officer and will be accompanied by a written review thereof
prepared by the Chief Executive Officer of the Company;
(ii) within ten days after transmission thereof, copies of all
financial statements, proxy statements, reports and any other general written
communications which the Company sends to its stockholders and copies of all
registration statements and all regular, special or periodic reports which it
files, or (to its knowledge) any of its officers or direc-tors file with respect
to the Company, with the Securi-ties and Exchange Commission or with any
securities exchange on which any of its securities are then listed, and copies
of all press releases and other statements made available gen-erally by the
Company to the public concerning material developments in the Company's and its
Subsidiaries' businesses;
(iii) within thirty days prior to the beginning of each fiscal year, an
annual budget and operating plan for such year (and as soon as available, any
subsequent revisions thereto); and
(iv) with reasonable promptness, such other infor-mation and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 2A may reasonably request.
To the best of the Company's knowledge, each of the financial statements
referred to in subparagraph (i) shall be true and correct in all material
respects as of the dates and for the periods stated therein, subject in the case
of the unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals none of which would, alone or in the
aggregate, be materially adverse to the financial condition, operating results,
assets, operations or business prospects of the Company and its Subsidiaries
taken as a whole.
2B. Inspection of Property. The Company shall permit any
------------------------
representatives designated by a Purchaser (so long as such Purchaser holds any
Underlying Common Stock), upon reasonable notice and during normal business
hours, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof or extracts therefrom and (iii)
dis-cuss the affairs, finances and accounts of the Company and its Subsidiaries
with the directors, officers, key employees and inde-pen-dent accountants of the
Company and its Subsidiaries. The presentation of an executed copy of this
Agreement by such Purchaser or any holder of Underlying Common Stock to the
Company's independent accountants shall constitute the Company's permission to
its independent accountants to participate in discussions with such Persons.
2C. Board of Directors Representation. The Company shall give the
------------------------------------
Purchasers (so long as the Purchasers hold any Underlying Common Stock) written
notice of each meeting of its board of directors and each regularly scheduled
committee meeting thereof at the same time and in the same manner as notice is
given to the directors (which notice shall be promptly confirmed in writing to
each such Purchaser), and the Company shall permit a representative of the
Purchasers to attend as an observer all meetings of its board of directors and
all committees thereof. Each representative shall be entitled to receive all
written materials and other information (including, without limitation, copies
of meeting minutes) given to directors in connection with such meetings at the
same time such materials and information are given to the direc-tors. If the
Company pro-poses to take any action by written consent in lieu of a meeting of
its board of directors or of any committee thereof, the Company shall give
written notice thereof to each such Purchaser prior to the effective date of
such consent describing in reasonable detail the nature and substance of such
action. The Company shall also cause one representative appointed by the
Purchasers to be appointed to the Board of Directors of the Company and agrees
to use its best efforts to cause any such representative to remain a member of
the Board of Directors of the Company so long as the Purchasers own any
Underlying Common Stock including, without limitation, nominating, or causing
the nomination of, any such representative to the Board of Directors of the
Company. Such Purchasers' representative to the Board of Directors of the
Company shall be entitled to receive such fees and stock option grants as are
customarily granted to the other members of the Company's Board of Directors.
2D. Current Public Information. The Company shall file all reports
----------------------------
required to be filed by it under the Securities Act and the Securities Exchange
Act and the rules and regulations adopted by the Securities and Exchange
Commission thereunder and shall take such further action as any holder or
holders of Restricted Securities (as defined in Rule 144 adopted by the
Securities and Exchange Commission under the Securities Act) may reasonably
request, all to the extent required to enable such holders to sell Restricted
Securities pursuant to Rule 144 (as such rule may be amended from time to time)
or any similar rule or regulation hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
2E. SBIC Regulatory Provisions.
----------------------------
(i) Within 75 days after the Closing and each subsequent Financing
hereunder by each holder of a Note or Underlying Common Stock which is an SBIC
(an "SBIC Holder") and at the end of each month thereafter until all of the
proceeds from the Loan from such SBIC Holder and the exercise of the Warrants by
such SBIC Holder have been used by the Company and its Subsidiaries, the Company
shall deliver to each SBIC Holder a written statement certified by the Company's
president or chief financial officer describing in reasonable detail the use of
the proceeds of the Loan from such SBIC Holder reflected by the Notes by the
Company and its Subsidiaries. In addition to any other rights granted
hereunder, the Company shall grant each SBIC Holder and the United States Small
Business Administration (the "SBA") access to the Company's records for the
purpose of verifying the use of such proceeds.
(ii) Upon the occurrence of a Regulatory Violation or in the event
that any SBIC Holder determines in its reasonable good faith judgment that a
Regulatory Violation has occurred, in addition to any other rights and remedies
to which it may be entitled as a holder of a Note or of Underlying Common Stock
(whether under this Agreement, the Company's Certificate of Incorporation or
otherwise), each SBIC Holder shall have the right to the extent required under
the SBIC Regulations to demand the immediate repayment of the Loan from such
SBIC Holder and the repurchase of all Underlying Common Stock owned by such SBIC
Holder at a price equal to the purchase price paid for such securities hereunder
(plus accrued but unpaid interest on the Note held by such SBIC Holder) by
delivering written notice of such demand to the Company. The Company shall pay
the purchase price for such stock by a cashier's or certified check or by wire
transfer of immediately available funds to each SBIC Holder demanding repurchase
within 30 days after the Company's receipt of the demand notice, and upon such
payment, each such SBIC Holder shall deliver the certificates evidencing the
Underlying Common Stock to be repurchased duly endorsed for transfer or
accompanied by duly executed forms of assignment.
(iii) For purposes of this paragraph, "Regulatory Violation"
---------------------
means, with respect to any SBIC Holder providing Financing under this Agreement,
(a) a diversion of the proceeds of such Financing from the reported use thereof
on the use of proceeds statement delivered by the Company on SBA Form 1031
delivered at the Closing, if such diversion was effected without obtaining the
prior written consent of the SBIC Holders (which may be withheld in their sole
discretion) or (b) a change in the principal business activity of the Company
and its Subsidiaries to an ineligible business activity (within the meaning of
the SBIC Regulations) if such change occurs within one year after the date of
the initial Financing hereunder; "SBIC Regulations" means the Small Business
----------------
Investment Act of 1958 and the regulations issued thereunder as set forth in 13
CFR 107 and 121, as amended; and the term "Financing" shall have the meaning set
---------
forth in the SBIC Regulations.
2F. Reservation of Common Stock. The Company shall at all times reserve
---------------------------
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of issuance upon exercise of the Warrants, such number of
shares of Common Stock issuable upon the exercise of the Warrants. All shares
of Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange upon which shares of Common Stock may be listed (except for official
notice of issuance which shall be immediately transmitted by the Company upon
issuance).
2G. Public Disclosures. The Company shall not, nor shall it permit any
------------------
Subsidiary to, disclose the name or identity of the Purchasers as investors in
the Company in any press release or other public announcement or in any document
or material filed with any governmental entity, without the prior written
consent of each such Purchaser, unless such disclosure is required by applicable
law or governmental regulations or by order of a court of competent
juris-diction, in which case prior to making such disclosure the Company shall
give written notice to each such Purchaser describing in reason-able detail the
proposed content of such disclosure and shall permit each such Purchaser to
review and comment upon the form and substance of such disclosure.
2H. Preemptive Rights.
------------------
(a) Until a Purchaser's Note is paid in full, such Purchaser shall have
the following preemptive rights: except for issuances of Common Stock (i) to
the Company's employees, (ii) upon the conversion of the Warrant or other
warrants or options outstanding as of the date hereof, or granted within the
next 90 days as a part of similar bridge financings or as a part of the
contemplated CS First Boston/Breckenridge financing, (iii) in connection with
the acquisition of another company or business, (iv) pursuant to a public
offering registered under the Securities Act, if the Company authorizes the
issuance or sale of any shares of Common Stock, preferred stock or any
securities (other than those described in (i) through (iv) above) containing
options or rights to acquire any shares of Common Stock or preferred stock
(other than as a dividend on the outstanding Common Stock), the Company shall
first offer to sell to each holder of Underlying Common Stock a portion of such
stock or securities equal to the quotient determined by dividing (1) the number
of shares of Under-lying Common Stock held by such holder by (2) the sum of the
total number of shares of Underlying Common Stock and the number of shares of
Common Stock outstanding which are not shares of Under-lying Common Stock. Each
holder of Underlying Common Stock shall be entitled to purchase such stock or
securities at the most favorable price and on the most favorable terms as such
stock or securities are to be offered to any other Persons The purchase price
for all stock and securities offered to the holders of the Underlying Common
Stock shall be payable in cash or, to the extent otherwise required hereunder,
notes issued by such holders.
(b) In order to exercise its purchase rights hereunder, a holder of
Underlying Common Stock must, within 15 days after receipt of written notice
from the Company describing in reasonable detail the stock or securities being
offered, the purchase price thereof, the payment terms and such holder's
percentage allotment, deliver a written notice to the Company describing its
election hereunder, together with payment of the purchase price therefor and
such subscription and other documents as are a part of such offering.
(c) Upon the expiration of the offering period described above, the
Company shall be entitled to sell such stock or securities which the holders of
Underlying Common Stock have not elected to purchase during the 90 days
following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 90-day period must be reoffered to the
holders of Underlying Common Stock pursuant to the terms of this paragraph.
2I. Taxes. The Company hereby acknowledges and agrees that as of the
-----
date hereof, it has placed One Million Three Hundred Thousand Dollars
($1,300,000) in escrow (the "Escrowed Amount") with Cushing, Morris, Armbruster
& Jones, LLP solely for the purpose of paying certain tax liabilities. The
Company hereby covenants and agrees that (A) no later than 180 days after the
Closing, it shall have (i) filed all federal, state, local and foreign income
and other tax returns, reports and declarations which were required by
applicable law to have been filed at or before the Closing, and (ii) paid all
taxes (including, without limitation, all taxes required to be withheld or any
interest and penalties on any taxes) in respect of the periods covered by said
returns, reports and declarations or any other taxable period ending on or
before the Closing, and (B) the Escrowed Amount shall be used solely for the
payment of any and all tax liabilities of the Company.
2J. Licenses. The Company hereby covenants and agrees that it
--------
shall cause, and take all such action as is necessary to cause, all permits,
concessions, grants, franchises, licenses and other federal, state, local or
foreign governmental authorizations and approvals material, individually or in
the aggregate, to the conduct of all or any part of the business of the Company
and its Subsidiaries to be, at all times, in full force and effect.
2K. Settlement Agreement. The Company hereby covenants and agrees that
--------------------
the Company and the Subsidiaries shall, at all times, be in compliance with the
terms and conditions of that certain Settlement Agreement and Release, dated
July 20, 1998, by and between Charter Communications International, Inc. and
Sprint Communications Company L.P., and the related Promissory Note in the
principal amount of Nine Hundred Thousand Dollars ($900,000.00).
2L. General Covenants. The prior consent of the Board of Directors of
------------------
the Company shall be required for: (i) any resolution to wind-up, merge,
consolidate, sell or dispose of all or a substantial portion of the assets or
capital stock of the Company or any material Subsidiary, (ii) any
recapitalization, merger, acquisition or other business combination to which the
Company is a party; (iii) any amendment or addition to the articles of
incorporation or bylaws of the Company or any Subsidiary; (iv) the sale, listing
or secondary offering of any capital stock of the Company or any Subsidiary; (v)
any dividend to be declared on any class of capital stock of the Company or any
Subsidiary; (vi) any material debt or leasing finance agreement not in the
ordinary course of business; (vii) the creation of fixed floating charges or the
giving of guarantees or other collateral; (viii) the appointment or dismissal of
any member of the Board of Directors of the Company or any Subsidiary; (ix) all
matters not in the ordinary course of business, including any related party
transactions; (x) any amendment to the employment or non-compete agreements of
any member of the Company's management team; (xi) any change in the Company's or
any Subsidiary's auditors, accounting policies or accounting reference date;
(xii) the commencement of, and conduct of, any claims or litigation, whether as
plaintiff, defendant or cross-claimant; (xiii) the provision of any loan or
advances to employees; and (xiv) the approval of budgets, all amendments to
budgets and material capital expenditures.
Section 3. Representations and Warranties of the Company. As a
--------------------------------------------------
material inducement to the Purchasers to enter into this Agreement to make the
Loan reflected by the Notes, the Company hereby represents and warrants that:
3A. Organization, Corporate Power and Licenses. The Company is a
----------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of Nevada and is qualified to do business in every jurisdiction in which the
failure to so qualify has had or would reasonably be expected to have a material
adverse effect on the financial condition, operating results, assets, operations
or business prospects of the Company and its Subsidiaries taken as a whole. The
Company possesses all requisite corporate power and authority necessary to own
and operate its properties, to carry on its businesses as now conducted and
presently proposed to be conducted and to issue the Notes and carry out the
other transactions contemplated by this Agreement. The copies of the Company's
and each Subsidiary's charter documents and bylaws which have been furnished to
the Purchasers' special counsel reflect all amendments made thereto at any time
prior to the date of this Agreement and are correct and complete.
3B. Authorization; No Breach. The execution, delivery and performance
-------------------------
of this Agreement, the Warrants, the Notes, the Security Agreement executed in
connection herewith and all other agree-ments contemplated hereby to which the
Company is a party, have been duly authorized by the Company. This Agreement,
the Warrants, the Notes, the Security Agreement and all other agreements
contemplated hereby to which the Company is a party each constitutes a valid and
binding obliga-tion of the Company, enforceable in accordance with its terms.
The execution and delivery by the Company of this Agreement, the Warrants, the
Notes, the Security Agreement and all other agreements contemplated hereby to
which the Company is a party, the offering, sale and issuance of the Notes and
the Warrants hereunder, the issuance of the Common Stock upon exer-cise of the
Warrants, and the fulfillment of and compliance with the respective terms hereof
and thereof by the Company, do not and shall not (i) conflict with or result in
a breach of the terms, conditions or provisions of, (ii) constitute a default
under, (iii) result in the creation of any lien, security interest, charge or
encumbrance upon the Company's or any Subsidi-ary's capital stock or assets
pursuant to, (iv) give any third party the right to modify, terminate or
accelerate any obligation under, (v) result in a violation of, or (vi) require
any authoriza-tion, consent, approval, exemption or other action by or notice or
declaration to, or filing with, any court or administrative or governmental body
or agency pursuant to, the charter or bylaws of the Company or any Subsidiary,
or any law, statute, rule or regulation to which the Company or any Subsidiary
is sub-ject, or any agreement, instrument, order, judgment or decree to which
the Company or any Subsidiary is subject.
3C. No Material Adverse Change. Since the date of the Company's last
----------------------------
Form 10-Q filed with the SEC, there has been no material adverse change in the
financial condition, operating results, assets, operations, business prospects,
value, employee relations or customer or supplier relations of the Company and
its Subsidiaries taken as a whole.
3D. Small Business Matters. The Company, together with its
------------------------
"affiliates" (as that term is defined in Title 13, Code of Federal Regulations,
121.103), is a "small busi-ness concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, 121.105. The information regarding the
Company and its affiliates set forth in the Small Business Administration Form
480, Form 652 and Part A of Form 1031 delivered at the Closing is accurate and
complete. Copies of such forms shall have been completed and executed by the
Company and delivered to the Purchasers at the Closing together with a written
statement of the Company regarding its planned use of the proceeds from the Loan
made by the Purchasers reflected by the Notes and the Warrants. Neither the
Company nor any Subsidiary presently engages in, and it shall not hereafter
engage in, any activities, nor shall the Company or any Subsidiary use directly
or indirectly the proceeds from the Loan made by Purchasers reflected by the
Notes or the exercise of Warrants hereunder for any purpose, for which a Small
Business Investment Company is prohibited from providing funds by the Small
Business Investment Act of 1958 and the regulations thereunder (including Title
13, Code of Federal Regulations, 107.720).
3E. Disclosure. There is no fact which the Company has not disclosed
----------
to the Purchasers in writing and of which any of its officers, directors or
executive employees is aware and which has had or would reasonably be expected
to have a material adverse effect upon the existing or expected financial
condition, operating results, assets, customer or supplier relations, employee
relations or business prospects of the Company and its Subsidiaries taken as a
whole.
3F. Reports with the Securities and Exchange Commission. The Company
----------------------------------------------------
has furnished the Purchaser with complete and accurate copies of its annual
report on Form 10-K for its most recent fiscal year, all other reports or
documents required to be filed by the Company pursuant to Section 13(a) or 15(d)
of the Securities Exchange Act since the filing of the most recent annual report
on Form 10-K and its most recent annual report to its stockholders. Such
reports and filings do not contain any material false statements or any
misstatement of any material fact and do not omit to state any fact necessary to
make the statements set forth therein not misleading. The Company has made all
filings with the Securities and Exchange Commission which it is required to
make, and the Company has not received any request from the Securities and
Exchange Commission to file any amendment or supplement to any of the reports
described in this paragraph.
3G. Licenses. Except as set forth on Schedule 3G attached hereto,
-------- -----------
the Company and the Subsidiaries have obtained all permits, concessions, grants,
franchises, licenses and other federal, state, local or foreign governmental
authorizations and approvals material, individually or in the aggregate, to the
conduct of all or any part of the business of the Company and the Subsidiaries
(collectively, "Licenses"). Except as set forth on Schedule 3G attached hereto,
-----------
all of the Licenses are in full force and effect. None of such Licenses will be
impaired or adversely affected by the transactions contemplated by this
Agreement. There is not pending or, to the knowledge of the Company, threatened
any domestic or foreign suit or proceeding with respect to the suspension,
revocation, cancellation, modification or non-renewal of any of such Licenses,
and no event has occurred that (whether with notice or lapse of time, or both)
will or may result in a suspension or revocation of or failure to renew any of
the Licenses.
3H. Use of Proceeds. The net proceeds received by the Company
-----------------
from the Loan and the exercise of the Warrants shall be used for the purposes,
and substantially in the respective amounts, set forth on Schedule 3H attached
-----------
hereto.
Section 4. Definitions.
-----------
4A. Definitions. For the purposes of this Agreement, the
-----------
following terms have the meanings set forth below:
"Affiliate" of any particular Person means any other Person controlling,
---------
controlled by or under common control with such particular Person, where
"control" means the possession, directly or indirectly, of the power to direct
the management and policies of a Person whether through the ownership of voting
securities, contract or otherwise.
"SBIC" means a small business investment company licensed under the Small
----
Business Investment Act of 1958, as amended.
"SBIC Regulations" means the Small Business Investment Company Act of 1958,
----------------
as amended, and the regulations issued by the Small Business Administration
thereunder, 13 CFR 107 and 121, as amended.
"Securities Act" means the Securities Act of 1933, as amended, or any
---------------
similar federal law then in force.
"Securities and Exchange Commission" includes any governmental body or
-------------------------------------
agency succeeding to the functions thereof.
"Securities Exchange Act" means the Securities Exchange Act of 1934, as
-------------------------
amended, or any similar federal law then in force.
"Subsidiaries" means all of the entities the Company has an equity interest in
------------
as of the Closing as set forth on Schedule 3I hereto, and (ii) any other entity
-----------
the Company obtains an equity interest in, directly or indirectly, after the
Closing.
"Underlying Common Stock" means (i) the Common Stock issued or issuable
-------------------------
upon exercise of the Warrants and (ii) any Common Stock issued or issuable with
respect to the securities referred to in clause (i) above by way of stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. For purposes
of this Agreement, any Person who holds the Warrants shall be deemed to be the
holder of the Underlying Common Stock obtainable upon exercise of the Warrants
in connection with the transfer thereof or otherwise regardless of any
restric-tion or limitation on the exercise of the Warrants, such Underlying
Common Stock shall be deemed to be in existence, and such Person shall be
entitled to exercise the rights of a holder of Underlying Common Stock
here-under. As to any particular shares of Underlying Common Stock, such shares
shall cease to be Underlying Common Stock when they have been (a) effectively
registered under the Securities Act and disposed of in accordance with the
registra-tion statement covering them, (b) distributed to the public through a
broker, dealer or market maker pursuant to Rule 144 under the Securities Act (or
any similar provision then in force) or (c) repurchased by the Company or any
Subsidiary.
Section 5. Miscellaneous.
-------------
5A. Expenses. The Company shall pay, and shall hold each of the
--------
Purchasers and all holders of Under-lying Common Stock harmless from and against
liability for the payment of, (i) the reasonable fees and expenses arising in
connection with the negotiation and execution of this Agreement and the
consummation of the transac-tions contemplated by this Agreement, which fees and
expenses shall be payable at the Closing and shall include, without limitation,
attorneys fees, accountants fees, and industry and marketing due diligence fees,
(ii) the reasonable fees and expenses incurred with respect to any amendments or
waivers (whether or not the same become effec-tive) under or in respect of this
Agreement and the agreements and documents contemplated hereby, (iii) stamp and
other taxes which may be payable in respect of the execution and delivery of
this Agreement or the issuance, delivery or acquisition of any shares of Common
Stock issuable upon exercise of the Warrants, (iv) the reason-able fees and
expenses incurred with respect to the enforcement of the rights granted under
this Agreement and the agreements and documents contem-plated hereby, and (v)
the reasonable fees and expenses incurred by each such Person in any filing with
any governmental agency with respect to its investment in the Company or in any
other filing with any governmental agency with respect to the Company which
mentions such Person, and (vi) the reasonable fees and expenses incurred by any
such Person in connection with any transaction, claim or event which such Person
believes affects the Company and as to which such Person seeks advice of
coun-sel. Additionally, the Company shall pay EGL Investments, L.P. (or any
entity designated by EGL Investments, L.P. from time to time) the following
origination fee (i) One Hundred Thousand Dollars ($100,000.00) in cash at
Closing, and (ii) One Hundred Fifty Thousand Dollars ($150,000.00), payable in
eight (8) equal monthly installments, by the tenth (10th) day of each month,
beginning in March 1999; provided, however, that in the event of a consolidation
-----------------
or merger of the Company with or into any other entity or entities in which more
than 50% of the voting power of the Company is disposed of, or a sale,
conveyance or disposition of all or substantially all of the assets of the
Company, or the effectuation by the Company or its stockholders of a transaction
or series of related transactions in which more than 50% of the voting power of
the Company is disposed of, any amounts outstanding pursuant to the foregoing
provision shall be immediately due and payable.
5B. Remedies. Each holder of Under-lying Common Stock shall have all
--------
rights and remedies set forth in this Agreement, and all rights and remedies
which such holders have been granted at any time under any other agreement or
contract and all of the rights which such holders have under any law. Any
Person having any rights under any provision of this Agreement shall be entitled
to enforce such rights specifically (without posting a bond or other security),
to recover damages by reason of any breach of any provision of this Agreement
and to exercise all other rights granted by law.
5C. Survival of Representations and Warranties. All repre-sentations
--------------------------------------------
and warranties contained herein or made in writing by any party in connection
herewith shall survive the execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby regardless of any
investigation made by any of the Purchasers or on its behalf.
5D. Successors and Assigns. Except as otherwise expressly provided herein,
-----------------------
all covenants and agreements contained in this Agreement by or on behalf of any
of the parties hereto shall bind and inure to the benefit of the respective
successors and assigns of the parties hereto whether so expressed or not. In
addition, and whether or not any express assignment has been made, the
provisions of this Agreement which are for any Purchaser's bene-fit as a
purchaser or holder of the Warrants or Underlying Common Stock are also for the
benefit of, and enforceable by, any subsequent holder of such Warrants or such
Underlying Common Stock.
5E. Severability. Whenever possible, each provision of this Agreement
------------
shall be interpreted in such manner as to be effec-tive and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
5F. Counterparts. This Agreement may be executed simul-tane-ously in
------------
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counter-parts taken together shall constitute
one and the same Agreement.
5G. Descriptive Headings; Interpretation. The descrip-tive headings of
------------------------------------
this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
5H. Governing Law. The corporate law of the State of Nevada shall
--------------
govern all issues and questions concerning the relative rights and obligations
of the Company and its stock-holders. All other issues and questions concerning
the construc-tion, validity, enforcement and interpretation of this Agreement
and the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Georgia, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Georgia or any other juris-diction) that would cause the application of the laws
of any jurisdiction other than the State of Georgia.
* * * * *
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
date first written above.
POINTE COMMUNICATIONS CORPORATION
By
--------------------------------------
Its
--------------------------------------
EGL/NATWEST VENTURES USA L.P.
BY: EGL VENTURES, INC., AS GENERAL
PARTNER
By
--------------------------------------
Its
--------------------------------------
EGL EQUITY PARTNERS, III, L.P.
BY: EGL INVESTMENTS, L.P., AS GENERAL
PARTNER
BY: EGL GP, INC., AS GENERAL PARTNER
By
--------------------------------------
Its
--------------------------------------
EGL EQUITY OFFSHORE PARTNERS III, L.P.
BY: EGL INVESTMENTS, L.P., AS GENERAL PARTNER
BY: EGL GP, INC., AS GENERAL PARTNER
By
--------------------------------------
Its
--------------------------------------
<PAGE>
SCHEDULE I
----------
THE PURCHASERS
--------------
<TABLE>
<CAPTION>
Warrant
Purchaser Loan Amount Share Amount
- -------------------------------------- ------------ ------------
<S> <C> <C>
EGL/NATWEST VENTURES USA, L.P. $ 1,582,500 1,582,500
EGL EQUITY PARTNERS III, L.P. $ 1,125,500 1,125,500
EGL EQUITY OFFSHORE PARTNERS III, L.P. $ 2,292,000 2,292,000
</TABLE>
<PAGE>
SCHEDULE 3G
-----------
<PAGE>
SCHEDULE 3H
-----------
Approximately One Million Dollars (plus accrued interest) will be used to
repay all principal and interest owed to EGL/Natwest Ventures USA, L.P. under
that certain Promissory Note dated December 2, 1998. The remainder of the
proceeds from the Loan will be used to fund the continued growth and expansion
of the Company. None of the proceeds from the Loan will be used to repay any
outstanding debt of the Company that has a maturity date on or prior to one year
after the Closing Date.
<PAGE>
SCHEDULE 3I
-----------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
-----------------------------
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is entered into as of
the 8th day of March, 1999 by and among POINTE COMMUNICATIONS CORPORATION, a
Nevada corporation (the "Company") and the holders of the Company's Common
Stock, par value $.00001 per share (the "Common Stock"), identified under the
heading "Investors" on the signature pages attached hereto (the "Investors").
WHEREAS, the Company and the Investors have entered into that certain
Purchase Agreement, dated as of the date hereof (the "Purchase Agreement"); and
WHEREAS, the Company has agreed to provide certain registration and other
rights to the Investors in connection with the Common Stock purchased pursuant
to the Purchase Agreement.
NOW, THEREFORE, the parties hereto hereby agree as follows:
1. Definitions. Unless the context otherwise requires, the terms
-----------
defined in this Section 1 shall have the meanings herein specified for all
purposes of this Agreement or, as the case may be, in the Purchase Agreement,
applicable to both the singular and plural forms of any of the terms herein
defined.
"Agreement" means this Registration Rights Agreement, as the same may be
---------
amended, modified or supplemented in accordance with the terms hereof.
"Board" means the Board of Directors of the Company.
-----
"Common Stock" means the common stock, $.00001 par value per share, of the
-------------
Company.
"Commission" means the Securities and Exchange Commission.
----------
"Company" has the meaning assigned to it in the introductory paragraph of
-------
this Agreement.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
-------------
"Investors" has the meaning assigned to it in the introductory paragraph of
---------
this Agreement.
"Other Shares" has the meaning assigned to it in Section 4(f) of this
-------------
Agreement.
"Person" includes any natural person, corporation, trust, association,
------
company, partnership, joint venture and other entity and any government,
governmental agency, instrumentality or political subdivision.
"Proposed Registration" has the meaning assigned to it in Section 4(a) of
----------------------
this Agreement.
The terms "register" "registered" and "registration" refer to a
-------- ---------- ------------
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Securities Act" means the Securities Act of 1933, as amended.
---------------
2. Required Registration.
----------------------
a. At any time after the Closing Date, the Investors may
collectively request (the "Request") for the Company to register under the
Securities Act all or any portion of the shares of Common Stock held by such
requesting Investors for sale in the manner specified in the Request. The
Investors may request any amount of Common Stock to be registered.
Notwithstanding anything to the contrary contained herein, no request may be
made under this Section 2 within 90 days after the effective date of a
registration statement filed by the Company covering a firm commitment
underwritten public offering in which the Investors shall have been entitled to
join pursuant to Section 4. The Company shall be obligated to file a
registration statement with respect to such Common Stock registered pursuant to
this Section 2 as soon as practicable after the date of the Request, but no
later than 60 days after such Request.
b. Following receipt of any Request under this Section 2, the
Company shall immediately notify each of the Investors and shall use its best
efforts to register under the Securities Act, for public sale in accordance with
the method of disposition specified in such Request, the number of shares of
Common Stock specified in such Request. If the Investors initiating the Request
hereunder intend to distribute the stock covered by their Request by means of an
underwriting, the underwriter will be selected by the Investors owning a
majority of the shares of Common Stock subject to such Request and such
underwriter shall be reasonably acceptable to the Company. The Company shall
not be required to effect a registration pursuant to this Section 2 after the
Company has effected two (2) registrations pursuant to this Section 2 that have
been declared or ordered effective by the Commission and that cover all shares
of Common Stock included in the Request.
c. The Company shall not be entitled to include in any
registration statement referred to in this Section 2 shares of Common Stock to
be sold by the Company for its own account. The Company will not file with the
Commission any other registration statement with respect to its Common Stock,
whether for its own account or that of other stockholders, from the date of
receipt of the Request until the completion of the period of distribution of the
registration contemplated thereby. The Company shall have the right to effect a
registration pursuant to this Section 2 on Form S-3 (or any comparable or
successor form) if the Company is eligible to use such form.
3. Form S-3 Registration. The Investors may also collectively request
----------------------
that the Company file a registration statement on Form S-3 or any comparable or
successor form for a sale or public offering of all or any portion of the shares
of Common Stock held by such requesting Investors, provided that the reasonably
anticipated aggregate price to the public of such offering shall exceed
$500,000. Following receipt of any Request under this Section 3, the Company
will use its best efforts to register under the Securities Act on Form S-3 or
any comparable or successor form, for public sale in accordance with the method
of disposition specified in such Request, the number of shares of Common Stock
specified in such Request. Promptly, but in no event more than thirty (30) days
following receipt of such Request, the Company will notify each of the Investors
and shall include in such registration all shares of Common Stock with respect
to which each such Investor has given notice to the Company of such Investor's
request for inclusion therein within 20 days after the giving of such Request by
the Company. The Company shall not be required to effect a registration
pursuant to this Section 3 after the Company has effected two (2) registration
pursuant to this Section 3 that has been declared or ordered effective by the
Commission and that cover all shares of Common Stock included in the Request.
4. Piggyback Registration.
-----------------------
a. Each time that the Company proposes for any reason to register
any of its Common Stock under the Securities Act in connection with the proposed
offer and sale of its Common Stock for money, either for its own account or on
behalf of any other security holder ("Proposed Registration"), the Company shall
promptly give written notice of such Proposed Registration to the Investors and
shall offer the Investors the right to request inclusion of the shares of Common
Stock held by the Investors in the Proposed Registration.
b. Each Investor shall have 30 days from the receipt of such
notice to deliver to the Company a written request specifying the number of
shares of Common Stock such Investor intends to sell in the Proposed
Registration and the Investor's intended method of disposition.
c. In the event that the Proposed Registration by the Company is,
in whole or in part, an underwritten public offering, the Company shall so
advise the Investors as part of the written notice given pursuant to Section
4(a), and any request under Section 4(b) must specify that the shares of Common
Stock be included in the underwriting on the same terms and conditions as the
shares of Common Stock, if any, otherwise being sold through underwriters under
such registration.
d. Upon receipt of a written request pursuant to Section 4(b), the
Company shall promptly use its best efforts to cause all such shares of Common
Stock held by the Investors to be registered under the Securities Act (and
included in any related qualifications under blue sky laws or other compliance),
to the extent required to permit sale or disposition as set forth in the
Proposed Registration.
e. In the event that the offering is to be an underwritten
offering, the Investors proposing to distribute their shares of Common Stock
through such underwritten offering agree to enter into an underwriting agreement
with the underwriter or underwriters selected for such underwriting by the
Company.
f. Notwithstanding the foregoing, if in its good faith judgment,
the managing underwriter determines and advises in writing that the inclusion of
all shares of Common Stock proposed to be included in the underwritten public
offering, together with any other issued and outstanding shares of Common Stock
proposed to be included therein by holders other than the Investors (such other
shares hereinafter collectively referred to as the "Other Shares"), would
interfere with the successful marketing of such securities, then the number of
such shares to be included in such underwritten public offering shall be reduced
first, (i) by the shares requested to be included in such registration by the
- -----
holders of Other Shares, on a pro rata basis, based upon the number of Other
--------
Shares sought to be registered by each holder, and, if necessary, second (ii)
------
from the number of shares of Common Stock then owned by the Investors, on a pro
---
rata basis, based upon the number of shares of Common Stock sought to be
- ----
registered by the Investors, provided, that, the number of shares of Common
Stock in the aggregate sought to be registered by the Investors shall not be
reduced by more than 25% of the amount of shares requested for registration.
5. Preparation and Filing. If and whenever the Company is under an
------------------------
obligation pursuant to this Agreement to use its best efforts to effect the
registration of any Common Stock, the Company shall, as expeditiously as
practicable:
a. prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective in accordance with Section
5(b) hereof;
b. prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective
until the earlier of (i) the sale of all Common Stock covered thereby, or (ii)
the expiration of twelve months from the effective date of the registration
statement, and to comply with the provisions of the Securities Act with respect
to the sale or other disposition of all shares of Common Stock covered by such
registration statement;
c. furnish to each Investor whose shares of Common Stock are being
registered pursuant to this Agreement, such number of copies of any summary
prospectus or other prospectus, including a preliminary prospectus, in
conformity with the requirements of the Securities Act, and such other documents
as such Investor may reasonably request in order to facilitate the public sale
or other disposition of such shares of Common Stock;
d. use its best efforts to register or qualify the shares of
Common Stock covered by such registration statement under the securities or blue
sky laws of such jurisdictions as each Investor whose shares of Common Stock are
being registered pursuant to this Agreement shall reasonably request within ten
(10) days prior to the original filing of the registration statement and do any
and all other acts or things which may be necessary or advisable to enable such
Investor to consummate the public sale or other disposition in such
jurisdictions of such shares of Common Stock;
e. at any time when a prospectus relating thereto covered by such
registration statement is required to be delivered under the Securities Act
within the appropriate period mentioned in Section 5(b) hereof, notify each
Investor whose shares of Common Stock are being registered pursuant to this
Agreement of the happening of any event as a result of which the prospectus
included in such registration, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances then existing and, at the request of such Investor, as
promptly as practicable prepare, file and furnish to such Investor a reasonable
number of copies of a supplement to or an amendment of such prospectus as may be
necessary so that, as thereafter delivered to the purchasers of such shares,
such prospectus shall not include an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
f. if the Company has delivered preliminary or final prospectuses
to the selling Investors and after having done so the prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the selling Investors and, if requested, the selling Investors shall
immediately cease making offers of shares of Common Stock and return all
prospectuses to the Company. The Company shall promptly provide the selling
Investors with revised prospectuses and, following receipt of the revised
prospectuses, the selling Investors shall be free to resume making offers of the
shares of Common Stock; and
g. furnish, at the request of any Investor whose shares of Common
Stock are being registered pursuant to this Agreement, on the date that such
shares of Common Stock are delivered to the underwriters for sale in connection
with a registration pursuant to this Agreement, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated as of such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering and reasonably satisfactory to the Investors holding a majority of the
shares of Common Stock being registered, addressed to the underwriters, if any,
and to the Investors whose shares of Common Stock are being registered, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to the Investors holding a majority
of the shares of Common Stock being registered, addressed to the underwriters,
if any, and if permitted by applicable accounting standards, to the Investors
whose shares are being registered.
6. Expenses. The Company shall pay all expenses incurred by the
--------
Company in complying with Sections 2, 3, 4 and 5 of this Agreement, including,
without limitation, all registration and filing fees (including all expenses
incident to filing with the National Association of Securities Dealers, Inc.),
fees and expenses of complying with securities and blue sky laws, printing
expenses, fees and disbursements of the Company's counsel and counsel for the
Investors; provided, however, that all underwriting discounts and selling
commissions applicable to the shares of Common Stock covered by registration
effected pursuant to this Agreement hereof shall be borne by such holder
thereof, in proportion to the number of shares of Common Stock sold by such
holder.
7. Indemnification.
---------------
a. In the event of any registration of any shares of Common Stock
under the Securities Act pursuant to this Agreement, the Company shall indemnify
and hold harmless the selling holder of such shares, each of such holder's
officers, directors and partners, each underwriter of such shares, if any, each
broker or any other person acting on behalf of such selling holder, if any, who
controls any of the foregoing Persons within the meaning of the Securities Act,
from and against any losses, claims, damages or liabilities, joint or several,
to which any of the foregoing persons may become subject under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in any registration
statement under which such shares of Common Stock were registered under the
Securities Act, any preliminary prospectus or final prospectus contained
therein, or any amendment or supplement thereto, or any document incident to
registration or qualification of any shares of Common Stock pursuant to Section
5(d) hereof, or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading or, with respect to any prospectus,
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, or any violation by the Company of the
Securities Act, the Exchange Act, or state securities or blue sky laws
applicable to the Company and relating to action or inaction required of the
Company in connection with such registration or qualification under the
Securities Act or such state securities or blue sky laws. The Company shall
reimburse (after receipt of appropriate documentation) such selling holder,
officer, director, partner, underwriter, broker or other Person acting on behalf
of such selling holder and each such controlling Person for any legal or any
other out-of-pocket expenses reasonably incurred by any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company shall not be liable for any
indemnity or hold harmless obligation hereunder to the extent that any such
loss, claim, damage or liability arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
said registration statement, said preliminary prospectus, said prospectus, or
said amendment or supplement or any document incident to registration or
qualification of any shares of Common Stock pursuant to Section 5(d) hereof in
reliance upon and in conformity with written information furnished to the
Company by such selling holder or such underwriter specifically for use in the
preparation thereof.
b. Before shares of Common Stock held by any selling holder shall
be included in any registration pursuant to this Agreement, such prospective
selling holder and any underwriter acting on its behalf shall have agreed to
indemnify and hold harmless (in the same manner and to the same extent as set
forth in Section 7(a)) the Company, each director of the Company, each officer
of the Company who signs such registration statement and any Person who controls
the Company within the meaning of the Securities Act, with respect to any untrue
statement or omission from such registration statement, any preliminary
prospectus or final prospectus contained therein, or any amendment or supplement
thereto, if such untrue statement or omission was made in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such selling holder or such underwriter specifically
for use in the preparation of such registration statement, preliminary
prospectus, final prospectus or amendment or supplement.
c. Promptly after receipt by an indemnified party of notice of the
commencement of any action involving a claim referred to in Section 7(a) or (b),
such indemnified party will, if a claim in respect thereof is made against an
indemnifying party, give written notice to the latter of the commencement of
such action. In case any such action is brought against an indemnified party,
the indemnifying party will be entitled to participate in and to assume the
defense thereof, jointly with any other indemnifying party similarly notified to
the extent that it may wish, with counsel reasonably satisfactory to such
indemnified party, and, after notice from the indemnifying party to such
indemnified party of its election so as to assume the defense thereof, the
indemnifying party shall be responsible for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof,
provided, however, that, if any indemnified party shall have reasonably
--------------
concluded that there may be one or more legal defenses available to such
----
indemnified party which are different from or additional to those available to
---
the indemnifying party, there is an actual or potential conflict of interest
between the indemnified and the indemnifying party, or that such claim or
litigation involves or could have an effect upon matters beyond the scope of the
indemnity agreement provided in this Section 7, the indemnifying party shall not
have the right to assume the defense of such action on behalf of such
indemnified party, and such indemnifying party shall reimburse such indemnified
party and any Person controlling such indemnified party for the fees and
expenses of counsel retained by the indemnified party which are reasonably
related to the matters covered by the indemnity agreement provided in this
Section 7; provided, however, that in no event shall any indemnification by a
------------------
holder under this subsection exceed the proceeds, net of commissions and income
taxes, from the offering received by the holder. The indemnified party shall
not make any settlement of any claims indemnified against hereunder without the
written consent of the indemnifying party or parties, which consent shall not be
unreasonably withheld. No indemnifying party, in defense of any such claim or
litigation, shall, except with the consent of such indemnified party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party a release from all liability in respect to such claim or
litigation.
d. In order to provide for just and equitable contribution to
joint liability under the Securities Act in any case in which either (i) any
holder of shares of Common Stock exercising rights under this Agreement, or any
controlling Person of any such holder, makes a claim for indemnification
pursuant to this Section 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 7 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling holder
or any such controlling Person in circumstances for which indemnification is
provided under this Section 7, then, in each such case, the Company and such
holder will contribute to the aggregate losses, claims, damages or liabilities
to which they may be subject as is appropriate to reflect the relative fault of
the Company and such holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, it being understood
that the parties acknowledge that the overriding equitable consideration to be
given effect in connection with this provision is the ability of one party or
the other to correct the statement or omission which resulted in such losses,
claims, damages or liabilities, and that it would not be just and equitable if
contribution pursuant hereto were to be determined by pro rata allocation or by
any other method of allocation which does not take into consideration the
foregoing equitable considerations. Notwithstanding the foregoing, (i) no such
holder will be required to contribute any amount in excess of the proceeds to it
of all shares of Common Stock sold by it pursuant to such registration
statement, and (ii) no person or entity who is guilty of fraudulent
misrepresentation, within the meaning of Section 12(f) of the Securities Act,
shall be entitled to contribution from any person or entity who is not guilty of
such fraudulent misrepresentation.
e. Notwithstanding any of the foregoing, if, in connection with an
underwritten public offering of the shares of Common Stock, the Company, the
selling holders and the underwriters enter into an underwriting or purchase
agreement relating to such offering which contains provisions covering
indemnification among the parties, then the indemnification provision of this
Section 7 shall be deemed inoperative for purposes of such offering.
8. Reporting Requirements Under the Exchange Act. The Company agrees
-----------------------------------------------
to keep effective its registration under the Exchange Act and to file timely
such information, documents and reports as the Commission may require or
prescribe under the Exchange Act. The Company agrees to file timely (whether or
not it shall then be required to do so) such information, documents and reports
as the Commission may require or prescribe under the Exchange Act. The Company
forthwith upon request agrees to furnish to any Investor (a) a written statement
by the Company that it has complied with such reporting requirements, (b) a copy
of the most recent annual or quarterly report of the Company, and (c) such other
reports and documents filed by the Company with the Commission as such Investor
may reasonably request in availing itself of an exemption for the sale of Common
Stock without registration under the Securities Act. The Company acknowledges
and agrees that the purposes of the requirements contained in this Section 8 are
(a) to enable any such Investor to comply with the current public information
requirements contained in Rule 144 under the Securities Act should such Investor
ever wish to dispose of any of the securities of the Company acquired by it
without registration under the Securities Act in reliance upon Rule 144 (or any
other similar exemptive provision), and (b) to qualify the Company for the use
of registration statements on Form S-3. In addition, the Company agrees to take
such other measures and file such other information, documents and reports as
shall be required of it hereafter by the Commission as a condition to the
availability of Rule 144 under the Securities Act (or any similar exemptive
provision) and the use of Form S-3.
9. Shareholder Information. The Company may request each Investor as
------------------------
to which any registration is to be effected pursuant to this Agreement to
furnish the Company with such information with respect to such Investor and the
distribution of such Common Stock as the Company may from time to time
reasonably request in writing and as shall be required by law or by the
Commission in connection therewith, and each Investor as to which any
registration is to be effected pursuant to this Agreement agrees to furnish the
Company with such information.
10. Forms. All references in this Agreement to particular forms of
-----
registration statements are intended to include, and shall be deemed to include,
references to all successor forms which are intended to replace, or to apply to
similar transactions as, the forms herein referenced.
11. Termination of Rights. The rights of the Investors to register
-----------------------
shares of Common Stock pursuant to this Agreement, and the Company's obligations
to effect such registration, shall terminate as to all of the Company's
obligations hereunder on the date on which all shares of Common Stock held by
the Investors have been registered under applicable federal and state securities
laws. Notwithstanding anything in this Agreement to the contrary, the
registration rights of the Investors under this Agreement shall only apply to
(i) the Common Stock issued upon the exercise of the warrants issued to the
Investors in connection with the Purchase Agreement, and (ii) any Common Stock
issued or issuable with respect to the securities referred to in clause (i)
above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization.
12. Transferability. The registration rights of the Investors under
---------------
this Agreement are not transferable except to (i) any transferee of any
Investor's shares of Common Stock initially issued pursuant to the Purchase
Agreement, and (ii) any transferee that controls, or is or controlled by, or is
under common control with, the transferor or is an officer, director or
affiliate of an Investor; provided however, that the Company is given written
notice by the transferor at the time of such transfer stating the name and
address of the transferee and identifying the securities with respect to which
the rights under this Agreement are being assigned and provided further that the
transferee agrees in writing to acquire and hold such securities subject to the
provisions of this Agreement.
13. Granting of Registration Rights. The Company shall not grant any
---------------------------------
registration rights superior to those granted hereunder without the prior
written consent of the Investors.
14. Miscellaneous.
-------------
a. Waivers and Amendments. This Agreement and the other documents
----------------------
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated orally, except pursuant to the written consent of the Investors.
b. Rights of Investors Inter Se. Each Investor shall have the
--------------------------------
absolute right to exercise or refrain from exercising any right or rights which
such Investor may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver of any obligation of the Company
under this Agreement and to enter into an agreement with the Company for the
purpose of modifying this Agreement or any agreement effecting any such
modification, and such Investor shall not incur any liability to any other
Investor with respect to exercising or refraining from exercising any such right
or rights.
c. Notices. All notices, requests, consents and other
-------
communications required or permitted hereunder shall be in writing and shall be
delivered, or mailed first class postage prepaid, registered or certified mail
or by a nationally recognized overnight delivery service (such as UPS or Federal
Express):
(1) If to any Investor, at the address set forth on the
signature page hereto, or such address as such holder may specify by written
notice to the Company, or
(2) If to the Company, at the present place of business of
the Company or at such other location or address as the Company may specify by
notice to the Investors, and each such notice, request, consent and other
communication shall for all purposes of this Agreement be treated as being
effective or having been given when delivered, if delivered personally or by an
overnight delivery service, or, if sent by mail, at the earlier of its actual
receipt or three (3) days after the same has been deposited in a regularly
maintained receptacle for the deposit of United States mail, addressed and
postage prepaid as aforesaid.
d. Severability. Should any one or more of the provisions of this
------------
Agreement or of any agreement entered into pursuant to this Agreement be
determined to be illegal or unenforceable, all other provisions of this
Agreement and of each other agreement entered into pursuant to this Agreement,
shall be given effect separately from the provision or provisions determined to
be illegal or unenforceable and shall not be affected thereby.
e. Headings. The headings of the sections, subsections and
--------
paragraphs of this Agreement have been inserted for convenience of reference
only and do not constitute a part of this Agreement.
f. Choice of Law. It is the intention of the parties that the
---------------
internal substantive laws, and not the laws of conflicts, of the State of
Georgia should govern the enforceability and validity of this Agreement, the
construction of its terms and the interpretation of the rights and duties of the
parties.
15. Counterparts. This Agreement may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, with the
same effect as if all parties had signed the same document. All such
counterparts shall be deemed an original, shall be construed together and shall
constitute one and the same instrument.
[SIGNATURES ON FOLLOWING PAGE]
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to be
executed personally or by a duly authorized representative thereof as of the day
and year first above written.
THE COMPANY:
POINTE COMMUNICATIONS CORPORATION
By:
Name: Stephen E. Raville
Title: Chief Executive Officer
Address: 2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Phone: 770-432-6800
Fax: 770-432-7618
INVESTORS:
By: EGL/NATWEST VENTURES USA, L.P.
By: EGL VENTURES, INC., AS GENERAL
PARTNER
By:
Name: Salvatore A. Massaro
Title: Vice President
Address: 3495 Piedmont Road
Building Ten, Suite 412
Atlanta, Georgia 30305
Phone: 404-949-8300
Fax: 404-949-8311
By: EGL EQUITY PARTNERS III, L.P.
By: EGL INVESTMENTS, L.P., AS
GENERAL PARTNER
By: EGL GP, INC., AS GENERAL
PARTNER
By:
Name: Salvatore A. Massaro
Title: Vice President
Address: 3495 Piedmont Road
Building Ten, Suite 412
Atlanta, Georgia 30305
Phone: 404-949-8300
Fax: 404-949-8311
By: EGL EQUITY PARTNERS III, L.P.
By: EGL INVESTMENTS, L.P., AS
GENERAL PARTNER
By: EGL GP, INC., AS GENERAL
PARTNER
By:
Name: Salvatore A. Massaro
Title: Vice President
Address: 3495 Piedmont Road
Building Ten, Suite 412
Atlanta, Georgia 30305
Phone: 404-949-8300
Fax: 404-949-8311
<PAGE>
SCHEDULE 1INVESTORS
EGL/NATWEST VENTURES USA, L.P.
3495 Piedmont Road
Ten Piedmont Center, Suite 412
Atlanta, Georgia 30305
EGL EQUITY PARTNERS III, L.P.
3495 Piedmont Road
Ten Piedmont Center, Suite 412
Atlanta, Georgia 30305
EGL EQUITY OFFSHORE PARTNERS III, L.P.
3495 Piedmont Road
Ten Piedmont Center, Suite 412
Atlanta, Georgia 30305
<PAGE>
PROMISSORY NOTE
---------------
$1,582,500 March 8, 1999
For value received, Pointe Communications Corporation, a Nevada corporation
(the "Maker") promises to pay to the order of EGL/Natwest Ventures USA, L.P., a
-----
Delaware limited partnership ("EGL") at such place as is designated in writing
---
by the holder of this Note, the aggregate principal sum of One Million Five
Hundred Eighty Two Thousand Five Hundred Dollars and no cents ($1,582,500)
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note. The Maker's obligations under this Note shall
be senior to all of Maker's obligations under any of its unsecured indebtedness
(or guarantees of indebtedness).
1. Payment of Interest. Interest shall accrue on the outstanding
---------------------
principal amount of this Note at a rate equal to 10%. All accrued interest
shall be due and payable on the date on which the final principal amount on this
Note is paid. Interest will accrue on any principal payment due under this Note
and, to the extent permitted by applicable law, on any interest which has not
been paid on the date on which it is payable until such time as payment therefor
is actually delivered to the holder hereof.
2. Payment of Principal. The Maker shall repay the principal amount of
--------------------
$1,582,500 (or such lesser amount as may then be outstanding), together with all
accrued and unpaid interest thereon, to the holder hereof on the earlier of (i)
July 6, 1999, (ii) the date on which the Maker obtains permanent (i.e. repayment
or redemption of which is not required within one year) equity financing of at
least Five Million Dollars ($5,000,000.00) ("Permanent Financing"), or (iii) the
-------------------
date on which an Event of Default (as such term is defined in Section 4 hereof)
occurs. The Maker shall give written notice ten (10) business days prior to
consummating such Permanent Financing.
3. Prepayments. The Maker may, at any time and from time to time without
-----------
premium or penalty, prepay all or any portion of the outstanding principal
amount of this Note; provided that the Maker simultaneously pays all interest on
this Note accrued and unpaid through the date of such prepayment.
4. Events of Default. It shall be an "Event of Default" hereunder if the
-------------------
Maker shall (i) fail to repay when due any amounts owed hereunder or shall
otherwise breach any of its obligations under this Note, or under the Note and
Warrant Purchase Agreement or any other document, instrument or agreement
executed in connection herewith (collectively the "Loan Documents"), or if any
representation of warranty made by or on behalf of the Maker in the Loan
Documents shall have been false in any material respect when made, (ii) if the
Maker shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its assets,
or the Maker shall make a general assignment for the benefit of its creditors,
(iii) there shall be commenced against the Maker any case, proceeding or other
action of a nature referred to in clause (ii) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 15 days, (iv)
there shall be commenced against the Maker any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 15 days from entry
thereof, (v) the Maker shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (ii), (iii) or (iv) above, or (vi) the Maker shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due.
5. Option. Upon receiving notice, EGL can elect by delivery of written
------
notice to the Maker to convert all or any portion of the principal or accrued
but unpaid interest of this Note into securities issued in connection with a
Permanent Financing or an independent equity financing; it being understood that
EGL shall have the right to participate in any such Permanent Financing or
independent equity financing and shall have the right to purchase each class of
securities offered in such Permanent Financing or independent equity financing
pro rata according to the amount invested in each such class.
6. Default Interest Rate. If the Maker fails to repay the principal
-----------------------
amount, and accrued but unpaid interest thereon, due hereunder in accordance
with the terms hereof, in addition to all of EGL's rights and remedies available
under applicable law, the interest rate on this Note shall increase immediately
by an increment of two (2) percentage points.
7. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to the
Maker for cancellation and shall not be reissued.
8. Costs of Collection. In the event the Maker fails to pay any
---------------------
amounts due hereunder when due, the Maker shall pay to the holder hereof, in
addition to such amounts due, all costs of collection, including reasonable
attorneys' fees.
9. Waivers. The Maker, or its successors and assigns, hereby waives
-------
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Maker hereunder. In any
action on this Note, the holder hereof need not produce or file the original of
this Note, but need only file a photocopy of this Note certified by the holder
hereof to be a true and correct copy of this Note.
10. Remedies. All rights and remedies of EGL, whether provided for
--------
herein or conferred by law, are cumulative and concurrent and the exercise of
any one or more of them shall not preclude the simultaneous or later exercise by
EGL of any or all other rights, powers or remedies.
11. Notice. All notices, demands or other communications to be given
------
or delivered under or by reason of the provisions of this Note shall be in
writing and shall be deemed to have been given if (i) delivered personally to
the recipient, (ii) mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or (iii) sent to the recipient by
reputable overnight courier services (charges prepaid).
If to EGL:
-----------
EGL/Natwest Ventures USA, L.P.
3495 Piedmont Road
Ten Piedmont Center, Suite 412
Atlanta, Georgia 30305
Attn: Salvatore A. Massaro
Fax Number (404) 949-8311
Confirm Number (404) 949-8300
with a copy, which will not constitute notice to EGL, to:
-------------------------------------------------------------------
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: B. Lynn Walsh
Fax Number (404) 881-7777
Confirm Number (404) 881-7185
If to Pointe Communications Corporation:
--------------------------------------------
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
With a copy to
-----------------
Charles M. Cushing, Jr.
229 Peachtree Street, Suite 2110
Atlanta, GA 30303
Fax: 404-658-9865
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
All such notices, request, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified or registered mail, on the seventh business day
after the mailing thereof and (iii) if by next-day or overnight mail or
delivery, on the day delivered.
12. Usury Laws. It is the intention of the Maker and the holder of
-----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated or
this Note is prepaid, whether by voluntary prepayment by the Maker or otherwise,
then earned interest may never include more than the maximum amount permitted by
law, computed from the date hereof until payment. If such interest does exceed
the maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Maker or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Maker.
13. Governing Law. All questions concerning the construction, validity and
--------------
interpretation of this Note will be governed by and construed in accordance with
the domestic laws of the State of Georgia, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Georgia or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Georgia.
14. Note Transferable. This Note, the indebtedness evidenced hereby,
------------------
and all rights hereunder are transferable, in whole or in part, without charge,
upon surrender of this Note at the principal office of the Company for new notes
of like tenor representing in the aggregate the indebtedness hereunder, and each
of such new notes shall represent such portion of such rights as is designated
by the holder of this Note at the time of such surrender. The date the Company
initially issues this Note as set forth first above shall be deemed to be the
"Date of Issuance" hereof regardless of the number of times new notes
representing the rights formerly represented by this Note shall be issued.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
POINTE COMMUNICATIONS CORPORATION
By:_______________________________________
Its:_______________________________________
<PAGE>
PROMISSORY NOTE
---------------
$1,125,500 March 8, 1999
For value received, Pointe Communications Corporation, a Nevada corporation
(the "Maker") promises to pay to the order of EGL Equity Partners III, L.P., a
-----
Delaware limited partnership ("EGL") at such place as is designated in writing
---
by the holder of this Note, the aggregate principal sum of One Million One
Hundred Twenty Five Thousand Five Hundred Dollars and no cents ($1,125,500)
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note. The Maker's obligations under this Note shall
be senior to all of Maker's obligations under any of its unsecured indebtedness
(or guarantees of indebtedness).
1. Payment of Interest. Interest shall accrue on the outstanding
---------------------
principal amount of this Note at a rate equal to 10%. All accrued interest
shall be due and payable on the date on which the final principal amount on this
Note is paid. Interest will accrue on any principal payment due under this Note
and, to the extent permitted by applicable law, on any interest which has not
been paid on the date on which it is payable until such time as payment therefor
is actually delivered to the holder hereof.
2. Payment of Principal. The Maker shall repay the principal amount of
--------------------
$1,125,500 (or such lesser amount as may then be outstanding), together with all
accrued and unpaid interest thereon, to the holder hereof on the earlier of (i)
July 6, 1999, (ii) the date on which the Maker obtains permanent (i.e. repayment
or redemption of which is not required within one year) equity financing of at
least Five Million Dollars ($5,000,000.00) ("Permanent Financing"), or (iii) the
-------------------
date on which an Event of Default (as such term is defined in Section 4 hereof)
occurs. The Maker shall give written notice ten (10) business days prior to
consummating such Permanent Financing.
3. Prepayments. The Maker may, at any time and from time to time without
-----------
premium or penalty, prepay all or any portion of the outstanding principal
amount of this Note; provided that the Maker simultaneously pays all interest on
this Note accrued and unpaid through the date of such prepayment.
4. Events of Default. It shall be an "Event of Default" hereunder if the
-------------------
Maker shall (i) fail to repay when due any amounts owed hereunder or shall
otherwise breach any of its obligations under this Note, or under the Note and
Warrant Purchase Agreement or any other document, instrument or agreement
executed in connection herewith (collectively the "Loan Documents"), or if any
representation of warranty made by or on behalf of the Maker in the Loan
Documents shall have been false in any material respect when made, (ii) if the
Maker shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its assets,
or the Maker shall make a general assignment for the benefit of its creditors,
(iii) there shall be commenced against the Maker any case, proceeding or other
action of a nature referred to in clause (ii) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 15 days, (iv)
there shall be commenced against the Maker any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 15 days from entry
thereof, (v) the Maker shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (ii), (iii) or (iv) above, or (vi) the Maker shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due.
5. Option. Upon receiving notice, EGL can elect by delivery of written
------
notice to the Maker to convert all or any portion of the principal or accrued
but unpaid interest of this Note into securities issued in connection with a
Permanent Financing or an independent equity financing; it being understood that
EGL shall have the right to participate in any such Permanent Financing or
independent equity financing and shall have the right to purchase each class of
securities offered in such Permanent Financing or independent equity financing
pro rata according to the amount invested in each such class.
6. Default Interest Rate. If the Maker fails to repay the principal
-----------------------
amount, and accrued but unpaid interest thereon, due hereunder in accordance
with the terms hereof, in addition to all of EGL's rights and remedies available
under applicable law, the interest rate on this Note shall increase immediately
by an increment of two (2) percentage points.
7. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to the
Maker for cancellation and shall not be reissued.
8. Costs of Collection. In the event the Maker fails to pay any
---------------------
amounts due hereunder when due, the Maker shall pay to the holder hereof, in
addition to such amounts due, all costs of collection, including reasonable
attorneys' fees.
9. Waivers. The Maker, or its successors and assigns, hereby waives
-------
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Maker hereunder. In any
action on this Note, the holder hereof need not produce or file the original of
this Note, but need only file a photocopy of this Note certified by the holder
hereof to be a true and correct copy of this Note.
10. Remedies. All rights and remedies of EGL, whether provided for
--------
herein or conferred by law, are cumulative and concurrent and the exercise of
any one or more of them shall not preclude the simultaneous or later exercise by
EGL of any or all other rights, powers or remedies.
11. Notice. All notices, demands or other communications to be given
------
or delivered under or by reason of the provisions of this Note shall be in
writing and shall be deemed to have been given if (i) delivered personally to
the recipient, (ii) mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or (iii) sent to the recipient by
reputable overnight courier services (charges prepaid).
If to EGL:
-----------
EGL Equity Partners III, L.P.
3495 Piedmont Road
Ten Piedmont Center, Suite 412
Atlanta, Georgia 30305
Attn: Salvatore A. Massaro
Fax Number (404) 949-8311
Confirm Number (404) 949-8300
with a copy, which will not constitute notice to EGL, to:
-------------------------------------------------------------------
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: B. Lynn Walsh
Fax Number (404) 881-7777
Confirm Number (404) 881-7185
If to Pointe Communications Corporation:
--------------------------------------------
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
With a copy to
-----------------
Charles M. Cushing, Jr.
229 Peachtree Street, Suite 2110
Atlanta, GA 30303
Fax: 404-658-9865
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
All such notices, request, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified or registered mail, on the seventh business day
after the mailing thereof and (iii) if by next-day or overnight mail or
delivery, on the day delivered.
12. Usury Laws. It is the intention of the Maker and the holder of
-----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated or
this Note is prepaid, whether by voluntary prepayment by the Maker or otherwise,
then earned interest may never include more than the maximum amount permitted by
law, computed from the date hereof until payment. If such interest does exceed
the maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Maker or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Maker.
13. Governing Law. All questions concerning the construction, validity and
--------------
interpretation of this Note will be governed by and construed in accordance with
the domestic laws of the State of Georgia, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Georgia or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Georgia.
14. Note Transferable. This Note, the indebtedness evidenced hereby,
------------------
and all rights hereunder are transferable, in whole or in part, without charge,
upon surrender of this Note at the principal office of the Company for new notes
of like tenor representing in the aggregate the indebtedness hereunder, and each
of such new notes shall represent such portion of such rights as is designated
by the holder of this Note at the time of such surrender. The date the Company
initially issues this Note as set forth first above shall be deemed to be the
"Date of Issuance" hereof regardless of the number of times new notes
representing the rights formerly represented by this Note shall be issued.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
POINTE COMMUNICATIONS CORPORATION
By:_______________________________________
Its:_______________________________________
<PAGE>
PROMISSORY NOTE
---------------
$2,292,000 March 8, 1999
For value received, Pointe Communications Corporation, a Nevada corporation
(the "Maker") promises to pay to the order of EGL Equity Offshore Partners III,
-----
L.P., a Cayman Islands limited partnership ("EGL") at such place as is
---
designated in writing by the holder of this Note, the aggregate principal sum of
Two Million Two Hundred Ninety Two Thousand Dollars and no cents ($2,292,000)
together with interest thereon calculated from the date hereof in accordance
with the provisions of this Note. The Maker's obligations under this Note shall
be senior to all of Maker's obligations under any of its unsecured indebtedness
(or guarantees of indebtedness).
1. Payment of Interest. Interest shall accrue on the outstanding
---------------------
principal amount of this Note at a rate equal to 10%. All accrued interest
shall be due and payable on the date on which the final principal amount on this
Note is paid. Interest will accrue on any principal payment due under this Note
and, to the extent permitted by applicable law, on any interest which has not
been paid on the date on which it is payable until such time as payment therefor
is actually delivered to the holder hereof.
2. Payment of Principal. The Maker shall repay the principal amount of
--------------------
$2,292,000 (or such lesser amount as may then be outstanding), together with all
accrued and unpaid interest thereon, to the holder hereof on the earlier of (i)
July 6, 1999, (ii) the date on which the Maker obtains permanent (i.e. repayment
or redemption of which is not required within one year) equity financing of at
least Five Million Dollars ($5,000,000.00) ("Permanent Financing"), or (iii) the
-------------------
date on which an Event of Default (as such term is defined in Section 4 hereof)
occurs. The Maker shall give written notice ten (10) business days prior to
consummating such Permanent Financing.
3. Prepayments. The Maker may, at any time and from time to time without
-----------
premium or penalty, prepay all or any portion of the outstanding principal
amount of this Note; provided that the Maker simultaneously pays all interest on
this Note accrued and unpaid through the date of such prepayment.
4. Events of Default. It shall be an "Event of Default" hereunder if the
-------------------
Maker shall (i) fail to repay when due any amounts owed hereunder or shall
otherwise breach any of its obligations under this Note, or under the Note and
Warrant Purchase Agreement or any other document, instrument or agreement
executed in connection herewith (collectively the "Loan Documents"), or if any
representation of warranty made by or on behalf of the Maker in the Loan
Documents shall have been false in any material respect when made, (ii) if the
Maker shall commence any case, proceeding or other action (A) under any existing
or future law of any jurisdiction, domestic or foreign, relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to its debts,
or (B) seeking appointment of a receiver, trustee, custodian, conservator or
other similar official for it or for all or any substantial part of its assets,
or the Maker shall make a general assignment for the benefit of its creditors,
(iii) there shall be commenced against the Maker any case, proceeding or other
action of a nature referred to in clause (ii) above which (A) results in the
entry of an order for relief or any such adjudication or appointment or (B)
remains undismissed, undischarged or unbonded for a period of 15 days, (iv)
there shall be commenced against the Maker any case, proceeding or other action
seeking issuance of a warrant of attachment, execution, distraint or similar
process against all or any substantial part of its assets which results in the
entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within 15 days from entry
thereof, (v) the Maker shall take any action in furtherance of, or indicating
its consent to, approval of, or acquiescence in, any of the acts set forth in
clause (ii), (iii) or (iv) above, or (vi) the Maker shall generally not, or
shall be unable to, or shall admit in writing its inability to, pay its debts as
they become due.
5. Option. Upon receiving notice, EGL can elect by delivery of written
------
notice to the Maker to convert all or any portion of the principal or accrued
but unpaid interest of this Note into securities issued in connection with a
Permanent Financing or an independent equity financing; it being understood that
EGL shall have the right to participate in any such Permanent Financing or
independent equity financing and shall have the right to purchase each class of
securities offered in such Permanent Financing or independent equity financing
pro rata according to the amount invested in each such class.
6. Default Interest Rate. If the Maker fails to repay the principal
-----------------------
amount, and accrued but unpaid interest thereon, due hereunder in accordance
with the terms hereof, in addition to all of EGL's rights and remedies available
under applicable law, the interest rate on this Note shall increase immediately
by an increment of two (2) percentage points.
7. Cancellation. After all principal and accrued interest at any time
------------
owed on this Note has been paid in full, this Note shall be surrendered to the
Maker for cancellation and shall not be reissued.
8. Costs of Collection. In the event the Maker fails to pay any
---------------------
amounts due hereunder when due, the Maker shall pay to the holder hereof, in
addition to such amounts due, all costs of collection, including reasonable
attorneys' fees.
9. Waivers. The Maker, or its successors and assigns, hereby waives
-------
diligence, presentment, protest and demand and notice of protest, demand,
dishonor and nonpayment of this Note, and expressly agrees that this Note, or
any payment hereunder, may be extended from time to time and that the holder
hereof may accept security for this Note or release security for this Note, all
without in any way affecting the liability of the Maker hereunder. In any
action on this Note, the holder hereof need not produce or file the original of
this Note, but need only file a photocopy of this Note certified by the holder
hereof to be a true and correct copy of this Note.
10. Remedies. All rights and remedies of EGL, whether provided for
--------
herein or conferred by law, are cumulative and concurrent and the exercise of
any one or more of them shall not preclude the simultaneous or later exercise by
EGL of any or all other rights, powers or remedies.
11. Notice. All notices, demands or other communications to be given
------
or delivered under or by reason of the provisions of this Note shall be in
writing and shall be deemed to have been given if (i) delivered personally to
the recipient, (ii) mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid or (iii) sent to the recipient by
reputable overnight courier services (charges prepaid).
If to EGL:
-----------
EGL Equity Offshore Partners III, L.P.
3495 Piedmont Road
Ten Piedmont Center, Suite 412
Atlanta, Georgia 30305
Attn: Salvatore A. Massaro
Fax Number (404) 949-8311
Confirm Number (404) 949-8300
with a copy, which will not constitute notice to EGL, to:
-------------------------------------------------------------------
Alston & Bird
One Atlantic Center
1201 West Peachtree Street
Atlanta, Georgia 30309-3424
Attention: B. Lynn Walsh
Fax Number (404) 881-7777
Confirm Number (404) 881-7185
If to Pointe Communications Corporation:
--------------------------------------------
Pointe Communications Corporation
2839 Paces Ferry Road, Suite 500
Atlanta, Georgia 30339
Attn: Patrick E. Delaney
Fax Number
Confirm Number (770) 432-6800
With a copy to
-----------------
Charles M. Cushing, Jr.
229 Peachtree Street, Suite 2110
Atlanta, GA 30303
Fax: 404-658-9865
or to such other address or to the attention of such other person as the
recipient party has specified by prior written notice to the sending party.
All such notices, request, demands, waivers and other communications shall be
deemed to have been received (i) if by personal delivery on the date after such
delivery, (ii) if by certified or registered mail, on the seventh business day
after the mailing thereof and (iii) if by next-day or overnight mail or
delivery, on the day delivered.
12. Usury Laws. It is the intention of the Maker and the holder of
-----------
this Note to conform strictly to all applicable usury laws now or hereafter in
force, and any interest payable under this Note shall be subject to reduction to
the amount not in excess of the maximum legal amount allowed under the
applicable usury laws as now or hereafter construed by the courts having
jurisdiction over such matters. If the maturity of this Note is accelerated or
this Note is prepaid, whether by voluntary prepayment by the Maker or otherwise,
then earned interest may never include more than the maximum amount permitted by
law, computed from the date hereof until payment. If such interest does exceed
the maximum legal rate, it shall be deemed a mistake and such excess shall be
canceled automatically and, if theretofore paid, rebated to the Maker or
credited on the principal amount of this Note, or if this Note has been repaid,
then such excess shall be rebated to the Maker.
13. Governing Law. All questions concerning the construction, validity and
--------------
interpretation of this Note will be governed by and construed in accordance with
the domestic laws of the State of Georgia, without giving effect to any choice
of law or conflict of law provision or rule (whether of the State of Georgia or
any other jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Georgia.
14. Note Transferable. This Note, the indebtedness evidenced hereby,
------------------
and all rights hereunder are transferable, in whole or in part, without charge,
upon surrender of this Note at the principal office of the Company for new notes
of like tenor representing in the aggregate the indebtedness hereunder, and each
of such new notes shall represent such portion of such rights as is designated
by the holder of this Note at the time of such surrender. The date the Company
initially issues this Note as set forth first above shall be deemed to be the
"Date of Issuance" hereof regardless of the number of times new notes
representing the rights formerly represented by this Note shall be issued.
IN WITNESS WHEREOF, this Note is executed as of the date first written
above.
POINTE COMMUNICATIONS CORPORATION
By:_______________________________________
Its:_______________________________________
<PAGE>
This Warrant was originally issued on March 8, 1999 and such issuance was not
registered under the Securities Act of 1933, as amended, or the securities laws
of any state. If reasonably requested by Company counsel, no transfer of this
Warrant shall be made except in connection with an opinion from Registered
Holder's counsel, acceptable to counsel for the Company, that such transfer is
exempt from federal and state registration.
POINTE COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: March 8, 1999 Certificate No. W-__
FOR VALUE RECEIVED, Pointe Communications Corporation, a Nevada corporation
(the "Company"), hereby grants to EGL/Natwest Ventures USA, L.P., a Delaware
limited partnership, or its registered assigns (the "Registered Holder"), the
right to purchase from the Company 1,582,500 shares of the Company's Common
Stock at a price per share of $1.00 (as adjusted from time to time hereunder,
the "Exercise Price"). This Warrant is being granted to the Registered Holder
in connection with and, in consideration for the $1,582,500 loan the Registered
Holder is making to the Company contemporaneously with the issuance of this
Warrant. Certain capitalized terms used herein are defined in Section 5 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
---------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
----------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time until the earlier
of (i) November 8, 1999, or (ii) the date in which the Registered Holder elects
to convert all of the principal and accrued but unpaid interest into securities
of the Company in accordance with Section 5 of that certain Promissory Note, of
even date herewith, issued by the Company in favor of the Registered Holder (the
"Exercise Period").
1B. Exercise Procedure.
-------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
<PAGE>
(a) a completed Exercise Agreement, as described in paragraph 1C below,
executed by the Person exercising all or part of the purchase rights represented
by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit II hereto evidencing
----------
the assignment of this Warrant to the Purchaser, in which case the Registered
Holder shall have complied with the provisions set forth in Section 7 hereof;
and
(d) either (1) a check payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price"), (2) the
surrender to the Company of debt or equity securities of the Company or any of
its wholly-owned Subsidiaries having a Market Price equal to the Aggregate
Exercise Price of the Common Stock being purchased upon such exercise (provided
that for purposes of this subparagraph, the Market Price of any note or other
debt security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid dividends
thereon) or (3) a written notice to the Company that the Purchaser is exercising
the Warrant (or a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such exercise of the
Warrant which when multiplied by the Market Price of the Common Stock is equal
to the Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a registered
public offering or the sale of the Company, the exercise of any portion of this
Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange (except for "restricted stock" rules and requirements) upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such issuance).
The Company shall not take any action which would cause the number of
autho-rized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
-------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
<PAGE>
1D. Fractional Shares. If a fractional share of Common Stock would,
------------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In order to
-------------------------------------------------
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
-------------------------------------------------------------------
Common Stock. If and whenever the Company issues or sells (except pursuant to
- -------------
exercised options, warrants or similar instruments outstanding as of the date
hereof), or in accordance with paragraph 2B is deemed to have issued or sold,
any share of Common Stock for a consideration per share less than the Exercise
Price in effect immediately prior to such time, then immediately upon such issue
or sale the Exercise Price shall be reduced to the lowest net price per share at
which such share of Common Stock has been issued or sold or is deemed to have
been issued or sold. Upon each such adjustment of the Exercise Price hereunder,
the number of shares of Common Stock acquirable upon exercise of this Warrant
shall be adjusted to the number of shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
2B. Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------------
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If subsequent to the date
---------------------------------
hereof the Company in any manner grants or sells any Options and the lowest
price per share for which any one share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Exercise Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
<PAGE>
(ii) Issuance of Convertible Securities. If subsequent to the
-------------------------------------
date hereof the Company in any manner issues or sells any Convertible Security
and the lowest price per share for which any one share of Common Stock is
issuable upon conversion or exchange thereof is less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then such share or
shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
------------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
issuable hereunder shall be correspondingly adjusted. For purposes of this
paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
-------------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that no such change shall at any time cause the Exercise
Price hereunder to be increased.
<PAGE>
(v) Calculation of Consideration Received. If any Common Stock,
---------------------------------------
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by the
Company and the Registered Holders of the Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of such Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of such Warrants. The determination of
such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.
(vi) Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders
------------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any
-------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
<PAGE>
2D. Reorganization, Reclassification, Consolidation, Merger or Sale.
------------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as "Organic Change." Prior to the consummation of any
Organic Change, the Company shall make appropriate provision to insure that each
of the Registered Holders of the Warrants shall thereafter have the right to
acquire and receive, in lieu of or addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of this Section 2 and
Sections 3 and 4 hereof shall thereafter be applicable to the Warrants. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by appropriate written instrument the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by
---------------
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment shall increase the Exercise Price or decrease
the number of shares of Common Stock obtainable as otherwise determined pursuant
to this Section 2.
2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth the adjustment in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Registered Holder of this Warrant
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
<PAGE>
"Common Stock" means the Company's Common Stock, .00001 par value, and
-------------
except for purposes of the shares obtainable upon exercise of this Warrant, any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Convertible Securities" means any stock or securities (directly or
-----------------------
indirectly) convertible into or exchangeable for Common Stock.
-
"Market Price" means as to any security the average of the closing prices
-------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of Warrants representing a majority of the Common
Stock purchasable upon exercise of all the Warrants then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of Warrants representing a majority of
the Common Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase Common
-------
Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"The Warrant" or "this Warrant" means this Warrant and any other warrants
------------ ------------
exchanged directly or indirectly for all or a portion of this Warrant.
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Purchase Agreement, dated as of the date
hereof, between the Company and the Registered Holder.
<PAGE>
Section 5. No Voting Rights; Limitations of Liability. This Warrant shall
------------------------------------------
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6. Warrant Transferable. Subject to the transfer conditions
---------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
-----------
Section 7. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 8. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided herein, all
-------
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
<PAGE>
Section 10. Amendment and Waiver. Except as otherwise provided herein,
----------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of the Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Warrants; provided that no such
action may change the Exercise Price of the Warrants or the number of shares or
class of stock obtainable upon exercise of each Warrant without the written
consent of the Registered Holders of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its Stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Georgia without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Georgia.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
POINTE COMMUNICATIONS CORPORATION
By:
Its:
[Corporate Seal]
Attest:
______________________________
Title: ________________________
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
Address
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
<S> <C> <C>
</TABLE>
Signature
---------------------
Witness
---------------------
<PAGE>
This Warrant was originally issued on March 8, 1999 and such issuance was not
registered under the Securities Act of 1933, as amended, or the securities laws
of any state. If reasonably requested by Company counsel, no transfer of this
Warrant shall be made except in connection with an opinion from Registered
Holder's counsel, acceptable to counsel for the Company, that such transfer is
exempt from federal and state registration.
POINTE COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: March 8, 1999 Certificate No. W-__
FOR VALUE RECEIVED, Pointe Communications Corporation, a Nevada corporation
(the "Company"), hereby grants to EGL Equity Partners III, L.P., a Delaware
limited partnership, or its registered assigns (the "Registered Holder"), the
right to purchase from the Company 1,125,500 shares of the Company's Common
Stock at a price per share of $1.00 (as adjusted from time to time hereunder,
the "Exercise Price"). This Warrant is being granted to the Registered Holder
in connection with and, in consideration for the $1,125,500 loan the Registered
Holder is making to the Company contemporaneously with the issuance of this
Warrant. Certain capitalized terms used herein are defined in Section 5 hereof.
The amount and kind of securities obtainable pursuant to the rights granted
hereunder and the purchase price for such securities are subject to adjustment
pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
---------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
----------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time until the earlier
of (i) November 8, 1999, or (ii) the date in which the Registered Holder elects
to convert all of the principal and accrued but unpaid interest into securities
of the Company in accordance with Section 5 of that certain Promissory Note, of
even date herewith, issued by the Company in favor of the Registered Holder (the
"Exercise Period").
1B. Exercise Procedure.
-------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
<PAGE>
(a) a completed Exercise Agreement, as described in paragraph 1C below,
executed by the Person exercising all or part of the purchase rights represented
by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit II hereto evidencing
----------
the assignment of this Warrant to the Purchaser, in which case the Registered
Holder shall have complied with the provisions set forth in Section 7 hereof;
and
(d) either (1) a check payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price"), (2) the
surrender to the Company of debt or equity securities of the Company or any of
its wholly-owned Subsidiaries having a Market Price equal to the Aggregate
Exercise Price of the Common Stock being purchased upon such exercise (provided
that for purposes of this subparagraph, the Market Price of any note or other
debt security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid dividends
thereon) or (3) a written notice to the Company that the Purchaser is exercising
the Warrant (or a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such exercise of the
Warrant which when multiplied by the Market Price of the Common Stock is equal
to the Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a registered
public offering or the sale of the Company, the exercise of any portion of this
Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange (except for "restricted stock" rules and requirements) upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such issuance).
The Company shall not take any action which would cause the number of
autho-rized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
-------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
<PAGE>
1D. Fractional Shares. If a fractional share of Common Stock would,
------------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In order to
-------------------------------------------------
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
-------------------------------------------------------------------
Common Stock. If and whenever the Company issues or sells (except pursuant to
- -------------
exercised options, warrants or similar instruments outstanding as of the date
hereof), or in accordance with paragraph 2B is deemed to have issued or sold,
any share of Common Stock for a consideration per share less than the Exercise
Price in effect immediately prior to such time, then immediately upon such issue
or sale the Exercise Price shall be reduced to the lowest net price per share at
which such share of Common Stock has been issued or sold or is deemed to have
been issued or sold. Upon each such adjustment of the Exercise Price hereunder,
the number of shares of Common Stock acquirable upon exercise of this Warrant
shall be adjusted to the number of shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
2B. Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------------
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If subsequent to the date
---------------------------------
hereof the Company in any manner grants or sells any Options and the lowest
price per share for which any one share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Exercise Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
<PAGE>
(ii) Issuance of Convertible Securities. If subsequent to the
-------------------------------------
date hereof the Company in any manner issues or sells any Convertible Security
and the lowest price per share for which any one share of Common Stock is
issuable upon conversion or exchange thereof is less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then such share or
shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
------------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
issuable hereunder shall be correspondingly adjusted. For purposes of this
paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
-------------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that no such change shall at any time cause the Exercise
Price hereunder to be increased.
<PAGE>
(v) Calculation of Consideration Received. If any Common Stock,
---------------------------------------
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by the
Company and the Registered Holders of the Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of such Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of such Warrants. The determination of
such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.
(vi) Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders
------------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any
-------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
<PAGE>
2D. Reorganization, Reclassification, Consolidation, Merger or Sale.
------------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as "Organic Change." Prior to the consummation of any
Organic Change, the Company shall make appropriate provision to insure that each
of the Registered Holders of the Warrants shall thereafter have the right to
acquire and receive, in lieu of or addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of this Section 2 and
Sections 3 and 4 hereof shall thereafter be applicable to the Warrants. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by appropriate written instrument the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by
---------------
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment shall increase the Exercise Price or decrease
the number of shares of Common Stock obtainable as otherwise determined pursuant
to this Section 2.
2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth the adjustment in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Registered Holder of this Warrant
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
<PAGE>
"Common Stock" means the Company's Common Stock, .00001 par value, and
-------------
except for purposes of the shares obtainable upon exercise of this Warrant, any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Convertible Securities" means any stock or securities (directly or
-----------------------
indirectly) convertible into or exchangeable for Common Stock.
"Market Price" means as to any security the average of the closing prices
-------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of Warrants representing a majority of the Common
Stock purchasable upon exercise of all the Warrants then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of Warrants representing a majority of
the Common Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase Common
-------
Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"The Warrant" or "this Warrant" means this Warrant and any other warrants
------------ ------------
exchanged directly or indirectly for all or a portion of this Warrant.
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Purchase Agreement, dated as of the date
hereof, between the Company and the Registered Holder.
<PAGE>
Section 5. No Voting Rights; Limitations of Liability. This Warrant shall
------------------------------------------
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6. Warrant Transferable. Subject to the transfer conditions
---------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
-----------
Section 7. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 8. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided herein, all
-------
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
<PAGE>
Section 10. Amendment and Waiver. Except as otherwise provided herein,
----------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of the Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Warrants; provided that no such
action may change the Exercise Price of the Warrants or the number of shares or
class of stock obtainable upon exercise of each Warrant without the written
consent of the Registered Holders of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its Stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Georgia without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Georgia.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
POINTE COMMUNICATIONS CORPORATION
By:
Its:
[Corporate Seal]
Attest:
______________________________
Title: ________________________
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
-------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
Address
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
<S> <C> <C>
</TABLE>
Signature
Witness
<PAGE>
This Warrant was originally issued on March 8, 1999 and such issuance was not
registered under the Securities Act of 1933, as amended, or the securities laws
of any state. If reasonably requested by Company counsel, no transfer of this
Warrant shall be made except in connection with an opinion from Registered
Holder's counsel, acceptable to counsel for the Company, that such transfer is
exempt from federal and state registration.
POINTE COMMUNICATIONS CORPORATION
STOCK PURCHASE WARRANT
----------------------
Date of Issuance: March 8, 1999 Certificate No. W-__
FOR VALUE RECEIVED, Pointe Communications Corporation, a Nevada corporation
(the "Company"), hereby grants to EGL Equity Offshore Partners III, L.P., a
Cayman Islands limited partnership, or its registered assigns (the "Registered
Holder"), the right to purchase from the Company 2,292,000 shares of the
Company's Common Stock at a price per share of $1.00 (as adjusted from time to
time hereunder, the "Exercise Price"). This Warrant is being granted to the
Registered Holder in connection with and, in consideration for the $2,292,000
loan the Registered Holder is making to the Company contemporaneously with the
issuance of this Warrant. Certain capitalized terms used herein are defined in
Section 5 hereof. The amount and kind of securities obtainable pursuant to the
rights granted hereunder and the purchase price for such securities are subject
to adjustment pursuant to the provisions contained in this Warrant.
This Warrant is subject to the following provisions:
Section 1. Exercise of Warrant.
---------------------
1A. Exercise Period. The Registered Holder may exercise, in whole or
----------------
in part (but not as to a fractional share of Common Stock), the purchase rights
represented by this Warrant at any time and from time to time until the earlier
of (i) November 8, 1999, or (ii) the date in which the Registered Holder elects
to convert all of the principal and accrued but unpaid interest into securities
of the Company in accordance with Section 5 of that certain Promissory Note, of
even date herewith, issued by the Company in favor of the Registered Holder (the
"Exercise Period").
1B. Exercise Procedure.
-------------------
(i) This Warrant shall be deemed to have been exercised when the
Company has received all of the following items (the "Exercise Time"):
<PAGE>
(a) a completed Exercise Agreement, as described in paragraph 1C below,
executed by the Person exercising all or part of the purchase rights represented
by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if this Warrant is not registered in the name of the Purchaser, an
Assignment or Assignments in the form set forth in Exhibit II hereto evidencing
----------
the assignment of this Warrant to the Purchaser, in which case the Registered
Holder shall have complied with the provisions set forth in Section 7 hereof;
and
(d) either (1) a check payable to the Company in an amount equal to the
product of the Exercise Price multiplied by the number of shares of Common Stock
being purchased upon such exercise (the "Aggregate Exercise Price"), (2) the
surrender to the Company of debt or equity securities of the Company or any of
its wholly-owned Subsidiaries having a Market Price equal to the Aggregate
Exercise Price of the Common Stock being purchased upon such exercise (provided
that for purposes of this subparagraph, the Market Price of any note or other
debt security or any preferred stock shall be deemed to be equal to the
aggregate outstanding principal amount or liquidation value thereof plus all
accrued and unpaid interest thereon or accrued or declared and unpaid dividends
thereon) or (3) a written notice to the Company that the Purchaser is exercising
the Warrant (or a portion thereof) by authorizing the Company to withhold from
issuance a number of shares of Common Stock issuable upon such exercise of the
Warrant which when multiplied by the Market Price of the Common Stock is equal
to the Aggregate Exercise Price (and such withheld shares shall no longer be
issuable under this Warrant).
(ii) Certificates for shares of Common Stock purchased upon
exercise of this Warrant shall be delivered by the Company to the Purchaser
within five business days after the date of the Exercise Time. Unless this
Warrant has expired or all of the purchase rights represented hereby have been
exercised, the Company shall prepare a new Warrant, substantially identical
hereto, representing the rights formerly represented by this Warrant which have
not expired or been exercised and shall within such five-day period, deliver
such new Warrant to the Person designated for delivery in the Exercise
Agreement.
(iii) The Common Stock issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the record holder
of such Common Stock at the Exercise Time.
(iv) The issuance of certificates for shares of Common Stock upon
exercise of this Warrant shall be made without charge to the Registered Holder
or the Purchaser for any issuance tax in respect thereof or other cost incurred
by the Company in connection with such exercise and the related issuance of
shares of Common Stock. Each share of Common Stock issuable upon exercise of
this Warrant shall upon payment of the Exercise Price therefor, be fully paid
and nonassessable and free from all liens and charges with respect to the
issuance thereof.
<PAGE>
(v) The Company shall not close its books against the transfer of
this Warrant or of any share of Common Stock issued or issuable upon the
exercise of this Warrant in any manner which interferes with the timely exercise
of this Warrant. The Company shall from time to time take all such action as
may be necessary to assure that the par value per share of the unissued Common
Stock acquirable upon exercise of this Warrant is at all times equal to or less
than the Exercise Price then in effect.
(vi) The Company shall assist and cooperate with any Registered
Holder or Purchaser required to make any governmental filings or obtain any
governmental approvals prior to or in connection with any exercise of this
Warrant (including, without limitation, making any filings required to be made
by the Company).
(vii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a registered
public offering or the sale of the Company, the exercise of any portion of this
Warrant may, at the election of the holder hereof, be conditioned upon the
consummation of the public offering or sale of the Company in which case such
exercise shall not be deemed to be effective until the consummation of such
transaction.
(viii) The Company shall at all times reserve and keep available
out of its authorized but unissued shares of Common Stock solely for the purpose
of issuance upon the exercise of the Warrants, such number of shares of Common
Stock issuable upon the exercise of all outstanding Warrants. All shares of
Common Stock which are so issuable shall, when issued, be duly and validly
issued, fully paid and nonassessable and free from all taxes, liens and charges.
The Company shall take all such actions as may be necessary to assure that all
such shares of Common Stock may be so issued without violation of any applicable
law or governmental regulation or any requirements of any domestic securities
exchange (except for "restricted stock" rules and requirements) upon which
shares of Common Stock may be listed (except for official notice of issuance
which shall be immediately delivered by the Company upon each such issuance).
The Company shall not take any action which would cause the number of
autho-rized but unissued shares of Common Stock to be less than the number of
such shares required to be reserved hereunder for issuance upon exercise of the
Warrants.
1C. Exercise Agreement. Upon any exercise of this Warrant, the
-------------------
Exercise Agreement shall be substantially in the form set forth in Exhibit I
---------
hereto, except that if the shares of Common Stock are not to be issued in the
name of the Person in whose name this Warrant is registered, the Exercise
Agreement shall also state the name of the Person to whom the certificates for
the shares of Common Stock are to be issued, and if the number of shares of
Common Stock to be issued does not include all the shares of Common Stock
purchasable hereunder, it shall also state the name of the Person to whom a new
Warrant for the unexercised portion of the rights hereunder is to be delivered.
Such Exercise Agreement shall be dated the actual date of execution thereof.
<PAGE>
1D. Fractional Shares. If a fractional share of Common Stock would,
------------------
but for the provisions of paragraph 1A, be issuable upon exercise of the rights
represented by this Warrant, the Company shall, within five business days after
the date of the Exercise Time, deliver to the Purchaser a check payable to the
Purchaser in lieu of such fractional share in an amount equal to the difference
between Market Price of such fractional share as of the date of the Exercise
Time and the Exercise Price of such fractional share.
Section 2. Adjustment of Exercise Price and Number of Shares. In order to
-------------------------------------------------
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of shares of Common Stock obtainable upon exercise of this
Warrant shall be subject to adjustment from time to time as provided in this
Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
-------------------------------------------------------------------
Common Stock. If and whenever the Company issues or sells (except pursuant to
- -------------
exercised options, warrants or similar instruments outstanding as of the date
hereof), or in accordance with paragraph 2B is deemed to have issued or sold,
any share of Common Stock for a consideration per share less than the Exercise
Price in effect immediately prior to such time, then immediately upon such issue
or sale the Exercise Price shall be reduced to the lowest net price per share at
which such share of Common Stock has been issued or sold or is deemed to have
been issued or sold. Upon each such adjustment of the Exercise Price hereunder,
the number of shares of Common Stock acquirable upon exercise of this Warrant
shall be adjusted to the number of shares determined by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of shares of
Common acquirable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
2B. Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------------
determining the adjusted Exercise Price under paragraph 2A, the following shall
be applicable:
(i) Issuance of Rights or Options. If subsequent to the date
---------------------------------
hereof the Company in any manner grants or sells any Options and the lowest
price per share for which any one share of Common Stock is issuable upon the
exercise of any such Option, or upon conversion or exchange of any Convertible
Security issuable upon exercise of such Option, is less than the Exercise Price
in effect immediately prior to the time of the granting or sale of such Option,
then such share of Common Stock shall be deemed to have been issued and sold by
the Company at such time for such price per share. For purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the granting or sale of the Option, upon exercise of the
Option and upon conversion or exchange of the Convertible Security. No further
adjustment of the Exercise Price shall be made upon the actual issue of such
Common Stock or of such Convertible Security upon the exercise of such Options
or upon the actual issue of such Common Stock upon conversion or exchange of
such Convertible Security.
<PAGE>
(ii) Issuance of Convertible Securities. If subsequent to the
-------------------------------------
date hereof the Company in any manner issues or sells any Convertible Security
and the lowest price per share for which any one share of Common Stock is
issuable upon conversion or exchange thereof is less than the Exercise Price in
effect immediately prior to the time of such issue or sale, then such share or
shares of Common Stock shall be deemed to have been issued and sold by the
Company at such time for such price per share. For the purposes of this
paragraph, the "lowest price per share for which any one share of Common Stock
is issuable" shall be equal to the sum of the lowest amounts of consideration
(if any) received or receivable by the Company with respect to any one share of
Common Stock upon the issuance of the Convertible Security and upon the
conversion or exchange of such Convertible Security. No further adjustment of
the Exercise Price shall be made upon the actual issue of such Common Stock upon
conversion or exchange of any Convertible Security, and if any such issue or
sale of such Convertible Security is made upon exercise of any Options for which
adjustments of the Exercise Price had been or are to be made pursuant to other
provisions of this Section 2, no further adjustment of the Exercise Price shall
be made by reason of such issue or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
------------------------------------------
price provided for in any Options, the additional consideration, if any, payable
upon the issue, conversion or exchange of any Convertible Securities, or the
rate at which any Convertible Securities are convertible into or exchangeable
for Common Stock changes at any time, the Exercise Price in effect at the time
of such change shall be adjusted immediately to the Exercise Price which would
have been in effect at such time had such Options or Convertible Securities
still outstanding provided for such changed purchase price, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of shares of Common Stock
issuable hereunder shall be correspondingly adjusted. For purposes of this
paragraph 2B, if the terms of any Option or Convertible Security which was
outstanding as of the date of issuance of this Warrant are changed in the manner
described in the immediately preceding sentence, then such Option or Convertible
Security and the Common Stock deemed issuable upon exercise, conversion or
exchange thereof shall be deemed to have been issued as of the date of such
change; provided that no such change shall at any time cause the Exercise Price
hereunder to be increased.
(iv) Treatment of Expired Options and Unexercised Convertible
-------------------------------------------------------------
Securities. Upon the expiration of any Option or the termination of any right
- ----------
to convert or exchange any Convertible Securities without the exercise of such
Option or right, the Exercise Price then in effect shall be adjusted immediately
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination, never
been issued; provided that no such change shall at any time cause the Exercise
Price hereunder to be increased.
<PAGE>
(v) Calculation of Consideration Received. If any Common Stock,
---------------------------------------
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of securities, in which case the amount of consideration
received by the Company shall be the Market Price thereof as of the date of
receipt. In case any Common Stock, Options or Convertible Securities are issued
to the owners of the non-surviving entity in connection with any merger in which
the Company is the surviving corporation, the amount of consideration therefor
shall be deemed to be the fair value of such portion of the net assets and
business of the non-surviving entity as is attributable to such Common Stock,
Options or Convertible Securities, as the case may be. The fair value of any
consideration other than cash or securities shall be determined jointly by the
Company and the Registered Holders of the Warrants representing a majority of
the shares of Common Stock obtainable upon exercise of such Warrants. If such
parties are unable to reach agreement within a reasonable period of time, such
fair value shall be determined by an appraiser jointly selected by the Company
and the Registered Holders of Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of such Warrants. The determination of
such appraiser shall be final and binding on the Company and the Registered
Holders of the Warrants, and the fees and expenses of such appraiser shall be
paid by the Company.
(vi) Treasury Shares. The number of shares of Common Stock
----------------
outstanding at any given time does not include shares owned or held by or for
the account of the Company or any Subsidiary, and the disposition of any shares
so owned or held shall be considered an issue or sale of Common Stock.
(vii) Record Date. If the Company takes a record of the holders
------------
of Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or in Convertible Securities
or (B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or sold upon the
declaration of such dividend or the making of such other distribution or the
date of the granting of such right of subscription or purchase, as the case may
be.
2C. Subdivision or Combination of Common Stock. If the Company at any
-------------------------------------------
time subdivides (by any stock split, stock dividend, recapitalization or
otherwise) one or more classes of its outstanding shares of Common Stock into a
greater number of shares, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of shares of Common
Stock obtainable upon exercise of this Warrant shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) one or more classes of its outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price in effect immediately prior to such
combination shall be proportionately increased and the number of shares of
Common Stock obtainable upon exercise of this Warrant shall be proportionately
decreased.
<PAGE>
2D. Reorganization, Reclassification, Consolidation, Merger or Sale.
------------------------------------------------------------------
Any recapitalization, reorganization, reclassification, consolidation, merger,
sale of all or substantially all of the Company's assets or other transaction,
in each case which is effected in such a way that the holders of Common Stock
are entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock, is
referred to herein as "Organic Change." Prior to the consummation of any
Organic Change, the Company shall make appropriate provision to insure that each
of the Registered Holders of the Warrants shall thereafter have the right to
acquire and receive, in lieu of or addition to (as the case may be) the shares
of Common Stock immediately theretofore acquirable and receivable upon the
exercise of such holder's Warrant, such shares of stock, securities or assets as
may be issued or payable with respect to or in exchange for the number of shares
of Common Stock immediately theretofore acquirable and receivable upon exercise
of such holder's Warrant had such Organic Change not taken place. In any such
case, the Company shall make appropriate provision with respect to such holders'
rights and interests to insure that the provisions of this Section 2 and
Sections 3 and 4 hereof shall thereafter be applicable to the Warrants. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof, the successor entity (if other than the Company)
resulting from consolidation or merger or the entity purchasing such assets
assumes by appropriate written instrument the obligation to deliver to each such
holder such shares of stock, securities or assets as, in accordance with the
foregoing provisions, such holder may be entitled to acquire.
2E. Certain Events. If any event occurs of the type contemplated by
---------------
the provisions of this Section 2 but not expressly provided for by such
provisions (including, without limitation, the granting of stock appreciation
rights, phantom stock rights or other rights with equity features), then the
Company's board of directors shall make an appropriate adjustment in the
Exercise Price and the number of shares of Common Stock obtainable upon exercise
of this Warrant so as to protect the rights of the holders of the Warrants;
provided that no such adjustment shall increase the Exercise Price or decrease
the number of shares of Common Stock obtainable as otherwise determined pursuant
to this Section 2.
2F. Notices.
-------
(i) Immediately upon any adjustment of the Exercise Price, the
Company shall give written notice thereof to the Registered Holder, setting
forth the adjustment in reasonable detail and certifying the calculation of such
adjustment.
(ii) The Company shall give written notice to the Registered
Holder at least 20 days prior to the date on which the Company closes its books
or takes a record (A) with respect to any dividend or distribution upon the
Common Stock, (B) with respect to any pro rata subscription offer to holders of
Common Stock or (C) for determining rights to vote with respect to any Organic
Change, dissolution or liquidation.
(iii) The Company shall also give written notice to the Registered
Holders at least 20 days prior to the date on which any Organic Change,
dissolution or liquidation shall take place.
Section 3. Purchase Rights. If at any time the Company grants, issues or
---------------
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of any class of
Common Stock (the "Purchase Rights"), then the Registered Holder of this Warrant
shall be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights, or, if no such record
is taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
Section 4. Definitions. The following terms have meanings set forth
-----------
below:
<PAGE>
"Common Stock" means the Company's Common Stock, .00001 par value, and
-------------
except for purposes of the shares obtainable upon exercise of this Warrant, any
capital stock of any class of the Company hereafter authorized which is not
limited to a fixed sum or percentage of par or stated value in respect to the
rights of the holders thereof to participate in dividends or in the distribution
of assets upon any liquidation, dissolution or winding up of the Company.
"Convertible Securities" means any stock or securities (directly or
-----------------------
indirectly) convertible into or exchangeable for Common Stock.
-
"Market Price" means as to any security the average of the closing prices
-------------
of such security's sales on all domestic securities exchanges on which such
security may at the time be listed, or, if there have been no sales on any such
exchange on any day, the average of the highest bid and lowest asked prices on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the representative bid and asked prices quoted in
the NASDAQ System as of 4:00 P.M., New York time, on such day, or, if on any day
such security is not quoted in the NASDAQ System, the average of the highest bid
and lowest asked prices on such day in the domestic over-the-counter market as
reported by the National Quotation Bureau, Incorporated, or any similar
successor organization, in each such case averaged over a period of 21 days
consisting of the day as of which "Market Price" is being determined and the 20
consecutive business days prior to such day; provided that if such security is
listed on any domestic securities exchange the term "business days" as used in
this sentence means business days on which such exchange is open for trading.
If at any time such security is not listed on any domestic securities exchange
or quoted in the NASDAQ System or the domestic over-the-counter market, the
"Market Price" shall be the fair value thereof determined jointly by the Company
and the Registered Holders of Warrants representing a majority of the Common
Stock purchasable upon exercise of all the Warrants then outstanding; provided
that if such parties are unable to reach agreement within a reasonable period of
time, such fair value shall be determined by an appraiser jointly selected by
the Company and the Registered Holders of Warrants representing a majority of
the Common Stock purchasable upon exercise of all the Warrants then outstanding.
The determination of such appraiser shall be final and binding on the Company
and the Registered Holders of the Warrants, and the fees and expenses of such
appraiser shall be paid by the Company.
"Options" means any rights or options to subscribe for or purchase Common
-------
Stock or Convertible Securities.
"Person" means an individual, a partnership, a joint venture, a
------
corporation, a limited liability company, a trust, an unincorporated
organization and a government or any department or agency thereof.
"The Warrant" or "this Warrant" means this Warrant and any other warrants
------------ ------------
exchanged directly or indirectly for all or a portion of this Warrant.
Other capitalized terms used in this Warrant but not defined herein shall
have the meanings set forth in the Purchase Agreement, dated as of the date
hereof, between the Company and the Registered Holder.
<PAGE>
Section 5. No Voting Rights; Limitations of Liability. This Warrant shall
------------------------------------------
not entitle the holder hereof to any voting rights or other rights as a
stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Common Stock, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such holder for the Exercise Price of Common Stock acquirable
by exercise hereof or as a stockholder of the Company.
Section 6. Warrant Transferable. Subject to the transfer conditions
---------------------
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder,
upon surrender of this Warrant with a properly executed Assignment (in the form
of Exhibit II hereto) at the principal office of the Company.
-----------
Section 7. Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. The date the Company initially issues this
Warrant shall be deemed to be the "Date of Issuance" hereof regardless of the
number of times new certificates representing the unexpired and unexercised
rights formerly represented by this Warrant shall be issued. All Warrants
representing portions of the rights hereunder are referred to herein as the
"Warrants."
Section 8. Replacement. Upon receipt of evidence reasonably satisfactory
-----------
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the holder is a financial institution or other institutional investor its own
agreement shall be satisfactory), or, in the case of any such mutilation upon
surrender of such certificate, the Company shall (at its expense) execute and
deliver in lieu of such certificate a new certificate of like kind representing
the same rights represented by such lost, stolen, destroyed or mutilated
certificate and dated the date of such lost, stolen, destroyed or mutilated
certificate.
Section 9. Notices. Except as otherwise expressly provided herein, all
-------
notices referred to in this Warrant shall be in writing and shall be delivered
personally, sent by reputable overnight courier service (charges prepaid) or
sent by registered or certified mail, return receipt requested, postage prepaid
and shall be deemed to have been given when so delivered, sent or deposited in
the U.S. Mail (i) to the Company, at its principal executive offices and (ii) to
the Registered Holder of this Warrant, at such holder's address as it appears in
the records of the Company (unless otherwise indicated by any such holder).
<PAGE>
Section 10. Amendment and Waiver. Except as otherwise provided herein,
----------------------
the provisions of the Warrants may be amended and the Company may take any
action herein prohibited, or omit to perform any act herein required to be
performed by it, only if the Company has obtained the written consent of the
Registered Holders of the Warrants representing a majority of the shares of
Common Stock obtainable upon exercise of the Warrants; provided that no such
action may change the Exercise Price of the Warrants or the number of shares or
class of stock obtainable upon exercise of each Warrant without the written
consent of the Registered Holders of the Warrants.
Section 11. Descriptive Headings; Governing Law. The descriptive headings
-----------------------------------
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. The corporation
laws of the State of Nevada shall govern all issues concerning the relative
rights of the Company and its Stockholders. All other questions concerning the
construction, validity, enforcement and interpretation of this Warrant shall be
governed by the internal law of the State of Georgia without giving effect to
any choice of law or conflict of law provision or rule (whether of the State of
Georgia or any other jurisdictions) that would cause the application of the laws
of any jurisdictions other than the State of Georgia.
* * * * * *
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated the Date of Issuance hereof.
POINTE COMMUNICATIONS CORPORATION
By:
Its:
[Corporate Seal]
Attest: ________________________
Title: ________________________
<PAGE>
EXHIBIT I
EXERCISE AGREEMENT
-------------------
To: Dated:
The undersigned, pursuant to the provisions set forth in the attached
Warrant (Certificate No. W-____), hereby agrees to subscribe for the purchase of
______ shares of the Common Stock covered by such Warrant and makes payment
herewith in full therefor at the price per share provided by such Warrant.
Signature
Address
EXHIBIT II
ASSIGNMENT
----------
FOR VALUE RECEIVED, ______________________________ hereby sells, assigns
and transfers all of the rights of the undersigned under the attached Warrant
(Certificate No. W-_____) with respect to the number of shares of the Common
Stock covered thereby set forth below, unto:
<TABLE>
<CAPTION>
Names of Assignee Address No. of Shares
- ----------------- ------- -------------
<S> <C> <C>
</TABLE>
Signature
Witness
1998
TELECOMMUTE SOLUTIONS
STOCK OPTION PLAN
<PAGE>
1. PURPOSE OF THE PLAN. The purposes of this Stock Option Plan are to
--------------------
attract and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to such individuals, to reward
such individuals for exemplary service and to promote the success of the
Company's business by aligning employee financial interests with long-term
shareholder value.
Options granted hereunder may be either Incentive Stock Options or Nonqualified
Stock Options, at the discretion of the Board and as reflected in the terms of
the written option agreement.
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "Board" shall mean the Committee, if the Committee has been appointed,
-----
or the Board of Directors of the Company, if the Committee has not been
appointed.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Committee" shall mean the Compensation Committee appointed by the Board
---------
of Directors in accordance with Section 4(a) of the Plan, if one is appointed.
(d) "Common Shares" shall mean the $.002 par value per share common capital
--------------
stock of the Company.
(e) "Company" shall mean TeleCommute Solutions, Inc., a Texas corporation,
-------
and any successor thereto.
(f) "Continuous Status as an Employee" shall mean the absence of any
------------------------------------
interruption or termination of service as an Employee. Continuous Status as an
Employee shall not be considered interrupted in the case of any leave of absence
authorized in writing by the Company prior to its commencement.
(g) "Employee" shall mean any person, including officers and directors,
--------
employed by the Company or any Parent or Subsidiary of the Company.
Notwithstanding the foregoing, for purposes of any Incentive Stock Option
granted hereunder, "Employee" includes only employees within the meaning of
Section 422 of the Code.
(h) "Incentive Stock Option" shall mean any option intended to qualify
-----------------------
as an incentive stock option within the meaning of Section 422 of the Code.
(i) "Nonqualified Stock Option" shall mean an option not intended to
--- -------------
qualify as an Incentive Stock Option.
(j) "Option" shall mean a stock option granted pursuant to the Plan and
------
represented by a written option agreement.
(k) "Optioned Shares" shall mean the Common Shares subject to an Option.
----------------
(l) "Optionee" shall mean an Employee who receives an Option.
--------
(m) "Parent" shall mean a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(n) "Plan" shall mean this TeleCommute Solutions Stock Option Plan,
----
including any amendments hereto.
(o) "Share" shall mean one Common Share, as adjusted in accordance
-----
with Section 11 of the Plan.
(p) "Subsidiary" shall mean (i) in the case of an Incentive Stock
----------
Option, a "subsidiary corporation," whether now or hereafter existing, as
defined in Section 424(f) of the Code, and (ii) in the case of a Nonqualified
Stock Option, in addition to a subsidiary corporation as defined in (i), a
limited liability company, partnership or other entity in which the Company
controls fifty percent (50%) or more of the voting power or equity interests.
<PAGE>
3. SHARES SUBJECT TO THE PLAN. Subject to the provisions of Section 11
--------------------------
of the Plan, the maximum aggregate number of shares which may be optioned and
sold under the Plan is _______ Common Shares. The Shares may be authorized, but
unissued, or reacquired Common Shares.
If an Option should expire or become unexercisable for any reason without having
been exercised in full, the unpurchased Shares which were subject thereto shall,
unless the Plan shall have been terminated, become available for future grant
under the Plan.
4. ADMINISTRATION OF THE PLAN.
-----------------------------
(a) Procedure. The Plan shall be administered by the Board of Directors of
---------
the Company.
(i) The Board of Directors may appoint a Compensation Committee
consisting of not less than two members of the Board of Directors to administer
the Plan on behalf of the Board of Directors, subject to such terms and
conditions as the Board of Directors may prescribe. Once appointed, the
Committee shall continue to serve until otherwise directed by the Board of
Directors.
(ii) From time to time the Board of Directors may increase the size of
the Committee and appoint additional members thereof, remove members (with or
without cause) and appoint new members in substitution therefor, or fill
vacancies however caused.
(b) Powers of the Board. Subject to the provisions of the Plan, the Board
---------------------
shall have the authority, in its discretion (i) to grant Incentive Stock Options
or Nonqualified Stock Options; (ii) to determine, in accordance with Section
8(b) of the Plan, the fair market value of the Shares; (iii) to determine, in
accordance with Section 8(a) of the Plan, the exercise price per Share of
Options to be granted; (iv) to determine the Employees to whom, and the time or
times at which, Options shall be granted and the number of Shares to be
represented by each Option; (v) to interpret the Plan; (vi) to prescribe, amend,
and rescind rules and regulations relating to the Plan; (vii) to determine the
terms and provisions of each Option granted (which need not be identical and may
include, as conditions to exercise (as well as, in the case of Nonqualified
Stock Options, conditions to grant), vesting, forfeiture, performance criteria,
noncompete and such other restrictions, provisions and conditions as the Board
may determine) and, with the consent of the holder thereof, modify or amend each
Option; (viii) to reduce the exercise price per share of outstanding and
unexercised Options; (ix) to accelerate or defer (with the consent of the
Optionee) the exercise date of any Option; (x) to authorize any person to
execute on behalf of the Company any instrument required to effectuate the grant
of an Option previously granted by the Board; and (xi) to make all other
determinations deemed necessary or advisable for the administration of the Plan.
(c) Effect of Board's Decision. All decisions, determinations, and
-----------------------------
interpretations of the Board shall be final and binding on all Optionees and any
other holders of any Options granted under the Plan.
5. ELIGIBILITY.
-----------
(a) Employees. Options may be granted only to Employees.
---------
(b) Type of Option. Each Option shall be designated in the written option
----------------
agreement as either an Incentive Stock Option or a Nonqualified Stock Option.
However, notwithstanding such designations, to the extent that the aggregate
fair market value of the stock with respect to which options designated as
Incentive Stock Options are exercisable for the first time by any Optionee
during any calendar year (under all plans of the Company and any Parent or
Subsidiary of the Company) exceeds $100,000, such options shall be treated as
Nonqualified Stock Options.
(c) Ordering and Timing. For purposes of Section 5(b), options shall be
---------------------
taken into account in the order in which they were granted, and the fair market
value of stock shall be determined as of the time the option with respect to
such stock is granted.
(d) No Deemed Employment Rights. Nothing in the Plan or any Option granted
----------------------------
hereunder shall confer upon any Optionee any right with respect to continuation
of employment with the Company, nor shall it interfere in any way with the
Optionee's right or the Company's right to terminate the employment relationship
at any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon its adoption by the
--------------
Board. It shall continue in effect until December 31, 2005, unless sooner
terminated under Section 14 of the Plan.
<PAGE>
7. TERM OF OPTION. The term of each Option shall be no more than ten
----------------
(10) years from the date of grant. However, in the case of an Incentive Stock
Option granted to an Optionee who, at the time the Option is granted, owns
Shares representing more than ten percent (10%) of the voting power of all
classes of shares of the Company or any Parent or Subsidiary, the term of the
Option shall be no more than five (5) years from the date of grant.
8. EXERCISE PRICE AND CONSIDERATION.
-----------------------------------
(a) Exercise Price. The per Share exercise price under each Option shall be
--------------
such price as is determined by the Board, subject to the following:
(i) In the case of an Incentive Stock Option:
(A) granted to an Employee who, at the time of the grant of the
Incentive Stock Option, owns shares representing more than ten percent (10%) of
the voting power of all classes of shares of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than one hundred ten
percent (110%) of the fair market value per Share on the date of grant.
(B) granted to any other Employee, the per Share exercise price shall
be no less than one hundred percent (100%) of the fair market value per Share on
the date of grant.
(ii) In the case of a Nonqualified Stock Option, the per Share exercise
price may be less than, equal to, or greater than the fair market value per
Share on the date of grant, as determined by the Board in its discretion.
(b) Fair Market Value. The fair market value per Share shall be determined
------------------
by the Board in its discretion and, in the case of an Incentive Stock Option, in
accordance with Section 422 of the Code.
(c) Type of Consideration. The consideration to be paid for the
-----------------------
Shares to be issued upon exercise of an Option, including the method of payment,
shall be determined by the Board at the time of grant and may consist, without
limitation, of cash and/or check and/or promissory note.
(d) Withholding. Prior to issuance of the Shares upon exercise of an
-----------
Option, the Optionee shall pay any federal, state, and local withholding
obligations of the Company, if applicable.
9. EXERCISE OF OPTION.
--------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option granted
---------------------------------------------------
hereunder shall be exercisable at such times and under such conditions as
determined by the Board at the time of grant, and as shall not violate the terms
of the Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of such exercise
has been given to the Company in accordance with the terms of the Option by the
person entitled to exercise the Option and full payment for the Shares with
respect to which the Option is exercised has been received by the Company. Full
payment may, as authorized by the Board, consist of any consideration and method
of payment allowable under Section 8(c) of the Plan. Until the issuance (as
evidenced by the appropriate entry on the books of the Company or of a duly
authorized transfer agent of the Company) of the share certificate evidencing
such Shares, no right to vote or receive dividends or any other rights as a
shareholder shall exist with respect to the Optioned Shares, notwithstanding the
exercise of the Option. The Company shall issue (or cause to be issued) such
share certificate promptly upon exercise of the Option. In the event that the
exercise of an Option is treated in part as the exercise of an Incentive Stock
Option and in part as the exercise of a Nonqualified Stock Option pursuant to
Section 5(b), the Company shall issue a share certificate evidencing the Shares
treated as acquired upon the exercise of an Incentive Stock Option and a
separate share certificate evidencing the Shares treated as acquired upon the
exercise of a Nonqualified Stock Option, and shall identify each such
certificate accordingly in its share transfer records. No adjustment will be
made for a dividend or other right for which the record date is prior to the
date the share certificate is issued, except as provided in Section 11 of the
Plan.
Exercise of an Option in any manner shall result in a decrease in the number of
Shares which thereafter may be available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
<PAGE>
(b) Termination of Status as Employee. In the event of termination of
----------------------------------
an Optionee's Continuous Status as an Employee, such Optionee may exercise
Options to the extent exercisable on the date of termination. In the case of an
Incentive Stock Option and unless specified otherwise in the Option Agreement in
the case of a Nonqualified Stock Option, such exercise must occur within three
(3) months (or such shorter time as may be specified in the grant) after the
date of such termination (but in no event later than the date of expiration of
the term of such Option as set forth in the Option Agreement). To the extent
that the Optionee was not entitled to exercise the Option at the date of
termination, or does not exercise the Option within the time specified herein or
therein (whichever first occurs), the Option shall terminate. If the Optionee
returns to Continuous Status as an Employee before his deadline for exercise
pursuant to this Section 9(b), then Optionee shall be restored to the status as
Optionee he held immediately prior to his termination (provided no employment
credit will be earned for any period he was not in Continuous Status as an
Employee).
(c) Disability of Optionee. Notwithstanding the provisions of Section
-----------------------
9(b) above, in the event of termination of an Optionee's Continuous Status as an
Employee as a result of total and permanent disability (i.e., the inability to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment which can be expected to result in
death or which has lasted or can be expected to last for a continuous period of
twelve (12) months), the Optionee may exercise the Option, but only to the
extent of the right to exercise that had accrued as of the date of termination.
In the case of an Incentive Stock Option and unless specified otherwise in the
Option Agreement in the case of a Nonqualified Stock Option, such exercise must
occur within twelve (12) months (or such shorter time as is specified in the
grant) from the date on which the Employee ceased working as a result of the
total and permanent disability (but in no event later than the date of
expiration of the term of such Option as set forth in the Option Agreement). To
the extent that the Optionee was not entitled to exercise such Option within the
time specified herein or therein (whichever first occurs), the Option shall
terminate. If the Optionee returns to Continuous Status as an Employee before
his deadline for exercise pursuant to this Section 9(c), then Optionee shall be
restored to the status as Optionee he held immediately prior to his termination
(provided no employment credit will be earned for any period he was not in
Continuous Status as an Employee).
(d) Death of Optionee. Notwithstanding the provisions of Section 9(b)
-------------------
above, in the event of the death of an Optionee --
(i) who is at the time of death an Employee of the Company, the Option
may be exercised, at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of such Option as
set forth in the Option Agreement), by the Optionee's estate or by a person who
acquired the right to exercise the option by bequest or inheritance, but only to
the extent of the right to exercise that had accrued as of the date of death; or
(ii) whose Option has not yet expired but whose Continuous Status as an
Employee terminated prior to the date of death, the Option may be exercised, at
any time within six (6) months following the date of death (but in no event
later than the date of expiration of the term of such Option as set forth in the
Option Agreement), by the Optionee's estate or by a person who acquired the
right to exercise the option by bequest or inheritance, but only to the extent
of the right to exercise that had accrued at the date of termination.
(e) Extension of Exercise Dates. Notwithstanding subsections (b), (c), and
----------------------------
(d) above, the Board shall have the authority to extend the expiration date of
any outstanding option in circumstances in which it deems such action to be
appropriate (provided that no such extension shall extend the term of an Option
beyond the date on which the Option would have expired if no termination of the
Employee's Continuous Status as an Employee had occurred).
10. NON-TRANSFERABILITY OF OPTIONS. An Option may not be sold, pledged,
--------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee; provided, however, that the
Board may permit further transferability, on a general or specific basis, and
may impose conditions and limitations on any permitted transferability.
<PAGE>
11. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER. Subject to
------------------------------------------------------
any required action by the shareholders of the Company, the number of Shares
covered by each outstanding Option, and the number of Shares which have been
authorized for issuance under the Plan but as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, as well as the price per Share covered by each such outstanding
Option, shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a stock split, reverse stock split, stock
dividend, combination, or reclassification of the Shares, or any other increase
or decrease in the number of issued Shares effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding, and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of any
class, or securities convertible into shares of any class, shall affect, and no
adjustment by reason thereof shall be made with respect to, the number or price
of Shares subject to an Option.
In the event of the proposed dissolution or liquidation of the Company, the
Option will terminate immediately prior to the consummation of such proposed
action, unless otherwise provided by the Board. The Board may, in the exercise
of its sole discretion in such instances, declare that any Option shall
terminate as of a date fixed by the Board and give each Optionee the right to
exercise an Option as to all or any part of the Optioned Shares, including
Shares as to which the Option would not otherwise be exercisable. In the event
of a proposed sale of all or substantially all of the assets of the Company, or
the merger of the Company with or into another corporation, each Option shall be
assumed or an equivalent option shall be substituted by such successor
corporation or a parent or subsidiary of such successor corporation, unless such
successor corporation does not agree to assume the Option or to substitute an
equivalent Option, in which case the Board shall, to the extent required by law
or otherwise as determined by the Board, in lieu of such assumption or
substitution, provide for the Optionee to have the right to exercise the Option
as to all of the Optioned Shares, including Shares as to which the Option would
not otherwise be exercisable. If the Board makes an Option fully exercisable in
lieu of assumption or substitution in the event of a merger or sale of assets,
the Board shall notify the Optionee that the Option shall be fully exercisable
for a period of fifteen (15) days from the date of such notice, and the Option
will terminate upon the expiration of such period.
12. TIME OF GRANTING OPTIONS. The date of grant of an Option shall,
---------------------------
for all purposes, be the date on which the Company completes the corporate
action relating to the grant of an Option and all conditions to the grant have
been satisfied, provided that conditions to the exercise of an Option shall not
defer the date of grant. Notice of a grant shall be given to each Employee to
whom an Option is so granted within a reasonable time after the determination
has been made.
13. SUBSTITUTIONS AND ASSUMPTIONS. The Board shall have the right to
-------------------------------
substitute or assume Options in connection with mergers, reorganizations,
separations, or other transactions to which Section 424(a) of the Code applies,
provided such substitutions and assumptions are permitted by Section 424 of the
Code and the regulations promulgated thereunder. The number of Shares reserved
pursuant to Section 3 may be increased by the corresponding number of Options
assumed and, in the case of a substitution, by the net increase in the number of
Shares subject to Options before and after the substitution.
14. AMENDMENT AND TERMINATION OF THE PLAN. The Board may amend or terminate
-------------------------------------
the Plan from time to time in such respects as the Board may deem advisable
(including, but not limited to, amendments which the Board deems appropriate to
enhance the Company's ability to claim deductions related to stock option
exercises); provided, however, that any increase in the number of Shares subject
to the Plan, other than in connection with an adjustment under Section 11 of the
Plan, shall require approval of or ratification by the shareholders of the
Company.
(a) Employees in Foreign Countries. The Board shall have the authority to
--------------------------------
adopt such modifications, procedures, and subplans as may be necessary or
desirable to comply with provisions of the laws of foreign countries in which
the Company or its Parent or Subsidiaries may operate to assure the viability of
the benefits from Options granted to Employees employed in such countries and to
meet the objectives of the Plan.
<PAGE>
(b) Effect of Amendment or Termination. Any such amendment or
--------------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the Optionee and
the Board, which agreement must be in writing and signed by the Optionee and the
Company.
15. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued pursuant
----------------------------------
to the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares pursuant thereto shall comply with all relevant
provisions of law, including, without limitation, the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, the rules and
regulations promulgated thereunder, any applicable state securities laws, and
the requirements of any stock exchange upon which the Shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
16. RESERVATION OF SHARES. The Company, during the term of this Plan,
----------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
17. SHAREHOLDER APPROVAL. The Plan, as amended, is subject to approval by
---------------------
the shareholders of the Company and shall become effective on the date of such
approval.
18. GOVERNING LAW. The validity, construction, interpretation and effect of
-------------
this Plan shall exclusively be governed by and determined in accordance with the
laws of the State of Georgia, except to the extent preempted by federal law.
<PAGE>
PATTCO, INC./TELECOMMUTE SOLUTIONS
FINANCING AGREEMENT
-------------------
This Agreement, made and entered into this ________day of August, 1998,
among PATTCO, INC. a Kentucky corporation with its principal office located at
Ten Thousand Building, Shelbyville Road, Louisville, Kentucky 40223
("Purchaser"), TELECOMMUTE SOLUTIONS GP, INC., a Texas corporation with its
principal office located at 2839 Paces Ferry Road, Suite 500, Atlanta, Georgia
30339 (the "Company") and CHARTER COMMUNICATIONS INTERNATIONAL, INC., a Nevada
corporation with its principal office located at 2839 Paces Ferry Road, Suite
500, Atlanta, Georgia 30339 ("Charter").
W I T N E S S E T H:
-------------------
WHEREAS, Purchaser intends to purchase from the Company and the Company
intends to sell and issue to Purchaser, on the terms and conditions set forth
herein, 2,000 shares of the one ($1.00) dollar par value preferred stock of the
Company, which stock shall have certain conversion features; and
WHEREAS, Purchaser and the Company intend to set forth the terms and
conditions relating to Purchaser's right to purchase 2,000 additional shares of
preferred stock of the Company, such shares also to have certain conversion
features; and
WHEREAS, the parties intend to set forth herein additional terms and
conditions relating to the foregoing transactions
WHEREAS, the Company and its shareholders desire to set forth certain terms
relating to the ownership of the Company's capital stock;
NOW, THEREFORE, for and in consideration of the premises and mutual
promises herein set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto do
hereby agree as follows:
1. DEFINITIONS.
-----------
1.1 First Tranche Preferred Stock. The term "First Tranche Preferred
-------------------------------
Stock" shall mean the 2,000 shares of Series A preferred stock of the Company
("Series A Preferred Stock") issued to Purchaser pursuant to Section 2.1 hereof.
1.2 Second Tranche Preferred Stock. The term "Second Tranche Preferred
------------------------------
Stock" shall mean the 2,000 shares of Series B preferred stock of the Company
("Series B Preferred Stock") which Purchaser shall have the right and option to
purchase pursuant to Section 3.1 hereof.
<PAGE>
20
1.3 Second Tranche Purchase Period. The term "Second Tranche Purchase
-------------------------------
Period" shall mean the time period commencing on the date of this Agreement and
terminating on the first anniversary of this Agreement.
1.4 Conversion Period. The term "Conversion Period" shall mean the
------------------
time period commencing on the date of this Agreement and terminating on the
third anniversary of this Agreement.
1.5 Preferred Shares. The term "Preferred Shares" shall mean the
-----------------
shares of preferred stock of the Company constituting the First Tranche
Preferred Stock and, if issued, the Second Tranche Preferred Stock.
1.6 Company Common Stock. The term "Company Common Stock" shall mean
----------------------
the shares of $1.00 par value capital common stock of the Company into which the
Preferred Shares may be converted pursuant to the terms of Sections 2.3 or 3.3
hereof.
1.7 Charter Common Stock. The term "Charter Common Stock" shall mean
----------------------
the shares of $.00001 par value capital common stock of Charter into which the
Preferred Shares may be converted pursuant to the terms of Sections 2.3 or 3.3
hereof.
2. FIRST TRANCHE PREFERRED STOCK. Purchaser hereby subscribes for and
------------------------------
purchases, and the Company hereby sells and issues to Purchaser, the First
Tranche Preferred Stock on the following terms and conditions:
2.1 Purchase Price and Issuance. Upon execution of this Agreement,
------------------------------
Purchaser has paid, by bank check or wire transfer, and the Company hereby
acknowledges receipt of, the purchase price for the First Tranche Preferred
Stock in the aggregate amount of $2,000,000. In exchange for such purchase
price, the Company has issued the First Tranche Preferred Stock to Purchaser and
has delivered to Purchaser the certificate reflecting such Preferred Shares (the
"Closing").
2.2 Rights and Privileges of First Tranche Preferred Stock. The
-------------------------------------------------------------
Preferred Shares constituting the First Tranche Preferred Stock have the rights,
privileges, preferences and restrictions set forth on Exhibit A attached hereto
and made a part hereof.
2.3 First Tranche Conversion Rights. At any time during the Conversion
-------------------------------
Period, Purchaser may give written notice to the Company and to Charter of its
election to exercise the conversion of the First Tranche Preferred Stock for
either, at Purchaser's sole discretion: (i) 2,643 shares of Company Common
Stock, or (ii) 666,667 shares of Charter Common Stock.
2.4 Conversion Procedure. Set forth below is the conversion procedure
---------------------
which shall be applicable to the conversion of the First Tranche Preferred Stock
pursuant to Section 2.3 and the conversion of the Second Tranche Preferred Stock
pursuant to Section 3.3:
<PAGE>
(i) in order to exercise such conversion rights, Purchaser must tender
written notice to the Company and to Charter during the Conversion Period
setting forth the number of the Preferred Shares to be converted, and
designating whether the conversion shall be to Company Common Stock or Charter
Common Stock;
(ii) such conversion rights may be exercised for less than all of the
Preferred Shares constituting the First Tranche Preferred Stock or the Second
Tranche Preferred Stock, as the case may be, in exchange for a pro rata number
of shares of Company Common Stock or Charter Common Stock; in addition, the
conversion can be effectuated partially for Company Common Stock and partially
for Charter Common Stock, again on a pro rata basis; and
(iii) within thirty (30) days of the giving of such conversion notice,
Purchaser shall deliver to the Company the stock certificate for the Preferred
Shares to be converted (with proper endorsement transferring title thereto to
the Company) and, in exchange therefor, the Company or Charter, as the case may
be, shall as soon as possible issue to Purchaser the Company Common Stock or
Charter Common Stock, as the case may be, and shall deliver a stock certificate
reflecting same. If the conversion is effectuated for less than all of the
First Tranche Preferred Stock or Second Tranche Preferred Stock, as the case may
be, the Company shall redeliver to Purchaser a replacement stock certificate
reflecting the remaining unconverted Preferred Shares.
3. SECOND TRANCHE PREFERRED STOCK. Purchaser shall have the right and
-------------------------------
option to purchase the Second Tranche Preferred Stock on the following basis:
3.1 Purchase of Second Tranche Preferred Stock. At any time during the
------------------------------------------
Second Tranche Purchase Period, Purchaser may give written notice to the Company
exercising its right to purchase all (but not less than all) of the Second
Tranche Preferred Stock and, together with such written election, Purchaser
shall tender by bank check or wire transfer the purchase price for the Second
Tranche Preferred Stock in the amount of $2,000,000. Upon timely receipt of
such notice and purchase price, the Company shall issue the Second Tranche
Preferred Stock to Purchaser and shall, as soon thereafter as practicable,
deliver to Purchaser a certificate reflecting such Preferred Shares (the "Second
Closing").
3.2 Rights and Preferences of Second Tranche Preferred Stock. The
-------------------------------------------------------------
Preferred Shares constituting the Second Tranche Preferred Stock shall have
rights, preferences, privileges and restrictions identical to the First Tranche
Preferred Stock, except with respect to the conversion rights set forth in
Section 3.3.
3.3 Second Tranche Conversion Rights. At any time during the remaining
--------------------------------
portion of the Conversion Period, Purchaser may give written notice to the
Company and to Charter of its election to exercise the conversion of the Second
Tranche Preferred Stock for either: (i) 1,057 shares of Company Common Stock,
or (ii) 500,000 shares of Charter Common Stock. The procedure for the exercise
of such conversion shall be as set forth in Section 2.4 hereof.
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
--------------------------------------------------
represent and warrant to Purchaser as follows, as of the date of this Agreement
and as of the date of the Second Closing:
4.1 Organization; Standing. The Company is a corporation duly
-----------------------
organized, validly existing and in good standing under the laws of the State of
Texas. The Company has all requisite corporate power and authority to conduct
its business and operations as presently conducted and to own and hold the
property and assets that it owns or holds. The Company is duly qualified to
transact business in each jurisdiction where the ownership and operation of the
Company's properties requires such qualification.
4.2 Corporate Power; Authorization. The Company has all requisite
--------------------------------
legal and corporate power and authority to execute, deliver and perform this
Agreement. The Company has duly taken all corporate actions necessary to
authorize the execution, delivery and performance by the Company of this
Agreement. This Agreement has been duly executed and delivered by the Company
and is the valid and binding obligation of the Company, enforceable against the
Company in accordance with its terms, except as the same may be limited by
bankruptcy, insolvency, reorganization or other laws relating to the enforcement
of creditors' rights generally.
4.3 No Breach. The Company is not in violation of any term of its
----------
articles of incorporation or bylaws. The execution, delivery and performance of
this Agreement do not and will not contravene the articles of incorporation or
bylaws of the Company and do not and will not (with the passage of time or the
giving of notice or both) conflict with or result in a breach or violation by
the Company of, or constitute a default by the Company under or pursuant to, any
law, judgment, contract, arrangement or understanding to which the Company is a
party or by which the Company is subject or bound.
4.4 Valid Issuance. The First Tranche Preferred Stock and Second
---------------
Tranche Preferred Stock, when purchased and issued in accordance with the
provisions of this Agreement, will be validly issued, fully paid and
nonassessable shares of the Company's preferred stock. The issuance of the
Preferred Shares pursuant to this Agreement will comply with all applicable
laws, including federal and state securities laws, and will not violate the
preemptive rights of any person. The Company Common Stock and/or Charter Common
Stock issuable upon conversion of the Preferred Shares being purchased under
this Agreement will be, upon issuance and delivery in accordance with the terms
of this Agreement, duly and validly issued, fully paid and nonassessable and
free from restrictions on transfer other than restrictions on transfer under
applicable federal and state securities laws. The issuance of the Company
Common Stock and/or Charter Common Stock upon conversion of the Preferred Shares
will comply with all applicable laws, including federal and state securities
laws, and will not violate the preemptive rights of any person.
<PAGE>
4.5 Finders and Brokers. The Company has not entered into any
---------------------
contract, arrangement or understanding with any person or entity which will
result in the obligation of Purchaser or the Company to pay any finder's fees,
brokerage or agent's commissions or other like payments in connection with the
transactions contemplated hereby.
4.6 Books and Records. All books, records and financial statements
-------------------
pertaining to the Company have been made available for review by Purchaser and
its representatives and are correct and complete in all material respects, have
been maintained by the Company in accordance with good business practices and
accurately reflect the basis for the financial condition and results of
operations of the Company set forth in the financial statements.
4.7 Capitalization.
--------------
(a) The authorized capital stock of the Company consists of [i] 100,000
Common Shares with $1.00 par value per share ("Common Shares"), of which at the
date hereof 5,100 shares are validly issued and outstanding, fully paid and
nonassessable, and owned, beneficially and of record, by Charter, and [ii]
100,000 shares of preferred stock, $1.00 per share par value, none of which at
the date hereof are validly issued and outstanding. Of the 100,000 shares of
preferred stock, 2,000 shares have been designated as Series A Preferred Stock,
and 2,000 shares have been designated as Series B Preferred Stock (together, the
Series A Preferred Stock and Series B Preferred Stock are referred to as
"Preferred Shares"). The Series A Preferred Stock has the rights and privileges
set forth in Section 2.2 and the Series B Preferred Stock has the rights and
privileges set forth in Section 3.2. 3,700 Common Shares have been duly and
validly reserved for issuance upon conversion of the Preferred Shares issued to
the Purchaser. Except for Charter's ownership of 5,100 shares of Company Common
Stock and the provision for 1,200 shares of Company Common Stock to be subject
to the equity plan for the Company's management pursuant to Section 6.3 hereof,
and except for the conversion rights relating to the Preferred Shares as set
forth herein, there are no other parties with any subscription, calls,
commitments, ownership, option, warrant or other rights (including conversion or
preemptive rights and rights of first refusal) to the capital stock of the
Company, or proxy or stockholder agreements or agreements of any character
relating to shares of the Company's capital stock or the Preferred Shares to be
issued hereunder or any instruments that can be converted into shares of the
Company's capital stock or the Preferred Shares to be issued hereunder, except
for the provision for 1,200 shares of Company Common Stock to be subject to the
equity plan for the Company's management pursuant to Section 6.3 hereof. None
of the shares of the Company's capital stock have been issued in violation of
any preemptive rights. All issuances, transfers, or purchases of the capital
stock of the Company have been in compliance with all applicable agreements and
all applicable laws, including federal and state securities laws, and all taxes
thereon, if any, have
<PAGE>
been paid. There are no contractual obligations of the Company to repurchase,
redeem or otherwise acquire any shares of capital stock of the Company.
(b) The authorized capital stock of Charter is as described in the
Subscription Agreement dated July 15, 1998, between Charter and James A.
Patterson.
4.8 Financial Statements. The Company has delivered to Purchaser a
---------------------
complete and correct copy of the audited balance sheet of the Company as at June
30, 1998 and the related statements of operations and cash flows compiled by the
Company and reviewed as described in such Balance Sheet, and the unaudited
balance sheet (the "Balance Sheet") of the Company as at the date set forth on
such Balance Sheet (the "Balance Sheet Date") and the related statement of
operations and cash flows compiled by the Company (collectively, the "Financial
Statements"), copies of which are attached as Exhibit E. The Financial
Statements are complete and correct, are in accordance with the books and
records of the Company and present fairly the financial condition and results of
operations of the Company, as at the dates and for the periods indicated, and
have been prepared in accordance with generally accepted accounting principles
consistently applied, except that the Financial Statements that have been
prepared for the internal use of management may not be in accordance with
generally accepted accounting principles because of the absence of footnotes
normally contained herein and are subject to normal year-end audit adjustments
which in the aggregate will not be material.
4.9 Absence of Liabilities. The Company did not have, at the Balance
------------------------
Sheet Date, any liabilities of any type which in the aggregate exceeded $50,000,
whether absolute or contingent, which were not fully reflected on the Balance
Sheet, and, since the Balance Sheet Date, the Company has not incurred or
otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.
4.10 Governmental Consents. No consent, approval, order or
----------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issue, sale and delivery of the Preferred Shares, or the other transactions to
be consummated pursuant to this Agreement. Based on the representations made by
Purchaser in written documents provided to the Company, the offer and sale of
the Preferred Shares to Purchaser will be in compliance with applicable federal
and state securities laws.
4.11 Litigation. There is no action, suit, proceeding or investigation
----------
pending, or, to the best of the Company's knowledge, any basis thereof or threat
thereof, against the Company or Charter, which questions the validity of this
Agreement or the right of the Company or Charter to enter into it, or which
might result, either individually or in the aggregate, in any material adverse
change in the assets, condition (financial or otherwise), business or prospects
of the Company.
<PAGE>
4.12 Ordinary Course of Business. Since the Balance Sheet Date, there
----------------------------
has been no material adverse change in the condition, financial or otherwise,
net worth or results of operations of the Company, other than changes occurring
in the ordinary course of business which changes have not, individually or in
the aggregate, had a materially adverse effect on the business, prospects,
properties or condition, financial or otherwise, of the Company.
4.13 Taxes. The amount shown on the Balance Sheet as provision for
-----
taxes is sufficient in all material respects for payment of all accrued and
unpaid federal, state, county, local and foreign taxes for the period then ended
and all prior periods. The Company has filed or has obtained presently
effective extensions with respect to all federal, state, county, local and
foreign tax returns which are required to be filed by it, such returns are true
and correct and all taxes shown thereon to be due have been timely paid with
exceptions not material to the Company. Federal income tax returns of the
Company have not been audited by the Internal Revenue Service, and no
controversy with respect to taxes of any type is pending or, to the knowledge of
the Company, threatened.
4.14 Property and Assets. The Company has good title to all of its
---------------------
material properties and assets, including all properties and assets reflected in
the Balance Sheet, except those disposed of since the date thereof in the
ordinary course of business, and none of such properties or assets is subject to
any mortgage, pledge, lien, security interest, lease, charge or encumbrance
other than those the material terms of which are described in the Balance Sheet,
except as described on Schedule 4.14.
4.15 Material Contracts and Obligations. Schedule 4.15 sets forth a
-------------------------------------
list of all material agreements of any nature to which the Company is a party or
by which it is bound.
4.16 Compliance. The Company has, in all material respects, complied
----------
with all laws, regulations and orders applicable to its present and proposed
business and has all material permits and licenses required thereby. The
Company is not in breach or violation of any term or provision of any material
mortgage, indenture, contract, agreement or instrument to which the Company is a
party or by which it is bound, or, to the knowledge of the Company, of any
provision of any state or federal judgement, decree, order, statute, rule or
regulation applicable to or binding upon the Company, which breach or violation
materially adversely affects or, so far as the Company may now foresee, in the
future is reasonably likely to materially adversely affect, the business,
prospects, condition, affairs or operations of the Company or any of its
properties or assets.
<PAGE>
4.17 Disclosures. Neither this Agreement nor any schedule or exhibit
-----------
hereto, nor any report, certificate, or instrument furnished to Purchaser or
their counsel in connection with the transactions contemplated by this
Agreement, including without limitation, the Business Plan of the Company, a
copy of which has been provided to Purchaser (the "Plan") and attached as
Exhibit D, when read together, contains or will contain any material
misstatement of fact or omits or will omit to state a material fact necessary to
make the statements contained herein or therein not misleading. The Company
knows of no information or fact which has or would have a material adverse
effect on the financial condition, business or prospects of the Company which
has not been disclosed to Purchaser. Each projection furnished in the Plan was
prepared with due care based on reasonable assumptions and represents the
Company's best estimate of future results based on information available as of
the date of the Plan. No projection referred to in the preceding sentence shall
be deemed to be misleading unless it is shown that any such projection was made
without a reasonable basis or was disclosed other than in good faith.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER. Purchaser hereby represents
-------------------------------------------
and warrants to the Company and Charter as follows as of the date of this
Agreement and as of the date of the Second Closing:
5.1 Corporate Action. All corporate action on the part of Purchaser
-----------------
for the authorization, execution, delivery and performance of this Agreement by
the Purchaser have been fully taken.
5.2 No Registration. Purchaser has been advised and acknowledges that
----------------
neither the Preferred Shares to be issued hereunder nor the Company Common Stock
nor the Charter Common Stock issuable upon conversion of the Preferred Shares
have been or will be registered pursuant to the Securities Act of 1933 and,
therefore, none of them can be resold unless they are registered pursuant to the
Securities Act of 1933 or unless an exemption from registration is available.
5.3 Purchase for Investment, etc.. Purchaser represents and warrants
-------------------------------
to the Company and Charter, their representatives and agents, that:
(a) Purchaser is aware that no federal or state agency has made any
finding or determination as to the fairness of an investment in the Preferred
Shares nor any recommendation nor endorsement with respect thereto.
(b) Purchaser recognizes that an investment in the Preferred Shares
involves a high degree or risk;
(c) any information Purchaser has supplied to the Company, its
representatives or agents in connection with the transactions described herein
is true and correct;
(d) Purchaser has such knowledge and experience in financial and
business matters as to be capable of evaluating the risks and merits of
participating in this investment and protecting Purchaser's interests in
connection with this investment;
(e) Purchaser is able to bear the economic risk of the investment in
the Preferred Shares, including the risk of total loss of the investment;
<PAGE>
(f) Purchaser has received and has thoroughly reviewed the Company's
financial statements and no statement, printed material or inducement given or
made by any person is contrary to the information contained in the financial
statements;
(g) Purchaser has had an opportunity to ask questions of the officers
and directors of the Company and to receive answers from them concerning this
investment and the Company and its officers and directors have made all relevant
information available to Purchaser, including materials, books and records of
the Company.
(h) Purchaser represents and warrants that it was not organized or
reorganized for the specific purpose of acquiring the Preferred Shares;
(i) Purchaser is aware that it must bear the economic risk of its
investment in the Preferred Shares for an indefinite period of time because
neither the Preferred Shares nor the Company Common Stock nor Charter Common
Stock issuable upon conversion thereof have been or will be registered under the
Securities Act of 1933 or the securities laws of any state and, therefore, none
of them can be resold unless subsequently registered under the Securities Act of
1933 and any applicable state securities laws or an exemption from registration
is available;
(j) Purchaser acknowledges that a legend will be placed on the
certificates for the Preferred Shares and on the certificates for the shares of
Company Common Stock and Charter Common Stock issuable upon conversion thereof
in substantially the following form;
"THIS SECURITY HAS BEEN ACQUIRED FOR INVESTMENT AND HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES LAWS OF ANY
STATE. WITHOUT SUCH REGISTRATION, THIS SECURITY MAY NOT BE SOLD, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT UPON DELIVERY TO THE ISSUER OF
THIS CERTIFICATE OF AN OPINION OF COUNSEL SATISFACTORY TO COUNSEL FOR THE ISSUER
THAT REGISTRATION IS NOT REQUIRED FOR SUCH TRANSFER OR THE SUBMISSION TO COUNSEL
FOR THE ISSUER OF SUCH OTHER EVIDENCE AS MAY BE SATISFACTORY TO COUNSEL FOR THE
ISSUER TO THE EFFECT THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE
SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS OR ANY
RULE OR REGULATION PROMULGATED THEREUNDER."; and
<PAGE>
(k) Purchaser acknowledges that stop transfer instructions will be
implemented with respect to the Preferred Shares and the shares of Company
Common Stock and Charter Common Stock issuable upon conversion thereof to
restrict the resale, pledge, hypothecation or other transfer thereof.
6. AFFIRMATIVE COVENANTS OF THE COMPANY AND COVENANT.
-------------------------------------------------------
6.1 Key Management Employment Agreements. Simultaneously with or prior
------------------------------------
to the execution of this Agreement, upon approval by the new board of directors
referenced in Section 6.2 hereof, the Company shall enter into the employment
agreements with Messrs. Stephen L. Schilling and Dean Brown substantially in the
form attached hereto as Exhibit B and made a part hereof.
6.2 Board Members. The board of directors of the Company shall be
--------------
composed of five members, two of whom shall be designated (chosen, removed or
replaced, as the case may be) by Messrs. Thomas A. Dieruf and James Patterson.
The Articles of Incorporation and Bylaws of the Company will contain provisions
authorizing no more than five directors and indemnifying its directors to the
fullest extent permitted under applicable law. The Board of Directors will hold
regular meetings at least once every three months. These covenants shall
constitute an agreement among shareholders, and therefore cannot be abrogated or
frustrated by contrary votes or actions by the majority members of the board of
directors or by majority shareholder vote.
6.3 Management Equity Incentive Plan. The parties acknowledge and
-----------------------------------
consent to the implementation by the Company as soon as practicable after the
date hereof of an equity incentive plan for management of the Company; such plan
shall provide for the issuance of up to 1,200 shares of Company Common Stock to
key management personnel of the Company, with the "vesting" of such stock to
occur over a three year period based upon the achievement of financial and
operating goals established by the Company.
6.4 Additional Financing. In the event the Company intends to procure
---------------------
additional equity capital financing (to be distinguished from vendor or
equipment financing, or traditional operating debt) during the Second Tranche
Purchase Period, the Company shall so notify Purchaser and give Purchaser a
reasonable opportunity to negotiate for the provision of such additional capital
before obtaining such capital from third parties.
6.5 Conversion Adjustments. The provisions concerning conversion of
-----------------------
the Preferred Shares pursuant to Sections 2.3 and 3.3 hereunder shall be subject
to adjustment from time to time as follows, with the term "Issuer" as used below
to mean the Company or Charter, or both, as the case may be, with respect to
conversion rights relating to the Company Common Stock or Charter Common Stock:
<PAGE>
(a) Reorganization, Merger, Etc. If any capital reorganization or
-----------------------------
reclassification of the Issuer, or any consolidation or merger of the Issuer
with another entity is effected in such a way that holders of the Issuer's
common stock receive stock, securities or assets with respect to or in exchange
for their shares, then provision shall be made whereby the conversion rights of
Purchaser shall be adjusted such that, upon conversion, Purchaser shall have the
right to receive in exchange for the Preferred Shares such securities or assets
as were issued or payable with respect to or in exchange for the Company Common
Stock or Charter Common Stock, as the case may be, which Purchaser would have
otherwise received if the conversion had occurred immediately prior to such
reorganization, reclassification, consolidation or merger.
(b) Stock Dividends, Etc. In addition to those adjustments set forth
----------------------
in Section 6.5(a), but without duplication of the adjustments to be made under
such Section, if the Issuer:
(i) pays a dividend or makes a distribution on its common stock in shares of
its common stock;
<PAGE>
(ii) subdivides its outstanding shares of common stock into a greater number
of shares;
(iii) combines its outstanding shares of common stock into a smaller number
of shares;
(iv) makes a distribution on its common stock in shares of its capital stock
other than common stock; and/or
(v) issues, by reclassification of its common stock, any shares of its
capital stock;
then the number and kind of shares receivable upon conversion of the Preferred
Shares shall be adjusted so that Purchaser, upon conversion of the Preferred
Shares, shall be entitled to receive the kind and number of shares or other
securities of the Issuer that Purchaser would have owned or been entitled to
receive after the happening of any of the events described above had the
conversion of the Preferred Shares been exercised immediately prior to the
happening of such event.
6.6 Opinion to be Delivered as of the date of this Agreement and as of
-------------------------------------------------------------------
the date of the Second Closing. At the closing of the transactions
- -----------------------------------
contemplated by this Agreement, and as of the Second Closing, Purchaser will
receive an opinion from Cushing, Morris, Armbruster & Jones, LLP, counsel for
the Company, dated as of the date hereof, addressed to Purchaser, the form of
which is attached as Exhibit C.
6.7 Accounting Systems. The Company will maintain a system of
-------------------
accounting established and administered in accordance with generally accepted
accounting principles consistently applied.
6.8 Periodic Reports; Budgets
---------------------------
<PAGE>
(a) The Company will furnish Purchaser as soon as practicable, and in
any event within 90 days after the end of each fiscal year of the Company, an
annual report of the Company, including an audited balance sheet as at the end
of such fiscal year and audited statements of operations, income, and statement
of cash flows for such fiscal year, setting forth in each case in comparative
form corresponding figures for the preceding fiscal year and for the budget for
the fiscal year completed (provided, however, that information as to the
budgeted figures will not be audited), all of which will be materially correct
and complete and will fairly present the financial condition of the Company at
the date shown and the results of its operations for the period then ended.
Such financial statements shall be accompanied by the report thereon of
nationally recognized independent public accountants engaged by Charter for its
other businesses to the effect that such financial statements have been prepared
in accordance with generally accepted accounting principles applied on a basis
consistent with prior years (except as otherwise specified in such report). The
Company will use its best efforts to conduct its business so that such report of
the independent public accountants will not contain any qualifications as to the
scope of the audit, the continuance of the Company, or with respect to the
Company's compliance with generally accepted accounting principles consistently
applied, except for changes in methods of accounting in which such accountants
concur.
(b) The Company will furnish to Purchaser as soon as practicable and in
any event within 30 days after the end of each calendar quarter, a quarterly
report of the Company consisting of an unaudited balance sheet as at the end of
such quarter and an unaudited statement of operations and statement of changes
in final position for such quarter and for the fiscal year to date, setting
forth in each case in comparative form the corresponding figures for the
preceding year and for the budget. All such reports shall be certified to by
the chief financial officer of the Company to be correct and complete, to fairly
present the financial condition of the Company at the date shown and the results
of its operations for the period then ended and to have been prepared in
accordance with generally acceptable accounting principles consistently applied,
except for normal year-end adjustments. The reports for each calendar quarter
shall include a narrative discussion prepared by the Company describing the
business operations of the Company during the preceding calendar quarter.
(c) The Company will furnish to Purchaser, as soon as practicable and
in any event not less than 30 days prior to the end of each fiscal year of the
Company, an annual operating budget and business plan for the Company for [i]
the succeeding fiscal year, containing projections of profit and loss, cash flow
and ending balance sheets for each month of such fiscal year and [ii] the
succeeding three (3) fiscal years, containing projections of profit and loss,
cash flow and ending balance sheets for each of such years. Promptly upon
preparation thereof, the Company will furnish to Purchaser any other budgets
that the Company may prepare and any revisions of such previously furnished
budgets.
(d) If any accountant's management letter or other reports are
submitted to the Company by its independent public accountants in connection
with an annual or interim audit of the books of the Company, the Company will
furnish Purchaser, promptly after receipt, such letter or other reports and any
responses of the Company thereto.
(e) The Company will furnish to Purchaser as of the date of this
Agreement a Plan, setting forth a business plan for the Company and budget for
the 12 month period following the date thereof, including a detailed statement
of the uses of the proceeds from the Preferred Shares. For so long as Purchaser
holds Preferred Shares or Company Common Stock, the Company will provide
Purchaser with a revised Plan on an annual basis.
<PAGE>
6.9 Certificates of Compliance. Concurrently with the furnishing of
--------------------------
the reports pursuant to Sections 6.8(a) and 6.8(b) hereof, the Company will
furnish to Purchaser a certificate of an officer stating that the Company is not
in material default under, and has not materially breached, any agreements or
obligations, including, without limitation, this Agreement, or if any such
default or breach exists, specifying the nature thereof and what actions the
Company has taken and proposes to take with respect thereto. Concurrently with
the furnishing of the reports pursuant to Section 6.8(a) hereof, the Company
will cause to be furnished to Purchaser a statement of the independent public
accountants of the Company to the effect that they have caused the provisions of
this Agreement to be reviewed and that in the course of their audit of the
Company nothing has come to their attention to lead them to believe that any
default hereunder exists or, if such is not the case, specifying such default or
possible default and the nature thereof. The Company covenants that promptly
after the occurrence of any default hereunder or any default hereunder or breach
of any material agreement or any other material adverse event or circumstance
affecting the Company, it will deliver to Purchaser a certificate of an officer
specifying in detail the nature and period of existence thereof, and what
actions the Company has taken and proposes to take with respect thereto.
6.10 Other Reports and Inspection.
-------------------------------
(a) The Company will furnish to Purchaser as soon as practicable after
issuance, copies of any financial statements or reports prepared by the Company
for or otherwise furnished to its shareholders, or to any other person or
entity. The Company will furnish promptly to Purchaser such other documents,
reports and financial data as Purchaser may reasonably request. The Company
will, upon reasonable prior notice, make available to Purchaser or designees
during normal business hours [a] all assets, properties and business records of
the Company for inspection and copying and [b] the directors, officers and
employees of the Company for interviews concerning the business, affairs and
finances of the Company.
(b) Charter will furnish to Purchaser as soon as reasonably possible
copies of all filing made with the Securities and Exchange Commission.
6.11 Licenses. The Company will obtain and keep in full force and
--------
effect all material licenses, permits and other authorizations from governmental
authorities which shall be necessary to the conduct of its business. The
Company covenants and agrees to use its best efforts, and Charter covenants and
agrees to use its best efforts to cause the Company, to maintain and keep in
full force and effect all licenses, permits and authorizations from governmental
authorities, including all licenses, permits and authorizations from government
authorities.
6.12 Material Changes. The Company will promptly notify Purchaser of
-----------------
any material adverse change in the business, properties, assets or condition,
financial or otherwise, of the Company, and of any litigation or governmental
proceeding pending or, to the best knowledge of the Company or of Charter,
threatened against the Company or against any officer or key employee of the
Company.
<PAGE>
6.13 Compliance with Law. The Company will comply with all applicable
--------------------
laws, statutes, rules, regulations, ordinances, decisions and orders of the
United States, of the states thereof and their counties and municipalities and
other subdivisions and of any other jurisdiction or governmental authority
applicable to the Company, the violation of which would have a material adverse
effect on the business, operations, properties, assets, liabilities or
condition, financial or otherwise, or the results of operations or prospects, of
the Company. The Company covenants and agrees to use its best efforts, and
Charter covenants and agrees to use its best efforts to cause the Company, to
comply with the laws, statutes, rules, regulations, ordinances, decisions and
orders of the United States, of the states thereof and their counties,
municipalities and other subdivisions and of any other jurisdiction or
governmental authority applicable to the Company.
6.14 Use of Proceeds. The Company will use the proceeds from the sale
----------------
of the Preferred Shares for working capital.
6.15 Reservation of Preferred Shares and Common Stock. The Company
----------------------------------------------------
shall reserve and keep available out of its authorized but unissued Preferred
Shares and Company Common Stock at least the number of shares of Preferred
Shares and Company Common Stock required for issuance upon the exercise of
Purchaser's rights with respect to the Second Tranche Preferred Stock and the
conversion of all of the Preferred Shares (including any additional shares of
Common Stock which may become so issuable by reason of the operation of
anti-dilution provisions of the Preferred Shares). Charter shall reserve and
keep available out of its authorized but unissued Charter Common Stock at least
the number of shares of Charter Common Stock required for issuance upon the
exercise of Purchaser's rights with respect to the conversion of all of the
Preferred Shares (including any additional shares of Common Stock which may
become so issuable by reason of the operation of anti-dilution provisions of the
Preferred Shares).
6.16 Compensation and Audit Committees. The Company will at all times
----------------------------------
maintain a Compensation Committee and an Audit Committee of the Board of
Directors of the Company. At least a majority of the members of each such
committee shall consist of directors who are not members of management of the
Company. The Compensation Committee shall make recommendations to the Board of
Directors regarding all matters of compensation, including matters pertaining to
reserved employee shares and stock options for officers and employees of the
Company.
6.17 Conflicting Agreements. The Company will not enter into any
-----------------------
agreement which by its terms might restrict the performance of the Company's
obligations pursuant to the terms of this Agreement or with respect to the
rights and preferences of the Preferred Shares, or any other agreements attached
as exhibits hereto, including but not limited to, registration rights, the
payment of dividends on, or the redemption, voting or conversion of, the
Preferred Shares.
6.18 Opinion to be Delivered as of the date of this Agreement and as
-----------------------------------------------------------------
of the date of the Second Closing. As of the Closing and the Second Closing,
----------------------------------
Purchaser will receive an opinion from Cushing, Morris, Armbruster & Jones, LLP,
counsel for the Company, dated as of the Closing or the Second Closing, as
applicable, addressed to Purchaser, and substantially in the form of the opinion
letter attached as Exhibit C.
<PAGE>
7. NEGATIVE COVENANTS OF THE COMPANY. So long as Purchaser retains all
---------------------------------
of the Preferred Shares, the Company agrees and covenants with Purchaser that,
without the prior approval of Purchaser, which shall not be unreasonably
withheld:
7.1 Merger; Sale of Assets. The Company will not become a party to any
----------------------
merger or consolidation, or sell, lease or otherwise dispose of any of its
assets, other than sales and leases of assets in the ordinary course of business
and other than the replacement of outmoded or damaged equipment with new
equipment. The Company will not voluntarily dissolve, liquidate or wind up the
Company or carry out any partial liquidation of the Company.
7.2 Business. The Company will engage only in the business of
--------
providing telecommuting and related services and any and all activities
appropriate or necessary in connection therewith.
7.3 Stock Repurchases. Except with respect to the Preferred Shares,
------------------
the Company will not purchase or redeem any shares of its capital stock other
than pursuant to agreements with officers or employees of the Company relating
to the repurchase of stock after termination of employment.
7.4 Dividends. The Company shall not declare or pay any dividend or
---------
make any distribution in cash or property to the shareholders of the Company.
7.5 Amendments. The Company will not amend its Certificate of
----------
Incorporation or Bylaws.
7.6 Other Series of Preferred Shares. The Company will not authorize,
---------------------------------
create or issue any series or shares of preferred stock senior or pari passu to
---- -----
the Preferred Shares.
7.7 Indebtedness. The Company will not create, incur or assume or
------------
otherwise become or, remain liable with respect to indebtedness to be incurred
in any one year or make or commit to make capital expenditures in any one year
in excess of the amounts set forth in the Company's annual budget prepared
pursuant to the provisions of Section 6.8 hereof
7.8 Stock. The Company will not [a] authorize, create or issue any
-----
series or shares of Preferred Shares or any other shares of capital stock (or
options, warrants or other rights to purchase or acquire any capital stock or
any security convertible into or exchangeable or exercisable for any capital
stock) except that the Company may issue reserved employee shares, as
contemplated by Section 6.3 hereof, or [b] take any action which would alter or
adversely affect the rights of the holders of Preferred Shares.
<PAGE>
8. EXPENSES. The Company agrees, in the event the transactions
--------
contemplated hereby are consummated, to pay, and save Purchaser harmless against
liability for the payment of the costs of filing any instruments contemplated
hereby, any stamp and other transfer taxes which may be payable in respect of
the execution and delivery of this Agreement or the issuance of Preferred
Shares, and any fees and expenses (including, without limitation, reasonable
attorneys' fees) incurred by Purchaser if Purchaser prevails in respect of the
enforcement by Purchaser of the rights granted to Purchaser hereunder upon any
breach of the terms hereof.
<PAGE>
9. RIGHT OF FIRST REFUSAL.
-------------------------
(a) Before a Shareholder (the "Transferring Shareholder") may Transfer
any Securities to any person, the Transferring Shareholder shall have received a
bona fide offer from a proposed transferee to acquire the Transferring
- ---- ----
Shareholder's Securities, shall first deliver a written notice to each of the
other Shareholders at least twenty (20) days prior to the proposed Transfer
stating the proposed terms and conditions of such Transfer, including, without
limitation, the name and address of the prospective transferee, the purchase
price and other terms and conditions of payment, the date on or about which such
Transfer is to be made, and the conditions of payment, the date on or about
which such Transfer is to be made, and the number of Subject Securities to be
disposed of by the Transferring Shareholder, and shall comply with the terms of
this Agreement. The notice will also contain an offer by the Transferring
Shareholder to transfer all of the Subject Securities to the Company and the
other Shareholders on the basis of their then current respective holdings of
Common Shares (as if all of the Preferred Shares were fully converted) upon the
same terms and conditions as the proposed Transfer. For a period of twenty (20)
days after receipt of the notice, the Company shall have the right to purchase
any of the Subject Securities. The other Shareholders shall have a period of
twenty (20) days after expiration of the Company's option to give to the
Transferring Shareholder written notice of their election to purchase the
proportionate number of Subject Securities not purchased by the Company in
accordance with this Section 9. If a Shareholder elects not to purchase all of
such Shareholder's proportionate number of the Subject Securities within the
twenty (20) day period, then the other Shareholders may have an additional five
(5) day period to elect to purchase the remaining Securities on the basis of
their then current respective holdings of Common Shares (as if all the Preferred
Shares were fully converted.) If the Company and the Shareholders collectively
elect not to purchase all of the Subject Securities within the additional five
(5) day period, the Transferring Shareholder may proceed to Transfer the
Securities to the proposed transferee on the same terms offered the
Shareholders, subject to the co-sale rights set forth in Section 10, provided
that the proposed transferee consents, in form and substance satisfactory to the
Company's counsel, to be bound by all the applicable terms of Sections 9 and 10
of this Agreement and provided such Transfer can be effected in compliance with
an exemption from the registration rights of applicable securities laws. If
such Transfer is not consummated within sixty (60) days after the expiration of
the period in which the Shareholders could have elected to purchase the Subject
Securities, or if the terms of the Transfer are materially altered, the
Transferring Shareholder must re-offer the Subject Securities to the Company and
the other Shareholders in accordance with this Section 9 before any Transfer may
be consummated.
<PAGE>
(b) Notwithstanding Section 9(a), a Shareholder may Transfer Shares to
an Affiliate (as hereinafter defined) without complying with Section 9(a),
provided that any Affiliate receiving, holding or owning Shares shall receive,
hold and own such Shares subject to the terms of this Agreement and such
Transferee or Transferees shall become a signatory hereto by executing this
Agreement or a conformed counterpart of this Agreement. For purposes of this
Agreement, an "Affiliate" shall mean any person or entity, directly or
indirectly, controlling, controlled by or under common control with such person
or entity and, in the case of a natural person that is a Shareholder, means
members of his or her immediate family or a trust for their benefit.
(c) The term "Transfer" shall mean and include any assignment,
transfer, pledge or other disposition, for cash or cash equivalent
consideration, to any person for any purpose whether direct or indirect,
voluntary or involuntary, and shall include but shall not be limited to a
private or public sale. "Transfer" shall not include exchanges of securities as
a result of a merger, consolidation, or reorganization.
(d) The term "Securities" shall mean any issued and outstanding shares
of Company Common Stock and Preferred Shares.
(e) The term "Subject Securities" shall mean and include any Securities
proposed to be Transferred by a Shareholder pursuant to this Section 9.
(f) The term "Shareholder" shall mean any holder of Company capital
stock, including without limitation, Company Common Stock or Preferred Shares.
The Company shall cause each and every Shareholder to be bound by the terms of
Section 9 and 10 of this Agreement.
10. SALE OF SHARES. In addition to the rights set forth in Section
---------------
9, whenever a Transferring Shareholder intends to sell Company Common Stock to a
person other than another Shareholder or to another Shareholder's Affiliate,
each Shareholder shall have the option to participate in such sale in the manner
hereinafter set forth. To exercise the option, each Shareholder shall give
written notice of election to the Transferring Shareholder within 10 days after
the Shareholder has declined to purchase the Subject Securities in accordance
with the provisions of Section 9. Thereupon, each Shareholder shall have the
right to sell his or its Company Common Stock then owned or resulting from the
conversion of Preferred Shares to the proposed purchaser upon the same terms and
conditions specified in the notice containing the initial offer, pro rata with
the Transferring Shareholder on the basis of his or its then current holding of
Company Common Stock then owned or resulting from the conversion of Preferred
Shares. The number of Subject Securities to be sold by Transferring Shareholder
shall be reduced by the number of Securities all the Shareholders elect to sell.
If the Shareholders exercise such option, they shall bear their pro rata portion
of the expenses incident to such sale. Failure by a Shareholder to exercise the
option within the 10 day period (or the 15 day period if extended five days
pursuant to Section 9) shall be deemed a declination of his or its right to
participate in such sale. However, if the sale to the third party is not
consummated within sixty (60) days after the expiration of the 10 day period (or
the 15 day period, if applicable), or if the terms of sale are materially
altered, then the Shareholders must be given another opportunity to participate
pursuant to the provisions of this Section 10.
11. SUBSCRIPTION RIGHTS.
--------------------
<PAGE>
(a) If at any time and from time to time after the date of the
Agreement, the Company proposes to issue equity securities of any kind (the term
"equity securities" shall include for these purposes any warrants, options or
other rights to acquire equity securities and debt securities convertible into
equity securities) of the Company (other than the issuance of securities (i)
upon conversion of any Preferred Shares issued pursuant to this Agreement), (ii)
to the public in a firm commitment underwriting pursuant to a registration
statement filed under the Securities Act of 1933, as amended, (iii) pursuant to
the acquisition of another corporation or other business entity by the Company
by merger, purchase of substantially all of the assets or other form of
reorganization or (iv) pursuant to an employee stock option plan, stock bonus
plan, stock purchase plan, employment agreement, or other management equity
program), then, as to each Shareholder, the Company shall: (i) give written
notice setting forth in reasonable detail (1) the designation and all of the
terms and provisions of the securities proposed to be issued (the "Proposed
Securities"), (2) the price and other terms of the proposed sale of such
securities, (3) the amount of such securities proposed to be issued and (4) such
other information as Shareholder may reasonably request in order to evaluate the
proposed issuance; and (ii) offer to issue to each such Shareholder a portion of
the Proposed Securities equal to a percentage determined by dividing (x) the
number of Company Common Shares held by such Shareholder and issuable to such
Shareholder, assuming conversion in full of the Preferred Shares, by (y) the
total number of Company Common Stock then outstanding, including for purposes of
this calculation all Company Common Stock issuable upon conversion in full of
any then outstanding convertible Securities.
(b) Each such Shareholder must exercise its purchase rights hereunder
within 10 days after receipt of such notice from the Company. If all of the
Proposed Securities offered to such Shareholder are not fully subscribed by such
Shareholder, the remaining Proposed Securities will be re-offered to the other
Shareholders purchasing their full allotment. To the extent that the Company
offers two or more securities in units, Shareholders must purchase such units as
a whole and will not be given the opportunity to purchase only one of the
Securities making up such unit.
(c) Upon the expiration of the offering periods described in this
Section 11, the Company may sell such Proposed Securities that the Shareholders
have not elected to purchase during the 180 days following such expiration on
terms and conditions not more favorable to the purchasers thereof than those
offered to such holders. Any Proposed Securities offered or sold by the Company
after such 180 day period must be re-offered to the Shareholders pursuant to the
terms of this Section 11.
12. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.
----------------------------------------------------------------
<PAGE>
12.1 Survival. All representations and warranties in Sections 4 and 5
--------
hereof shall survive the date hereof for a period of eighteen months or until
the date of any conversion by Purchaser of the Preferred Shares hereunder,
whichever is earlier (the "Claim Period"). No claim for breach of a
representation or warranty, indemnity or otherwise may be asserted after the
expiration of the Claim Period; provided that the written assertion of any claim
by a party against the other hereunder with respect to the breach or alleged
breach of any representation or warranty (or a series of facts which would
support such breach) shall extend the Claim Period with respect to such claim
through the date such claim is conclusively resolved. No investigation by
either party shall relieve the other party from any liability for any
misrepresentation or breach of warranty made by such other party in this
Agreement.
12.2 Indemnification by the Company and by Charter. The Company and
------------------------------------------------
Charter shall jointly and severally indemnify, defend and hold Purchaser
harmless from and against any and all claims, losses, liabilities, damages
(including without limitation, fines, penalties, and criminal or civil
judgements and settlements), costs (including, without limitation, court costs)
and expenses (including without limitation, attorneys' and accountants' fees)
(collectively, "Loss" or "Losses") suffered or incurred by Purchaser or any
successor or assigns thereto directly or indirectly resulting from:
(a) Any material breach or inaccuracy of any representation or warranty
of the Company or Charter set forth in Section 4;
(b) Any breach of or noncompliance by the Company or Charter with any
covenant or agreement of the Company or Charter contained in this Agreement; or
(c) Any and all actions, suits proceedings, claims, demands,
assessments and judgments incident to any of the foregoing;
12.3 Indemnification by Purchaser. Purchaser shall indemnify, defend
------------------------------
and hold the Company and Charter harmless from and against any and all claims,
losses, liabilities, damages (including without limitation, fines, penalties,
and criminal or civil judgements and settlements), costs (including, without
limitation, court costs) and expenses (including without limitation, attorneys'
and accountants' fees) (collectively, "Loss" or "Losses") suffered or incurred
by the Company or Charter or any successor or assigns thereto directly or
indirectly resulting from:
(a) Any material breach or inaccuracy of any representation or warranty
of the Purchaser set forth in Section 5;
(b) Any breach of or noncompliance by Purchaser with any covenant or
agreement of the Purchaser contained in this Agreement; or
(c) Any and all actions, suits proceedings, claims, demands,
assessments and judgments incident to any of the foregoing.
13. MISCELLANEOUS PROVISIONS.
-------------------------
13.1 Governing Law; Amendment. This Agreement shall be governed by and
------------------------
construed and enforced in accordance with the laws of the State of Georgia,
without regard to principles of conflicts of law. This Agreement cannot be
changed orally, and can be changed only by an instrument in writing signed by
the party against whom enforcement of any waiver, change, modification or
discharge is sought.
<PAGE>
13.2 Complete Agreement; Counterparts. This Agreement constitutes the
---------------------------------
entire agreement between the parties hereto with respect to the subject matter
hereof and supersedes all prior discussions, agreements and understandings of
any and every nature among them. This Agreement may be executed by any one or
more of the parties hereto in any number of counterparts, each of which shall be
deemed to be an original, but all such counterparts shall together constitute
one and the same instrument.
13.3 Assignment. This Agreement is not assignable by the parties
----------
hereto except by operation of law.
13.4 Notices. Any notice or other communication given hereunder shall
-------
be deemed sufficient if in writing and sent by registered or certified mail,
return receipt requested, or delivered by hand against written receipt therefor,
by facsimile transmission or by overnight courier, addressed as follows:
if to the Purchaser:
PATTCO, INC.
Ten Thousand Building
Shelbyville Road
Louisville, Kentucky 40223
Attn: President
with a copy to:
Brown, Todd & Heyburn PLLC
400 West Market Street, 32nd Floor
Louisville, Kentucky 40202
Attn: C. Edward Glasscock
if to the Company or Charter,
2839 Paces Ferry Road
Suite 500
Atlanta, Georgia 30339
Attn: Stephen L. Schilling
with a copy to,
Cushing, Morris, Armbruster & Jones, LLP
229 Peachtree Street, N.E.
Suite 2110 International Tower
Atlanta, Georgia 30303
Attn: Charles M. Cushing, Jr.
<PAGE>
Mailed notices shall be deemed to have been given on the third business day
after being so mailed with proper postage.
13.5 Assignment; Successors. This Agreement shall be binding upon and
-----------------------
inure to the benefit of the parties hereto and to their respective permitted
successors and assigns. The Company may not assign any of its rights and
obligations under this Agreement without obtaining the prior consent of
Purchaser, except that the Company may assign all of its rights and obligations
under this Agreement without the prior consent of Purchaser in connection with
the merger, consolidation or sale of substantially all of its assets and
business to another entity which specifically agrees to be bound by the terms of
this Agreement and which is capable of performing the Company's obligations
under this Agreement; provided that the Company shall not be relieved of its
obligations arising under this Agreement. No Transfer of any Securities shall
be valid unless the terms and conditions of this Agreement have been complied
with prior to any such Transfer and the transferee shall hold such Securities
subject to the terms of this Agreement.
13.6. Severability. The holding of any provision of this Agreement to
------------
be invalid or unenforceable by a court of competent jurisdiction shall not
affect any other provision of this Agreement, which shall remain in full force
and effect.
13.7 Waiver. A waiver by any party of a breach of any provision of
------
this Agreement shall not operate, or be construed, as a waiver of any subsequent
breach by that same party.
13.8 Further Agreements. The parties agree to execute and deliver all
-------------------
such further documents, agreements and instruments and take such other and
further action as may be necessary or appropriate to carry out the purposes and
intent of this Agreement.
13.9 Expenses. Each party shall be responsible for its own legal and
--------
other out-of-pocket expenses incurred in connection with the negotiation,
preparation, execution and delivery of this Agreement.
13.10 Legend on Certificates. All certificates representing the
------------------------
Securities now owned by the Shareholders shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AND MAY BE
TRANSFERRED ONLY IN COMPLIANCE WITH A CERTAIN FINANCING AGREEMENT MADE BY AND
AMONG CERTAIN HOLDERS OF SECURITIES OF THE COMPANY.
All certificates evidencing the Securities issued after the date hereof to
any of the Shareholders for any reason or purpose shall, when issued, contain a
similar legend.
<PAGE>
13.11 Recovery of Expenses by Prevailing Party. The party prevailing
------------------------------------------
in any civil action, arbitration or other proceeding shall be entitled to
recover from the nonprevailing party in addition to any damages the prevailing
party may have been awarded, all reasonable expenses that the prevailing party
may have incurred in connection with such proceeding, including accounting fees,
reasonable attorneys' fees and expert witnesses fees.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
PURCHASER:
PATTCO, INC.
By:
Name:
Title:
COMPANY:
TELECOMMUTE SOLUTIONS GP, INC.
By:
Name:
Title:
<PAGE>
CHARTER COMMUNICATIONS
INTERNATIONAL, INC.
By:
Name:
Title:
<PAGE>
EXHIBIT A
---------
RIGHTS, PRIVILEGES, PREFERENCES AND
RESTRICTIONS OF PREFERRED SHARES
<PAGE>
------
EXHIBIT B
---------
FORM OF KEY MANAGEMENT EMPLOYMENT AGREEMENT
<PAGE>
28
EXHIBIT C
---------
FORM OF OPINION LETTER
<PAGE>
EXHIBIT D
---------
BUSINESS PLAN
<PAGE>
EXHIBIT E
---------
FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Calculation of Net Loss Per Share
For the Years Ended December 31,
1998 1997
------------ -------------
<S> <C> <C>
Weighted Average Shares Outstanding 42,143,733 31,084,693
Net Loss $(9,147,482) $(11,975,858)
------------ -------------
Basic Net Loss Per Share $ (0.22) $ (0.39)
============ =============
Weighted Average Shares for Basic 42,143,733 31,084,693
Adjustments 0 0
------------ -------------
Total Shares for Diluted
Net Loss Per Share 42,143,733 31,084,693
------------ -------------
Net Loss $(9,147,482) $(11,975,858)
Adjustments 0 0
------------ -------------
Net Loss Attributable to
Diluted Net Loss Per Share $(9,147,482) $(11,975,858)
------------ -------------
Diluted Net Loss Per Share $ (0.22) $ (0.39)
============ =============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME JURISDICTION OF INCORPORATION
- -------------------------------------------------------- -----------------------------
<S> <C>
TOPS Corporation Nevada
Overlook Communications International Corporation North Carolina
WorldLink Communications, Inc. Georgia
Phoenix DataNet, Inc. Texas
Phoenix Data Systems, Inc. Texas
Telecommute Solutions, Inc. Texas
International Digital Telecommunications Systems, Inc. Florida
Pointe Communications Corporation Delaware
Pointecom, Inc. Delaware
Galatel, Inc. Georgia
Rent-A-Line Telephone Company, LLC Georgia
Charter Comunicaciones Internacionales Grupo, S.A. Panama
Phoenix Datanet de Panama S.A. Panama
Charter Communications International de Venezuela, S.A. Venezuela
U.S. Charter de Mexico, S.A. Mexico
C-Com Comunicaciones Internacionales de Costa Rica, S.A. Costa Rica
Charter Comunicaciones de El Salvador, S.A. El Salvador
Charter Comunicaciones Internacionales, S.A. de C.V. Honduras
Charter Comunicaciones de Nicaragua, S.A. Nicaragua
</TABLE>
<PAGE>
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the inclusion in
this Form 10-KSB for the year ended December 31, 1998 and to the incorporation
by reference in the previously filed Registration Statements (No.s 333-61061 and
333-61037) of our reports dated April 15, 1999.
/s/ Arthur Andersen LLP
Arthur Andersen LLP
April 15, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 1255199
<SECURITIES> 0
<RECEIVABLES> 4586153
<ALLOWANCES> 900000
<INVENTORY> 652187
<CURRENT-ASSETS> 6257125
<PP&E> 18472697
<DEPRECIATION> 3984392
<TOTAL-ASSETS> 42221879
<CURRENT-LIABILITIES> 18229924
<BONDS> 9624751
<COMMON> 454
0
0
<OTHER-SE> 12384791
<TOTAL-LIABILITY-AND-EQUITY> 4221789
<SALES> 392953
<TOTAL-REVENUES> 27620202
<CGS> 274120
<TOTAL-COSTS> 23246432
<OTHER-EXPENSES> 13385247
<LOSS-PROVISION> 883462
<INTEREST-EXPENSE> 1760315
<INCOME-PRETAX> (9147482)
<INCOME-TAX> 0
<INCOME-CONTINUING> (9147482)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9147482)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
</TABLE>
